Definition
Managed capitalism is the post-war form of capitalism — dominant from roughly 1945 to the mid-1970s — in which states actively manage aggregate demand to maintain near-full employment, regulate finance to prevent crises, support extensive welfare provision, and recognise trade unions as legitimate bargaining partners. Internationally, the Bretton Woods system fixed exchange rates and permitted capital controls, allowing each country to pursue its own demand-management policy without disruptive capital flight.
It is the capitalism of the "Trente Glorieuses" — the 30-year boom in Western Europe, North America, and Japan after WWII — and it produced the highest sustained growth rates, lowest unemployment, and most compressed income distribution that the capitalist world has yet seen.
Why it matters
How it works
Managed capitalism rests on a triangle of compromises: capital accepts higher taxes and a recognised role for unions in exchange for stable demand and a docile workforce; labour accepts the wage system in exchange for full employment and welfare provision; the state mediates between them and provides public goods. The macroeconomic glue is Keynesian demand management — government spending and tax policy actively used to keep unemployment low.
This worked extraordinarily well for two to three decades but proved hard to sustain when inflation rose in the 1970s. Workers used full employment to demand higher wages; firms passed costs through; expectations of rising prices became self-fulfilling. Volcker's high interest rates broke the inflation by breaking the labour-market tightness — and with it, much of the managed-capitalism settlement.