Capitalism: regulate, rework, transform

Economies should combine the efficiency of capitalism with socialistic ideals of equity and justice.

January 21, 2011 11:09 pm | Updated January 25, 2011 08:07 pm IST

Economies should combine the efficiency of capitalism with socialistic ideals of equity and justice.

Economies should combine the efficiency of capitalism with socialistic ideals of equity and justice.

The liberalisation of the country's economy resulted in tremendous progress, sustained growth and increased wealth. Yet, the incredible indices of development mask inequity and the human cost of progress. For millions of Indians, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods are under threat.

Capitalism's ability to improve economies is not in doubt. It has always argued that what is good for large corporations is good for national economies. Gross domestic product figures inflated by phenomenal successes of the rich are often very impressive. However, they conceal the poverty and suffering at the bottom of the economic pyramid. Nevertheless, there is a perception among capitalists that the system is fair and allows for growth of all sections. The fact that those who do not have capital (finance, land ownership, education, health, etc.) have little chance of economic progress is never acknowledged.

Greed and excesses

Inequity in the capitalistic system is a given. Hence, controlling the excesses of capitalism, while allowing for economic progress, is a serious consideration before mature democracies and governments. However, others argue that such controls are only possible in theory and do not work in practice. Capitalism, driven as much by individual greed and aspiration as by individual capital, will always strive to break free of controls. The rich, who control capital, contend that minimal controls are required for free markets to flourish. They support minimal taxation policies, reject increased levies to meet public expenditure and oppose enhanced duties for social justice initiatives. Nevertheless, these viewpoints actually cover libertarian beliefs that governments have no right to tax people because taxation is nothing but stealing personal property obtained by merit, history and inheritance.

Capitalists also control governments, even hold them hostage. The funding of elections by private capital mandates moderation in the election rhetoric of politicians, during their tenure in government. Consequently, most governments take up right-of-centre positions, which do not allow for taxation policies required for social justice in our grossly iniquitous world.

Nevertheless, the recent collapse of many international banks, the massive bailouts required by many reputed pillars of finance for survival and the global economic recession exposed the limitations of the capitalist system. They documented the excesses of unregulated capitalism and laid bare the greed and intellectual dishonesty undergirding the system. Surely, a more honest conceptualisation of the conflicts of interest and biases among the rich and powerful players who have benefited from the system is needed; the focus on the wealth created should also highlight the resultant gross inequity.

Models of control

China's economic success has shattered many a capitalistic myth. It has emphasised the phenomenal success of direct governmental controls on the market. It has also underscored America's amnesia about its own industrial policies used to protect national interests. The U.S. government controls on steel and railroads in the 19th century and on the agriculture and defence industries in the 20th century supported sections of the American market and economy from external competition, thus cementing their success.

The collapse of the Irish economy, lauded as the perfect example of free market success, also refutes many free market myths. Its abysmally low rates of corporate tax attracted international corporations to relocate their headquarters to Ireland. The country gained a few thousand clerical jobs in exchange for its charity towards the rich. Ireland also subscribed to other free market folklore and allowed for unregulated speculation and trade in its financial sector. Its recent financial collapse and bailout have left all its citizens paying for the greed and errors of its rich bankers.

Free market arguments are always used by rich and developed nations to prise open poor economies to their advantage. The conditionalities imposed by their banks (read the International Monetary Fund and the World Bank) in exchange for credit have crippled many a developing economy by removing trade barriers and reducing subsidies, which are required to protect local and fledgling markets against international competition. The obvious double standards on protectionism by rich nations are never mentioned.

Regulated capitalism

Economic structures should combine the efficiency of capitalism with socialistic ideals of equity and justice. The key question now is: “Who should regulate capitalism?” The answer is: national governments. Governments in poor countries as representatives of the population, the majority of which subsists on $1 a day, owe it to their people to provide social justice. Although some regulation exists and programmes for social justice have been rolled out in India (the National Rural Health Mission, the Sarva Shiksha Abhiyan, the Mahatma Gandhi National Rural Employment Guarantee Scheme, etc.), they are employed to mitigate the effects of structural violence and as a vote-winning strategy rather than as a commitment to uplift the poor. The national health budget was reduced to 0.9 per cent of the GDP in the 1990s. Although the United Progressive Alliance was voted to power on its promise of raising it back to 2-3 per cent, this has yet to materialise. The ruling class (read politicians, administrators and their corporate partners) seems to employ social justice projects to soften democratic opposition to its capitalistic ideas of development. These schemes seem to be measures to prevent open revolt by the poor, rather than solutions to produce an egalitarian society. However, gross underfunding of such schemes ensures the success of capitalistic ventures, thus increasing privatisation and running down the public sector.

Massive corruption, exposed in the 2G spectrum and Commonwealth Games scams, is also maintained by a convenient nexus among politicians, corporations, civil servants, the judiciary, the police and the rich in civil society, who disagree with the strategy for social change or are impatient to increase their personal wealth. The administration refuses to clean up the system, as it would expose the extent of the rot within. Opposition to the Right to Information Act also stems from a similar nexus.

The lack of significant differences among various political groupings over financial and economic policies reflects the insensitivity of the ruling class to the needs of the majority. It mandates that the people, with their electoral power, should regularly ensure changes in governments, which over-promise and under-deliver. Although the lack of credible alternatives limits impact, it remains the only check on the ruling class and governments.

Individual or collective aspiration

The vision for civilised societies, enshrined in many national constitutions, has to be the fulfilling of the collective aspiration of the vast majority. While free trade policies are good on the average for rich and developed nations, individuals with limited capital within these cultures also suffer when they lose their jobs to Bangalore or to Shanghai. Specific protections are good for emerging markets, as they benefit the vast majority in the region and allow time to improve efficiency and competitiveness.

The focus on the collective aspiration of the majority of India's population, of moving out of poverty, is a just cause. National policies and programmes should cater for the needs of the majority rather than adding millions to the coffers of the wealthy. The magnitude of subsidies for the corporate sector and the scale of corruption in business dealings also suggest that the amount of monies actually available for social justice programmes exceed all expectations and require only political and administrative will for implementation.

China has reworked capitalism on its own terms. It has showed the way in using direct government control to protect its economy, create wealth and improve its indices of health and human development. It leads India on these indices, arguing that investing in social justice projects for the majority will provide the demographic dividend needed for economic prosperity.

There is need to transform capitalism, redesign and root it in the Indian context. Capitalistic beliefs often result in a lack of understanding, and disregard for the lot of the average citizen. The wealthy have hijacked public spaces, shared resources, economic rights and political processes and have skewed the national debate. Democratic systems demand solutions, which are sensitive to the aspirations of the majority. Economic growth will have to translate into basic needs for all. History will judge whether our very own IMFwallahs are instruments of the rich or use their intellect, positions and power to bring equity for the majority, the poor. The government will need to fulfil the Directive Principles enshrined in the Constitution, and its commitment to the human rights of the majority of the population. The interdependent nature of our modern world argues for a fair deal for all. Universal development will result in a stabler and more secure world.

(Professor K.S. Jacob is on the faculty of the Christian Medical College, Vellore.)

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