Open Forum

New Delhi, 12 February 2010

Of Profit & Greed

WHY SHUN CAPITALISM?

By Dharmendra Nath (Retd IAS)

Capitalism as an economic system is odious to many. In the public mind it somehow has got identified with colonialism. Recent financial debacles in the West have further eroded public confidence in it. The matter needs to be put in perspective.

Some of the opprobrium arises out of its nomenclature which gives undue importance to capital. More appropriately, it should be called market mechanism, thus giving equal importance to all factors of production, as communism/socialism should more appropriately be called State/command mechanism for that system relies chiefly on government dictats.

Market ethics essentially means that it is unjust for a man to consume more than he produces. That it is possible to succeed by one’s efforts. That money is important for happiness. That people pursue material success but they also observe norms and can be trusted and failing that the law can be enforced. These principles seem unexceptionable. They affirm the dignity of work and of man.

Market system fully recognises the need for special consideration for the weak, the handicapped and the needy.  In fact, it has given to the world some of the biggest charities. Gates Foundation leads with assets of $60 billion, followed by Stichting Ingka Foundation (IKEA) $38 billion, Wellcome Trust (UK) $22 billion, Ford Foundation $14 billion, Robert Wood Johnson Foundation $10 billion. Socialist world has nothing to match this. India’s own tradition of private enterprise coupled with private philanthropy is long and illustrious.

Whereas communist/socialist economies create monopolies or near-monopolies (by the mechanism of licensing) and then use government dictats to curb profits (by fixing prices and then revising them periodically, which necessarily involves a time lag in response), the market logic relies on competition in the market place to achieve this purpose – Adam Smith’s ‘invisible hand’, a mechanism which is largely self-actuating and self-regulatory. 

As for the charge of exploitation of workers, the wheel has come full circle. Current problem is not of exploitation but of excessive attrition. All of us honour labour. We in India honour Vishwakarma. The US celebrates Labour Day and has an extensive social security network. Today’s problem is how to retain a worthwhile workforce? Modern legal safeguards and the emphasis on human rights have so totally changed the situation that no one can take employees for granted.

Far from fulfilling Marx’s prediction of social domination either by the bourgeoisie or the proletariat, free market societies of the world have enlarged and enmeshed the two. They have created a combined class to which you and I belong. This class and its institutions own the joint-stock companies of the world. The conflict, if at all, is not so much between capital and labour as between the producer and the consumer or the buyer and the seller.

For many of us the chief attraction of market mechanism lies in the incentive and environment it provides to work and to save and to live a life of dignity and self-esteem. In sum, the freedom is to live by your light. It honours the individual’s contribution. It therefore has the capacity to lead in ideas and innovations which form the bedrock of our progress.

 Rise of east European prosperity after the fall of the Berlin Wall in1989 is a testimony to free market achievement. In our own case, our growth rate stagnated at about 3% while we chased socialism for nearly forty years after independence. It has now risen to 7% and more with progressive unshackling and liberalization of the economy. China’s liberalization has produced even more dramatic results.  Russians too conceded that they have to change their ‘system of economy’.

A persistent and not so irrational vision of human happiness is embodied in the Omar Khayyam’s lines ‘A book of verse, a flask of wine…and thou beside me singing in the wilderness’. How do we get this man to work? How does he earn his keep? How do we overcome the very natural human aversion to work? Communism/socialism has no answer.

 The theory of ‘from each according to his power, to each according to his want’ is all very well but it suffers from a fatal flaw. While awarding to each according to his want it fails to extract from each according to his/her power, which is but natural considering the way humans are made. What if workers demand wages without work? Sloth was always a deadly sin.

Communism has the potential to make us all equally poor by progressively dividing less and less. If it actually does not do so or it takes time doing so it is because some manage to escape the circle of cherished equality. They beat the system but provide it with a breather which prolongs its life.

Work is a reality whereas needs and desires are dreams and there is no end to them. Supply side world of work and demand side world of dreams can hardly be matched as they exist on two different planes. Socialism’s economic idealism forces it into a vain effort to yoke together a reality and a dream.

The parameters of extracting work and of rewarding for it have got to be the same if we are going to balance the society’s books. Distribution has got to be production-linked. Failing this we are deliberately creating a gap. With the wisdom of hindsight we can see that the communist world fell precisely into this gap. 

Let us be reminded though that, like all games, the market game too is to be played by the rules because the dividing line between private profit and dishonest greed can blur. Freedom can degenerate into license. Hence the need for what President Obama calls ‘a watchful eye’. If overseeing regulatory mechanism fails and unabashed greed takes over, that is a real canker for the market economy’s soul. Greed is capitalism’s ersatz for the communist sloth.

What we are seeing today in the US and the world led by it is a failure on this score. It is a failure of men manifesting the unraveling of their fraudulent long-winded financial engineering which by default or design was accompanied by official oversight and neglect. Traffic lights did not work or were ignored. No one dared to spoil a party taking place at the expense of the common man.

The West has no monopoly over market mechanism. The collapse it is facing is of its own making. We are living through a tragedy not of failed markets, but of vicious freewheeling cowboy capitalism. One regrets not so much sub-prime assets as sub-prime professionalism and substandard morality. It has nothing to do with the spirit of free enterprise which ever shines like a beacon and urges us on ‘to strive, to seek, to find and not to yield’. Nothing else provides that incentive. ---INFA

(Copyright, India News and Feature Alliance)