Thursday, December 11, 2008

In Defence of Capitalism

Many of you might think I have gone bonkers for defending Capitalism at a time when financial cataclysm is creating mayhem across the world. After all, America symbolised Capitalism and it does appear as if Uncle Sam is being destroyed by Capitalism. You could say that it is de facto 'nationalisation' – the ultimate symbol of socialism – that is saving America from financial destruction and ruin. There is no doubt that without the Federal Reserve and the Treasury Department – both arms of the US government – the American economy would have collapsed by now. The titans of Capitalism – General Motors, Ford, AIG, Citi... – have gone to the American government with a begging bowl, pleading to be saved from the very beasts of Capitalism that they used to flaunt so proudly till recently. For all practical purposes, America has turned decisively socialist. Similar things are happening in Europe, Japan and other so called citadels of Capitalism. With all this as the factual backdrop, how can I claim that Capitalism is still the best option for economic growth, poverty reduction and overall prosperity? How can I make such a seemingly foolhardy statement when even drum beaters of Capitalism like Alan Greenspan are suffering from a spasmodic bout of Mea Culpa?

The answer is simple. In the rush to denounce 'Capitalism' and its wild excesses that have created this crisis, there is fundamental confusion over all important terms like Capitalism, Market, State and Regulation. What we have seen in America over the last two decades or so is not Capitalism in the classical sense; you could call it Crony Capitalism or 'Financialism'. American capitalism was triumphant when General Motors, General Electric, General Mills, to name just a few, were the standard bearers. America manufactured the best products, provided the best services and hence ruled the world economy. But then, it turned into 'financialism' where Wall Street rocket scientists kept creating bubbles and hoodwinking the world.

They were joined in the farce by credit rating agencies. And they deliberately fostered a lie that ''markets'' are always perfect and that the State and Regulation are relics of an old era. The problem was that vast swathes of the world bought this hideous lie. Regulation in America had become a joke over the last two decades, with the State and regulators brazenly siding with the fat cats. If regulation is absent or biased, then Capitalism loses its core essence. Imagine a game of cricket between India and Australia where Andrew Symonds is the Umpire. Something similar happened in America. And we are all paying the price. But please, do not denounce Capitalism and the market as the twin evils. They are far from perfect; but they still deliver the best results and will continue to deliver the best results as long as the players in the game of Capitalism are supervised by an unbiased referee who blows the whistle when there is a foul. What happened in America was a football match without a referee. Capitalism, like Cricket and Football, is a beautiful and sublime game. Do you blame football if the referee turns out to be blind and prejudiced? Will you blame Capitalism?


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