Why is Capitalism losing out?


For the past more than five decades, the philosophy of Capitalism has become well entrenched around the world. The Western world developed the concept of Capitalism, where the free allocation of capital and labour to the most demanding production jobs in the right proportion generated products required by the market, while also generating more than adequate returns to the investors (in most cases). The wealth created from the productive use of Capital led to more investments, and so on and so forth. The opposing ideology of Communism which is state-assisted labour deployment only had partial success in the predominantly Communist countries (though Israel followed the state-farming approach which yielded positive results).

In every ideology, there is cause for mistakes to happen – in the case of Capitalism, the owner of the capital becomes greedy and squeezes the labour for higher returns on employed capital – so the term “greedy capitalists”. In later years, this term was used for people who tried to grab whole companies by throwing money – if you recall “Barbarians at the Gate”, who then tried to fire the employees, make the company lean and mean, and then re-list the company on the stock exchange for fat profits, or sell off the company. These are developments of the capitalist theme and nothing wrong (except on moral grounds) from a business perspective as the purpose of a capitalist is to make money at the end of the day, and that concept is not going to change.

In the meanwhile, several large countries such as India, experimented with Socialism in a democratic context (unlike Communism which always had dictatorial undertones). While the world appreciated the new ideology of India such as removal of poverty, the results from the experimentation were not pleasant, as the social investments made by the government did not reach the intended recipients in most situations, and corruption became a bugbear with insidious politicians siphoning off money meant for productive deployment. A corrupt bureaucracy was the downfall of socialist initiatives pioneered by the government. Over the past 50 years or so, socialism gained only one moniker – which is non-interference in the affairs of other nations in the Non-Aligned Movement – and no concrete economic results or benefits which could upend the surge of Capitalism around the world. Hence, socialism was largely considered as a failure, though most political parties will never acknowledge the fact.

But now, we see an upsurge of socialist movements starting with the most capitalistic countries of all – the U.S. The youngsters who I categorize as late teenagers and early twenty somethings, have become tired of the greedy excesses of the Capitalist era, which concentrates wealth in the hands of few people. A case in point is that the top 82 wealthiest people in the world have more wealth compared to 3.7B people of this world, which is just ridiculous. This scenario of excessive wealth within the top 0.01% (or even less %) of the people reduces the possibility of wealth creation for the remaining people, and the resulting gross and obscene income and wealth inequality has caused the youngsters of the world to question the status quo system which favours the rich folks. There is nothing wrong in questioning the status quo and asking governments and political parties to explain the rationale for continued patronage that they extend to the wealthiest people.

There is only one reason why a government (prime example would be the U.K. Government) would want to support the wealthiest folks from anywhere in the world – one is that they bring most of their wealth. The other primary reason is that the wealth could be deployed to create industries which would then require employment – so you would then achieve more than two critical objectives for any government – you create lots and lots of jobs via productive capital investments, the money would be in your country’s banking system, and the resulting employment and business operations would generate additional tax revenues for the government.

Looks absolutely logical, isn’t it? The flaw in the above logic is that most people who move their money do not deploy the same to generate employment and taxes. These greedy folks are looking for ease of a sanctuary location (with no questions asked) and ease of moving the capital in and out, and of course, ease of living. Several countries are greedy enough to provide all of the above facilitators and more.

More and more insight reveals that the government directly does not gain any new net revenues. This is one major reason that social agendas do not receive budgets necessary to sustain the operation. Healthcare is ignored, while defence gets huge investments to support the defence industries. Education is ignored. All put together, people do not see justice and equality in the way things have panned out over the years, and it is no secret.

Socialism is therefore coming back, not with the same mantle but in a different avatar. The key expectation now is reduction of income and wealth inequality (not exactly “redistribution of wealth”), more opportunities for job creation, fairer treatment in the hands of the government, freer and fairer elections which would allow people to better elect their representatives, elimination of corruption and lobbyism, et al. These are all noble objectives, and we all tend to appreciate the new logic which is inherent in this new socialistic approach.

While Capitalism is not going to go away, it should be fearing that the attacks on it would not subside anytime soon. It would lose substantial power in the coming years as more socialists get elected around the globe. It would be rather interesting to witness this transformation in the coming decade, when socialism would be pitted against capitalism and conservatives, as we have seen in the U.S. Elections within the Democratic Party nomination fights.

Have a good weekend,

Cheers,

Vijay Srinivasan

12th February 2017

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