Capitalism Welfarism Creditism

Capitalism Welfarism Creditism

Capitalism has always been in the natural order of things. Today it may find itself betrayed and debilitated by an excess, almost a paroxysm of noblesse oblige, a misguided attempt to right the wrongs of centuries by institutionalising entitlement. And this is further aggravated by combining with the urges stemming from its innate greed.

This is essentially an unnatural coupling, because all Caesars have ruled in the “name” of the people, subscribing to a lofty concept of common weal for propagandist purposes, while doing very little other than consolidating their own position. And this has not changed with the switching of the label.

Capitalism, in its natural habitat, translates into a few rich men and lots of poor ones. This has the requisite tooth and claw to keep it vital and indeed viable. There have been Kings and Commoners, land-owning Lords, and tenanted, nearly powerless, often landless Serfs.

Later on came the Industrial Barons and their humble, faceless, workers. These are two sides of the same coin in marked contrast to each other, coexisting and jostling for survival, each in its place, and for a very long time now.  The current Information Age has its own heroes and villains, but the major spoils of technological advancement and innovation belong, as always, to the few as opposed to the many.

Wars have been fought over land and territory with its attendant perquisites of rapine loot and pillage. And, of course, subjugation; and sometimes,  the enslavement of the vanquished. Fairness did not enter into it. Might was mostly right and it was believed the many were put on earth to serve the needs and desires of the few.

The pitch however started to queer over pamphleteering notions of natural justice and religion led clarion calls towards a sense of obligation induced in the more fortunate towards their brethren. This softening of stance was considered to be a mark of civilisation that went a long way to soothe the domineering urges of the savage breast, and something to aspire for.

A longing for a new order took over, in which a majority, as opposed to a privileged minority, should be provided the wherewithal to experience a modicum of surplus and disposable income. And also for this hoi polloi to enjoy a basic dignity of livelihood and creature comfort, without discrimination or hindrance or the circumscribing of their aspirations, attained by merit, rather than the so called “accident of birth”.

This sense of natural justice without the exacting and culling natural laws of the jungle, did not however manifest in common transaction for ages, except in terms of occasional philanthropy and whimsical charity, quite often designed to glorify the giver rather than assuage the hurts of the receiver.  A case in point are the grand temples, churches, mosques and synagogues built by the mighty. It is perhaps this that prompted Marx to call religion the “opium of the masses” and attempt to overthrow its hold on the pious. Nevertheless, this long era of denial of opportunity lasted right through the agrarian economy and land-holding based centuries around the world.

The first possibility of a more equitable chance at the brass ring came about with the Industrial Revolution in the West, with its need for millions of production line workers. Notice that the Imperial Age which preceded it did nothing to elevate its own lesser folk, except incidentally, even while it made the imperial and colonial powers very rich at the expense of its subjects and vassals.

But the French articulation of “Liberté, égalité, fraternité” gained momentum after the First World War, when the upper, land-owning classes found themselves decimated. Also, soon after, greater profits beckoned from industry with its mass production values, rather than the traditional non-mechanised growing of wheat and rice, or the rearing of livestock.

Suddenly then, despite the creeping change over the ages, manifested in events such as the Abolition of Slavery, the French Revolution and the American Civil War, a radical change in circumstance came in 1918, after the “Great War to end all wars” as the poignant slogan of the time had it.

And after it passed, it was the turn of the butcher, the baker, and the candle-stick maker in a manner of speaking. And they were joined by the restive independence movements amongst subject colonies around the globe. These worthies were able to make the cut by dint of sheer survival, and numerical strength.

But these uplifted peoples, created thus by war’s bloody circumstance or the struggles for independence, began the institutionalising of entitlement, being both judge and jury in the firmament. It is these inheritors that sanctioned and upheld both Marxism and Socialism depending on where they lived. And where they lived determined whether they were new nations emerging from the clutches of imperialism or former colonial powers cut down to size by the rising winds of democracy and revolution, grown in the crucible of natural justice.

Theorists, from pure Marxists to adherents of the milder Fabian Socialist movement, broadly subscribe to the empowerment of the many, based, not alas, on merit, but a sense of restitution to being poor and deprived.

Inevitably this “commendable” began to warp the engines of devil-take-the- hindmost capitalism. This survival-of-the-fittest caveat emptor world view became likened, in a mocking Hitlerist way, to being essentially fascist and obtusely unfashionable. This, particularly in one-man-one-vote style democracies.

Even as the no-questions-asked feel-goodism of economically unviable welfarism took hold amongst the many, a section of conservatives, keen on balancing budgets and preserving a meritocracy and rule of the privileged never took to it.  But, slowly and surely, political compulsions mutated the old style Capitalism into a centrist, diluted by socialist ideas form, somewhat embarrassed to promote its free market roots.

A great deal of the red ink in the now digital ledgers of the economies around the world is there because of unsustainable welfare schemes. These are not only proving very costly to fund but have turned their recipients lazy and righteous. In Europe and America the spending on such schemes cannot any more be withdrawn or reduced without dire political consequences. And a key country in the EU such as France has recently voted to kick out austerity by electing a Socialist Government for the first time in 16 years.

Countries like Greece, with several others waiting in the wings, on the brink of blatant default on its Sovereign Debt, are almost ready to cut loose from the EU  at the prospect of losing its gravy train of grants and bail-outs.  

 And India too, a mere one trillion dollar economy, is feeling the strain of subsidies it cannot bear and welfare schemes that threaten to turn it into a banana republic. The “Social sector”, if one can call the creation of vote banks by a form of bribery, seems to have run away with itself like the dish eloping with the spoon. We too are facing a disconnect between our ability to earn in terms of our GDP and our spending on uplifting the poor.

Today’s world is such that it isn’t availability of capital, technology or human ingenuity that has put the strain on Capitalism.  It is not even the corruption and scams and bank collapses. It is predominantly the promotion of the “free lunch” mentality whether it has come from easy credit and the recklessness it encourages, or Government subsidy and welfarism.

The crux of the crisis engulfing the world economy, both in the developed world and the emerging nations is the extent of deficit financing ever since the world moved from the Gold Standard to other ways of underpinning the value of its currencies. This is a norm of financial management both at the macro and micro levels now with an enormous and inbuilt potential to spin out of control.

Today, the engines of growth have slowed to such an extent that the debt servicing is proving very difficult. This particularly when inflation and high commodity prices are playing havoc with currency values and earning potentials simultaneously. But since this is our bed we have to sleep in it. There is a way out however. We can lengthen the repayment curve on easy terms and rise thereby above the turbulence of the short term.

At one time, just a few decades ago, it was the “Third World” that needed the long term soft credit offered by august institutions like the IMF, the World Bank, the ADB and other such lending institutions, set up by the West.

But today the Sovereign Debt built up in more optimistic times by most of the EU raft of 17 countries leaves the lending countries, mainly Germany and France more than a little queasy. And Germany and France and their economically lesser brethren in turn are tied to a none too healthy America, with its $ 1 trillion budget deficit and many more trillions of national debt.

In turn, the star economic performer of today’s world, China too is going to be severely impacted if the American economy does not recover sufficiently within a year or two. It is an interconnected world now, in which the leading economies and the emerging ones are all victims of a borrow and spend profligacy that is proving too much to bear.   And so a perpetual repayment crisis seems to loom with its threatened domino effect.

The only remedy seems to be in terms of rescheduling debt on concessional terms and long tenure so that the countries in question can limp into their muted recoveries given protracted periods of time.  The once and still “First World” needs a little “Third World” style help to survive. Fortunately they have a road map of such pilgrim’s progress. They can evaluate the good impact of institutional development funding of large tracts of Africa and Asia and even Europe and South America in the post WWII era.

Of course, it will feel a bit funny to sit in the visitor’s chair. But since the West has a considerable edge both in military and technological terms that could change the game dramatically, besides great pools of expertise it need not worry very much. There are supplicants and supplicants and asking for a loan from a bank you own or fund substantially is none too onerous.

The other notion, promoted by Socialists and guilty Capitalists alike is the ham-fisted idea of punitively taxing the rich and cutting the spend, not on the deleterious subsidies and welfare schemes, but on an undefined other. What might this be? Is it infrastructure perhaps so that we can face future shock after shock? Or is it the size of a bloated Government forever aggrandising its own hew and heft? Or is it just so much empty rhetoric and hot air?

But getting away from this futile blame game let us look at the positives. The fact is that what some people call “creditism”, the leveraging of one’s financial future to access benefits today, may not be the old balance your ledger style of doing things, but it is here to stay. Western Governments have largely rejected austerity with its bone crushing spectres of The Great Depression in favour of a more productive use of resources to create new wealth and jobs.

At the individual level, it is entrepreneurship, technological genius and innovation, perhaps exemplified by the spectacular if maverick doings of Steve Jobs, Bill Gates,  and Warren Buffet that show the way. And the impact of Facebook, Google and Twitter, You Tube, the people behind them, and that of smart phones, on all our lives.

The ability to grow through vision and reinvention shown by our own Ratan Tata, Mukesh Ambani, and NRI heavyweight Laxmi Mittal, the last of whom specialises in buying and developing distressed steel mills etc. long before it came  to be considered smart, who best personify the possibilities. Great fortunes are waiting to be made in an atmosphere of adversity. It is not time, not at all, to write the obituary for Capitalism.  Booms and busts are no more than adjustments in a system best allied to human nature itself.

(2,015 words)

8^th June 2012

Gautam Mukherjee


Published in The Sunday Pioneer as the Cover Story on Sunday 10th June 2012 as "Capitalism endangered" and online at www.dailypioneer.com