Economic governance
Successes of capitalism
Capitalism has given enough space to individuals and organisations to be innovative literally without restrictions and without government interference. It encouraged investments with a view to creating opportunities, competition and profit. Comparing the economy and prosperity of our societies in recent decades with the first half of 20th century Capitalism has indeed ushered in economic growth everywhere.
In the 20th century for example, global GDP increased steadily from $1,350 bn in 1960 to $26,232 bn by 1998 accompanied by per capita income increase from $445 in 1960 to $4,406 per capita in 1998. Then there was a sudden surge in the global economy with global GDP reaching to $87,607 bn by 2019 and global income jumped to $11,417 per capita. It was the result of the spread of capitalism everywhere. So far so good.
A good system gone bad
Our modern economy brought prosperity to many; many were relieved out of poverty yet it also created extreme income insecurity and a wide wealth gap never seen in history. The idea of Capitalism - competition without restrictions boomed industries, created growth across all sectors and expanded job markets. But individuals who are in control of the Capital began to be driven by self-interest rather than the national and societal interest. The welfare of community and society is replaced by individual success - CEOs and shareholders who control the Capital. Capitalism gradually monetised our institutions, norms, value systems, concepts and beliefs as part of economic governance. Everything is now a commodity and can be traded with no oversight, hence zero accountability.
The idea that Capitalism will benefit everyone through a trickle-down economy simply did not happen as those in-charge decide how the wealth should be ‘distributed’ including wages of the people who are responsible for production of goods and services that benefits the CEOs and shareholders. Millions of people working at the bottom rung are barely able to survive with the wage they are afforded while the top management scoops billions in profit.
Wealth is power. Capitalists managed to take control of the governance without being elected, hence are able to not only influence but dictate the regulations. Ordinary civil servants, even pensioners, small and medium, size businesses pay substantial share of their income in taxes, sometimes as much as 40+% while the rich who are in control of the Capital manage to pay a single-digit tax through a good ‘accounting’ system giving birth to widening income inequality.
Role of regulators
Governments everywhere are responsible for two central issues: maintaining rule of law and providing basic public services to its citizens. Most governments have failed on both occasions. The legislative institutions have been appropriated to the private sector for most businesses with a view to strengthening the national economy. National economy is now dictated by the rich for the rich with the help of officials elected by the people. We have arrived at a stage where it is almost impossible to reverse this system. It has distorted the governments’ role in providing economic and social justice to the majority. But our politicians never stop talking about the need to help the poor and human rights.
The second major issue is public service. Governments are responsible for public security (police & military), social services such as education, health care, drinking water, energy, local transport, welfare housing and services to protect the vulnerable. As the governments are handing over these public services to private sector and semi-autonomous corporations to gain efficiency and competitiveness, making a profit became a priority rather than providing the services. The basic principle of Capitalist economy is that everything can be traded and exploit every possible loophole even in public services.
In many countries basic education is free and so are the health services in selected public institutions but the quality of education and quality of care is questionable. It exists simply to showcase that the government is still providing these services. The cost of education and health care in the private sector is beyond reach for the majority in many countries.
All in all, capitalism has dismantled social services, and continues to weaken the governance. This model of economy has spread across the globe and have trapped everyone. People are stuck in a game they don’t want to play.
Exceptions?
China and Vietnam have applied these principles in their own unique way while also maintaining a very centralised authoritarian system of governance. Both countries have managed to uplift millions of people from poverty to the middle class. According to Stastista, a global authority on international statistics, China has 700+ million middle class population in 2020 with substantial disposable income. One may ask what about Cuba? If Cuba had not been under these inhumane sanctions Cuba perhaps would have done equally well, if not better. It may lead one to think that no system is bad, even Capitalism. The outcome appears to depend on the way it is implemented. The lesson from China and Vietnam is that Capitalism should not be allowed to infiltrate the governance and dictate the regulators.
What about the next generation?
Capitalism is not based on rational thinking when it comes to social and economic justice. It is based on supply, demand and profit, which benefits just the top echelon - CEOs and shareholders and the regulators by extension through rent-seeking. If Capitalism as it is today is not redefined the issue of extreme inequality will be carried over to the next generation. A major factor here is human behaviour; we rarely acknowledge our mistakes. We would rather go unnecessary miles to prove that our decisions were not wrong and somehow justify our decisions; it is like one lie to cover another lie. This has to change for the sake of the next generation who will be born this decade. People have overthrown autocratic rulers and deposed corrupt politicians. Is a similar action possible Capitalism? Are we too late in the game?
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I think we need to define what we mean with 'communist countries', when these countries follow market economies
ReplyDeleteIndeed, no system is performing the way it should including Capitalism. If we are to go by original ideology of communism centralised governance and centralised state-run economy form the backbone of the system. But as the Capitalism is taking over global finance, trade and banking through any means, and also closing in on all forms of governance including social democracies, the last remining communist countries have no choice but to adapt their economies with pragmatism. As the Chinese leader Deng Xiaoping famously highlighted ancient Chinese saying in 1997 ‘it does not matter if a cat is black or white as long as it can catch a mouse’. It is a way of logicality when you are surrounded by adversaries.
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