By Ernest Kithsiri –
We may have read many definitions of capitalism. “Capitalism” according to my Oxford English Dictionary is “an economic system in which the production and distribution of goods depend on invest on private capital and profit-making”. Capitalism is a social order where profit regulates the financial life and the social structure.
“Capitalism – also called Free Market Economy, or Free Enterprise Economy, economic system, dominant in the Western world since the breakup of so called hypotheticalfeudalism, in which most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets.”
We have heard all above. But the intent of this article is to discuss the non-apparent side of capitalism, reason why it continues to last long, to emphasize that it’s an idea that it uses certain natural characteristics of human being for betterment of the majority (not everyone),that it discourages a very fewcharacteristics of complex human being for the betterment of majority, that it helps science to discover wonders of the world and the universe, that it helps science to go beyond the earth, that it helps 99% majority to become successful in whatever the way, that it helps create individuals to use their libertarian rights, that it de-centralizes power from a one mighty government to individuals to function in a society.
Article also discusses, the forces and practices that derail the capitalism which is supposed to be for the many. It also discusses, the non-apparent dubious players and practices that destroy the liberal sibling of capitalism.
Going beyond, it discusses the leadership required in Sri Lanka for the next phase of its economic development. The strategic policies required for Sri Lanka.
Greed or self-interest – What if this can be used to generate millions of jobs?
Inquisitive nature of human – What if this can be used to discover the world and the universe?
Like to be different – What if this can be used to create a diverse society?
Willingness to accept challenges – What if this can be used to generate enthusiasm?
Stingy – What if this can be used for optimal use of resources?
Innate human tendency to care one another- What if this can be used for a sustainability of businesses?
Laziness – What if this can be mitigated for an active society?
That’s exactly what Capitalism does. – It promotes number of natural characteristics of human being while it suppresses or discourages some other conflicting human natures of same human being. Capitalism is inherent in human nature.
Some of the above human natures may be considered “evil” in certain societies. Mainly those ideologists exist in communist or socialist societies.
Let’s look at more closely about above characteristics or human nature and how they are used in Capitalist societies.
Jeff Bezos, Bill Gates, Warren Buffet are billionaires in accounting books. They all came from the so-called 99% society. All what they gained is wealth in accounting books. If someone closely looks at their personal savings, will realize how that wealth has created millions of jobs. Their wealth is not in the form of “cash”. It is in the form of liquid(mostly) or non-liquid assets. All what they have is the freedomto manage the wealth. Is it a bad thing? Absolutely not. But in the socialist or certain pseudo communist countries, yes, it is a bad thing. Because socialism believes authority should be given only to the government-an entity that has no value of the hard-earned wealth, bunch of people who wants the control of hard earned someone else’s wealth. In many socialist countries governments are more corrupt than most capitalist countries.
Successful Implementation Of Capitalism
As said before Capitalism was never intended to be for the “few”. It was intended to be for the majority; again, a characteristic inherent in human nature. For its successful roll out, a regulator is required. Why?
To ensure the rules are written equal for everyone.
The regulator and the wealthy should operate in parallel with independence without threatening or being cozy with each other.
Where is the problem?
The problem is these two entities become one, or, become cozy with each other, or, become dependent of the other.
How Does That Happen?
For example, in the USA, Comcast and other cable operators spend millions of dollars each year lobbying and contributing to political campaigns (in 2014, Comcast ranked thirteenth of all corporations and organizations reporting lobbying expenditures and 28thfor campaign donations). They also provide jobs to officials who make these sorts of decisions.
Monsanto, the giant biotech corporation, own key genetic traits in more than 90 percent of the soybeans planted by farmers in the USA. It patented its genetically modified seeds along with a herbicide that would kill weeds but not soy grown from its seeds. The soy grown from those seeds don’t produce seeds of their own. So every planting season, farmers have to buy new seeds. Company earned millions. Is it a bad thing? No. But using its economic power to create a Plant Protection Act 1970 and gaining increased protection of its intellectual property in genetically engineered seeds using political coziness is threat to capitalism.
When politicians become cozy with Google, Facebook, Apple, Amazon, Microsoft and help write the rules, that stop new innovations, it’s a threat to Capitalism. In 2013, Apple spent $3,370,000 on lobbying; Amazon, $3,456,000, Facebook, $6,430,000, Microsoft, $10,490,000, Google $15,800,000 according to the Center for Responsive Politics). By 2014 Google had become the largest corporate lobbyist in the USA.
In 2012, the staff of the Federal Trade Commission’s Bureau of Competition submitted to the commissioners an analysis of Google’s dominance of the search market. In my view, there’s nothing wrong with it but it was unusual for commissioners not to accept staff recommendations. In this case they decided not to sue against Google- which is very bad in optics where lot of commentators suggested plausible explanation was Google’s increasing political clout.
I am still researching on last two decades, which party and individual senators were benefitted by big conglomerates. I am almost certain mostly it is left wingers.
Offering stock options to CEOs. This is another very dangerous thing to free market principles; one of the pillars of proper capitalism. It allows CEOs to buy their own company stocks and creates an artificial demand to stocks to raise the prices up then soon after to cash-in their stocks.
That was America. What about State Capitalist China?
Ties between business and politics are ubiquitous in China-especially in high profile companies and major initial public offerings. Alibaba whose total revenue in 2014 sat at Yuan 52.5 ($8.46 billion) is the largest e-commerce firm in China. It is widely understood that, in China, a single company can only find itself in such a powerful position by being in the good graces of the right people in Communist Party of China. The converse of that, of course is that being lined up with the wrong clique can spell deep trouble.
Top 12 Chinese companies in the Fortune 500 list are state owned. Of the 98 Chinese companies in the 2014 Fortune 500 list, only 22 are private and almost all of them are setup with communist party cells and altered articles of association in SOEs’ Hong Kong listed units to explicitly include the role of the party in management decisions. Communist party tracks down dues from lapsed members and established party-controlled unions in foreign multinationals’ Chinese operations.
This model was tested in many other countries including Sri Lanka back in 1970s but failed. Will that be a successful model again?
What Are The Other Some Of The Factors That Capitalism Could Fail And How Realistic Are They?
1). When population growth ceases
Because capitalist businesses adopt “profit maximization” indirectly the system has minimalized resource use as well. This is something many people may disagree. But the facts agree with my assertion. 20THcentury production spanned to two or more countries which compete each other for process and labor optimization have minimalized resource use. It may have created private capital due to stockpiles of value generated resources, but if we freeze population growth for a moment, collected capital will have no value. The resources extracted from earth in early 1900 are barely maintaining their value. By 1960 where American economy was growing, precious metals were much valued than today. Labor for installing an electrical plug was much cheaper than the material cost. Today the trend has completely reversed. Labor is expensive than materials. Reason? Use of recycled products, technological developments and many other.
This has helped the earth’s sustainability.
Precious metal is barely maintaining their value simply due to the increased consumption by the added population. No economy can stop population growth. But due to principle of “profit maximization” which has led to resource minimization (commodity and exploiting labour), in one hand capitalism has helped the sustainability of earth but has no solution provided to the class difference. In an unlikely scenario of frozen population growth, capitalism will go into chaos which ultimately leads to life style changes or focus on new innovations or expanding boundaries to the universe for new habitats.
The moment population growth stops or slows down capitalism goes into trouble. We are seeing this in front of our eyes. From Japan to Germany (until 2011 prior to accepting refugee immigrants) to UK, that is what we experience currently. Countries having vibrant immigration policies have vibrant economies. For example, in Singapore for every 3 native Singaporeans two of them are foreigners, In USA, for every 7-8, one is a foreigner, in Canada for every 5 people, one is a foreigner, in UK the number was very low (7%) until about 2005 and now it seems it has improved to about 13.5%. In Sri Lanka, for every 600 people only 1 is a foreigner(0.16%). The European Union suggests adopting vibrant immigration policies for European countries as a measure of sustainable capitalism.
2). Lack of Innovation
Capitalism doesn’t sustain without innovation. Most of the poor countries that try to embark its upward economic journey has not understood this. For example Sri Lanka has still not even thought about gearing up an innovative culture. Universities are underfunded, no programs to create citizen scientists.
If you define capitalism as a market economy (in which case Mainland China would be capitalist) then it’s hard to come up with another economy in which you have disruptive innovation.
The alternative is Soviet style central planning. The trouble with that is that you are running an entire economy as if it was one giant corporation. In that case, innovator must get someone’s permission to do something different, and there is no reason for them to give it to you. In a bureaucratic system, all you need is one person to say NO and you can’t do it. In a market economy, you just need someone to give you money, and if you continue to talk to people, you’ll find someone to give you startup capital. So, all you need is one person to say YES.
Capitalist businesses promote innovation to a point. That point is the capacity to generate more profit or beat the competition.
Capitalist businesses stifle innovation beyond that. Where innovation leads to a reduction of profit or the capacity to beat the competition, innovation dies.
But here is the amazing fact. Because capitalist countries give hope to the lower class to get into the upper or middle classes, that hopeful society is the key for innovation. They do unbelievable innovative things. That’s what we saw in every entrepreneur such as Bill Gates, Larry Page, Jeff Bezos, Mark Zuckerberg. Their success was “be the first” not necessarily be the best. Eighty five percent (85%) of the globe lived in extreme poverty just 200 years ago. Today, that number is sixteen percent (16%). Life expectancy has more than doubled, individual freedom has bloomed across the globe, and extraordinary innovation spurred by capitalism has changed daily life immeasurably. No other economic system yet devised has the power to create such positive change.
It is this 99% wishful energetic society that keeps the innovations going. Hence in a true capitalist society innovation never dies.
Where innovation stops, capitalism dies.
People who argue, it is capitalism that has created inequality lacks true understanding of its ideals. They ignore how capitalism leads to better liberalism.
People who take America as a “true” capitalist country are making serious mistakes if they do not understand how the regulator and the capitalist have become one. They will also be wrong if properly not considered how and when that started to happen. They will not make right decisions if they also don’t look into the people who have come forward in America to revert above trend.
Capitalism has a sibling in political philosophy called liberalism. Liberalism is the philosophy defending a minimalist state, as little governmental interference as possible and freedom of the individual. When certain basic rights such as the rights to private property and physical safety for individuals are protected, the government and its laws should not interfere, liberalism says. When this philosophy is projected into the sphere of economics, capitalism naturally evolves as an idea: free enterprise and freedom of the individual become the ideals for business and production.
It is the political system that destroys the basic ideals of capitalism.
Who has the power to save it? People, the voters.
If democracy is the best way for governance, if people rely on others to represent them at the legislature as regulators, people must understand, their individual contributions to political campaigns, persons and parties is equally important so that campaigners do not have to rely on big corporate donors. That’s exactly what many legislators such as Bernie Sanders or political think tankers such as Joseph Stiglitz, Laura D’Andrea Tyson, Robert B Reich’s struggle. If the two entities (government and corporations) function independently and decide how much power they should share is the biggest question, we have.
Capitalism is an idea for better lives of majority not the few.
Vision 2025 And South India’s Misunderstanding Of Capitalism
Above in-depth knowledge of Capitalism, its enormous success as the longest lasting economic idea and weaknesses are the key for vision 2025 Sri Lanka.
Not only Sri Lanka, India has vastly misunderstood capitalist principles. This misunderstanding emanates from Nehru era. Nikita Khrushchev the First Secretary of the communist party of the Soviet Union had asked Jawaharlal Nehru which kind of economic path would India intend to follow after independence, whether it would be communist path or capitalist path. Nehru had responded “ I have no idea of any of the concepts”. Yet Nikita Khrushchev had informed the communist party, since India is a country with large population, Soviet Union must maintain close relationship with India and strive to drive them in the path of communism.
There are two things we can take from above story.
- Large population of a country is extremely important to offshore investors.
- India still lacks how they should use their population to attract investments
In north America and Europe, not only do they not entertain trade agreements which entertain offshore produced goods, they literally discourage them. Instead they entertain investors establish in the region, use local labour, register in local markets and let benefits percolate to the common masses when companies flourish. Investors are entitled to their profit after tax. Every trade agreement has such strategic clauses. That is how any country should entertain Foreign Direct Investments. Outright ban of investors is not a capitalist strategy. Allow them to establish, use local labor, have percentage of local content rules and many other strategic clauses so that benefits percolate to the society.
Contrary to above what India did for years resulted following situations
- Indian policy makers have not understood true capitalist principles.
- India’s lethargic push for a better regional integration with neighboring countries for a win-win situation affects all its neighbors.
- India still lacks strategic policies such as “regional standards” that are simply different or better than rest of the world to encourage investors establish in the region.
- Indian political establishment is continually hijacked by giant corporations to provide undue protectionism. The situation is far worse than America.
- Indians are under the wrong impression of acquiring world market with their products that are not at all made equal or better than rest of the world market products.
- Gandhi political dynasty in India totally misunderstood the policies of 1977 government of Sri Lanka that opened the market and competed with Singapore and Malaysia for foreign direct investments. Being in the USSR bloc, Gandhi dynasty orchestrated all ill wills to destabilize Sri Lanka’s 1977 government. Policies by Gandhi dynasty made two countries bitter rivals until Prime minister Manmohan Singh commenced a recovery strategy. Modhi government seemed to have understood above and appear to strive to continue the recovery strategy.
Sri Lanka’s Future Leaders And Economic Path 2020 And Beyond
Any future Sri Lankan president must be a one who fully understands the fundamentals of true capitalism, importance of regional integration, who understand how to use its close to 3 billion population, he should be a one who uses the asset of intellectual capability of people to do innovative things to collaborate with rest of the world.
He should definitely be a centric figure to treat all people in Sri Lanka equally since political stability is one of the paramount factors for economic growth.
More than anything else, he or she should be an excellent communicator who can convene the regional leaders, who has all soft skills to build personal relationships with Indian and other leaders, who enjoys multiple hobbies to play a large role from a small country. He must be a person who uses our diversified ethnic community’s historic ties to build relationships.
Until above happens Sri Lanka will be manipulated by foreign investors purely to turn its foreign earnings to their countries with no benefits to the Sri Lankans. That is the course China is currently following with Sri Lanka. Traditional Indian businesses, such as Taj Samudra, Airtel, Ambuja established in Sri Lanka, employed locals, registered in Sri Lankas stock markets and followed very traditional capitalist principles. In contrast, Chinese investments so far has not followed win-win situation for Sri Lanka.
*Ernest Kithsiri is a consulting engineer in Ontario Canada. He specializes in infrastructure developments and engineering policy matters. He moderates the policy discussions required for Sri Lanka. He is the creator of www.theindependents.org that discusses required policy changes in number of sectors in Sri Lanka.