Haunted by multiple crises and rising income inequity, the World Economic Forum, an ideological bastion of free market fundamentalism, is now examining ‘whether capitalism, as we know it, is fit for the 21st century’. Seen from the historical perspective, capitalism has assumed various forms with its essence remaining unchanged during the course of its organic development over centuries. However, the WEF agenda for this year promises a ‘great transformation’ by throwing up new ideas to ‘shape new models’. The agenda comes in the background of criticism from worldwide grass roots protestors of ‘Occupy Wall Street’, a tiny minority of whom believes that ‘capitalism has run its course.’
The WEF agenda was perhaps set by its Global Risk Report 2012, which described ‘severe income inequality’ as the biggest global risk. The system has “undermined social coherence and is in danger of losing confidence of future generations,” says Klaus Schwab, host of the annual meeting and WEF founder, adding, “Capitalism in its current form has no place in the world around us.”
The WEF panel report has warned that ‘social contracts are in danger of being destroyed’ in the US, Europe and Japan, obviously concerned over their sinking economies, with no real solution in sight. And going by the latest forecasts, the debt crisis may take five to ten years to be sorted out.
While seeing the developed market economies in severe distress, some find solace in ‘capitalism with Chinese characteristics’ working as a catalyst for high and sustained growth. Simultaneously, oil-rich countries, which opted for state capitalism for managing oil production and marketing or wealth funds are doing pretty well. Some economists see it as ‘a new kind of hybrid corporation, backed by the state but behaving like a multinational.’
In a special report in The Economist, writers point out that “state-directed capitalism is not a new idea, it has undergone a dramatic revival” in oil rich/export surplus developing/emerging markets. But they may eventually turn out ‘a way station on the road to liberal capitalism’. In the current phase, these ‘national champions’ provide the scale of operations required to compete successfully with the multinational giants in Western markets. Despite the present rise of state capitalism, its future is uncertain as demonstrated by the collapse of the Soviet Union, where Russian socialism failed to root out profits from production.
David Brooks of the International Herald Tribune has hit upon a new idea: ‘Free market socialism’ which he defines as, ‘ more economic freedom combined with more social structures; more competition combined with more support.’ The agenda is ‘libertarian in the capitalist sector and activist in the human capital sector.’
The over-arching problems of capitalism are cronyism and Anglo-Saxon financial model. There is a worldwide consensus about the threat of ‘crony capitalism’ to the development of the free market. For example, the US economic and fiscal policies are shaped by powerful lobbies like of that of the military-industrial complex, the Wall Street, the Big oil giants etc, that damage or retard growth of other segments of the American economy. It is the big banks responsible for the financial meltdown 2007-08; that were bailed out while mortgaged houses of teeming millions were sold out when speculative property prices crashed.
In the current phase of high-tech production, development of human capital precedes economic growth but is being neglected or not accorded the right place in most part of the world. And in these hard times when the finances of the many developed/developing countries are a shambles, the big question is: who would finance development of human resources?
It is also suggested that there is a need for ‘guided capitalism’ that can work for the society’s benefit. With the national states dwarfed by the international markets and no social force strong enough to counter special interests that dominate economic policymaking across the world, it may not turn out to be a practical option. While there is so much rhetoric about inclusive growth, there is not much to show in countries in this sphere where free market orthodoxy prevails. And the most criticised countries are those where social structures are relatively strong. To quote the WEF risk report ‘trust in government is suffering a severe breakdown across the world.’ The market and the government crises have combined to make transformation more difficult particularly because of corporate hegemony over the state.
The outcome is growing imbalance between capital accumulation needed for new investment and income distribution to create a prosperous consumer market.. The economic agenda is not grounded on common good and provision of public goods is a low priority.
The purchasing power of the consumer is curbed by denial of fair wages and stable prices. Wages are not determined by labour productivity but by corporate greed. Prices are determined not by cost of production but by a market in the grip of speculative fever. The disparity of incomes between corporate, personal and regional incomes is growing because free market ideologues are convinced that ‘a wide-level of inequality is an acceptable price of progress and a rising tide of growth will lift all boats.’ This is not the way that things are turning out to be, seeing the happenings of the past half decade all over the globe.
In fact, global capitalism has widened income disparities between and within nations, and has eroded the authority of nation-states, making governments dysfunctional. Capitalism can thrive by ushering in inclusive growth, anchored on common good. ‘The desire for justice is intimately linked to the pursuit of development’. This arduous responsibility cannot be shouldered by special interests or the social elite alone.
The common citizen needs to be empowered to fend for himself, to improve his livelihood, step by step, either through employment or self-employment. Capitalism can only be guided by an active citizenry working in defence of its interests; to make its voice heard in the corridors of power, and influence policies to target inclusive development, in which rights and responsibilities, are equitably shared as in a democracy. That is the message of the Arab ‘spring ’ and the ‘Occupy Wall Street’ movement. The new model may be called democratic capitalism.
It means going back to the basics of representative democracy: ‘ the voice of the people is the voice of God.’