Karl Marx has made a return in Germany. After years of dismal sales, his book Das Kapital has registered record sales in the past 3 to 5 months. Socialist leaders like Castro, Hugo Chavez etc. are laughing at the US and ridiculing the critics of socialism. The financial markets world over are in a deep crisis. BSE has tumbled to sub-10,000 level first time in 28 months. The only reason India didn’t collapse like the US or other capitalist economies did, was because of our regulatory controls. And the Left parties are hailing this as their victory. In brief, capitalism is under fire and it’s high time that we save the world’s greatest social system.
The US is a $13 trillion economy. India, itself, is $1 trillion. Millions of people have been lifted out of poverty since India began its reforms in 1991. We are now capable of dreaming big! All this couldn’t have been possible without capitalism and private sector. And it is not correct to disown the system when it needs us the most. True, that right now, markets are crashing and investor wealth is getting eroded but the fault is not in the system but the people who run it.
When the sub-prime crisis began looming last year, the US government didn’t pay much heed. They were of the view that by extending unsecuritized loans to poor and lower income groups, they will provide cheap housing to all- in other words- a socialist policy. This is seeing the repercussions now. The home mortgage writers- Freddie and Fannie- were allowed a free run. No wonder, they were the first ones to go bust! Same was the case with other countries’ institutions. India, however, escaped because of tighter loan norms put in place by the RBI last year, in anticipation to this crisis. In short, a socialist mindset of US government has majorly led to this fiasco because a cold, capitalist policy wouldn’t have allowed such loans.
Another major point which arises in favor of capitalism is the poor condition of socialist countries themselves. India’s public sector, barring a few exceptions is a testimony to this fact. That means the culprits are the people running the system. US gave its markets and financial institutions a free run and didn’t place controls. So, they collapsed. India placed certain controls and private firms here are still relatively bullish. When socialism fails, it fails in each country but when capitalism fails, it fails only where the regulation is very lax. And this very much answers the question as to why Indian markets are still in free fall. The major reason is short selling on part of some foreign institutional investors or FIIs. Short selling is a process where an intermediately party, B sells an asset of a party, say A to another party, C without actually owning it. It books profits when it has acquired the asset [but not its ownership] from A at lower cost and has sold to C at a higher price. USA and UK have banned it for now but India still hasn’t. And that’s why our markets are in free fall. A SEBI released data report says the FIIs have short-selled about Rs 500 crore from October 10-14. Can we blame capitalism for this? I certainly think not.
Capitalism is paying the price for collective acts of greedy investors, lax regulators and some plain illogical financial institutions. If the master of melody, Ludwig Van Beethoven, plays in front of a village audience, they will get bored and create chaos. Will you blame the master or other factors? In another interesting analogy, consider the case of our very own Sachin Tendulkar. People who can’t differentiate between long-on and mid-on or leg spin and off spin comment on the genius, that he has forgotten how to play and he should retire. In the same vein, people who have followed socialism and communism throughout their lives and have realized their little usefulness are castigating capitalism. It is not a perfect system and has its flaws, but we need regulators who don’t magnify them but curtail them. Only then we’ll never see another recession cycle again.
I will end here with a belief that capitalism will be up and running again within 1 year’s time and a hope that it will come out stronger and healthier. But for now, lets support capitalism and have faith in its fundamentals instead of harping on the merits of socialism.
[Image Source: http://www.beyondtv.org/nato/crap/capitalismrocks.jpg]