A New Template For Market Reforms

The current economic recession  which started in Dec’2007, triggered by the collapse of the US housing market and the ensuing global credit crisis, is the biggest and deepest meltdown since the great depression of the 1930s

With two successive catastrophes in the course of merely the last 80 years, serious questions have been raised about Capitalism itself .The enormous amount of .9 trillion provided to bail out banks and corporations is cause for great concern. The IMF estimates that this amount is less than one third of the requirement for quick recovery and further forecasts that the western world  GDP which has never shrunk since the 1930s great depression will hopefully inch up to 1.9% in 2010.Growth of less than 2% indicates global depression.

The Free Market Capitalism is in dock. The US unemployment rate has shot up to 17.5%.The Dollar is getting devalued. Capitalism has grown out of Adam Smith’s premise that economic agents make rational choices prompted by self-interest and that Free Market is an automatic mechanism to    move output and employment by assuming a general tendency of the economy towards an equilibrium of demand and supply but his advice about the need of financial regulations by governments to protect the citizens from what he called the “prodigals and projectors” who take excessive risks in their pursuit of profit, was probably lost sight of.. Its merits, however, as a creator of wealth was easily established by the magical   recovery of the ruined economy of Europe after world war II, by the greatest stimulus package of its time amounting to .4 billions, roughly 1 billions in terms of today’s dollar, provided by the US Marshall Plan.

In contrast, the post world war II Command economy and Central planning imposed by the Communist party resulted in the complete breakdown of the Soviet Russian economy by the end of 1980 despite Grabochev’s experiments with Prestorika and Glassnot. Ultimately, attempts were made by 1989 to transform the Communist economy into Market economy in eastern and central Europe and also in Soviet Russia in 1992 after its virtual breakup into a group of independent Republics on its eastern side. This shows beyond doubt that a purely centrally planned communist command economy is a nonviable concept.The Chineese Deng-era embrace of the market economy is likewise a proof of the superiority of the market economy.

However, the capitalist system’s runaway nature has never been a secret. In today’s globalised world its recurring quirks don’t stay localized as in earlier closed national economies. The answer, however, has less to do with “market” than with “human nature” which lures market operators to greed, fear, over speculation and irrational exuberance in wasteful investment and expenditure. We have to save Capitalism from casino capitalists.       

Fiscal stimuli may well mop up the present mess but it can’t prevent another future

It goes without saying that Capitalism does  suffer  from inherent instability as evidenced by successive gluts and booms. It is also accused of dehumanizing and degrading the working class by mechanizing to the extent of robotizing production and thus causing large scale unemployment. Further it helps concentration of wealth in the upper bracket. In US, for example, the lowest 20% of all households receive only 8.6% of the total national income and the topmost 20% appropriate 49% to  themselves . Global poverty on the whole is on the rise. Some 150 million more people slipped into poverty worldwide during 2007 and already a further 50 million thereafter, adding to the 1.4 billion estimated in 2005 to be living below the international poverty line of  .25 a day. The unbridled fillip to consumerism, an evil in itself, which is essential to prop up the capitalistic structure, has put the middle class as well in an economic cul-de-sac leaving them high and dry in the labyrinth of their highly materialized and automated lives.

The most decisive blow to capitalism is not by ideology but by ecology. The almost magical wealth creation property of Capitalism so far unwittingly ascribed to its reliance on market forces is actually to a very large extent   the result of the suicidal adoption of the cancerous high carbon economy. Climate change, untold damage to environment caused by industrial toxic emissions, CO2 concentration in the air having already exceeded 385  ppm,  perilously close to the life threatening 400-450 ppm level and  the utter disregard for the near exhaustion of the finite resources of our planet, are its greatest failings.

During the last two decades we were hotly debating   about the pace and scale of market reforms. This squabbling is passé now. The old style  “ free  market”  recognized

only  one bottom line—money profit. Today economists insist upon a triple

bottom   line—money profit along with generation of social and environmental good.

John Maynard Keynes in his “General theory of employment, interest and money”

(1935-36) rejected  the capitalistic theory that supply creates its own demand and that as such” a general glut is impossible” and believed that it was not so during economic downturns leading to high unemployment and loss of potential output. His theory maintains that deliberate government action can foster full employment by directly influencing the demand for goods and services by altering tax policies and public expenditure.

Keynes advocated a middle way between laissez-faire Capitalism and Socialism and his theory served with success as the economic model after the world war II Great Depression(1945-47).Franklin Roosevelt was influenced by his ideas and Keynesianism in part was gradually adopted in all socialist democracies in Europe and in USA after world war II. Out of the total 189 countries of the world a mere 13 of them were found to have an average annual GDP growth rate of 7% or a little above steadily for 25 years by the “Growth commission Report” led by Nobel Laureate Michel Spence. However, even though they are known as market driven economies, they owe their stable success primarily due to their committed, credible and capable governments which practically conforming to Keynesianismplay a vital facilitating role when the markets by themselves fail to overcome crises  during a downturn and essential investments go lacking.

Happily, the current recession has caused a resurgence of Keynesian economics and is supported by US President  Obama  and UK PM Gordon Brown and other global leaders.

Economics apparently is a social science, not an exact science. Different regions of world require varying configurations of economic paradigms compatible with their population, stage of overall development and last but not the least their culture. One magical “ Open Sesame” will not open all doors. It is therefore that a perturbed and distressed world today is in the lookout for more alternatives.

Mahatma Gandhi was no economic theorist but his socio-economic ideas are claiming worldwide interest and attention. Greatly influenced by the American writer Henry David Thoreau, Gandhi believed in an unbreakable interrelationship between politics, economics and ethics. Devoted as he was to the struggle for political freedom he was equally, if not more, concerned about human dignity, truth, nonviolence and eradication of poverty. The subhuman level of existence in terms of food, health ,employment, education and minimum basic rights of the teeming 75%  0f India’s population in its vilages (now over a billion) explains his austere life, his half-naked attire and his life- long daily routine at his spinning wheel and promotion of   hand-spun and hand-woven cloth, popularly known as“Khadi”,as a symbol of economic emancipation of the poor. It was for the same reason that he stood for labour intensive technology and was in principle against overall mass scale industrialization which led to unemployment and exploitation.

Gandhism  has affinity to socialism but does not reject private capitalism if it is amenable to its notion of “ Trusteeship”. In essence Gandhi gave supreme consideration to man rather than to money and advocated that means of economic development must be non-violent, ethical and should be limited to reasonable human needs without increasing consumer appetite which he likened to “animal appetite without end.”

Max Weber (1864-1920) the noted German sociologist, in his renowned book “The Protestant ethics and the spirit of Capitalism” also stressed on morality and honesty in market operations. Benjamin Franklin (1706-90), one of US’s founding fathers, was echoed by the Gandhian thinking that the pursuit of wealth stripped of its social and ethical meaning was to be abhorred. According to him the life of the capitalist entrepreneur should be distinguished by “a certain ascetic tendency” which almost paraphrases the “trusteeship ” concept of Gandhi.

The three gigantic problems, the recurring failure of free market economic system,  rising poverty and  climate change are such that we can not escape one without addressing the others. The cog in the intricately intermeshed wheels  of our material life is without doubt  the future metamorphosed  market we jointly decide upon, since in the present globalised world divergent and conflicting policies will not give the desired success.Out of the six million world population,only one billion  i.e.20% blong to Europe and North America which are affluent and fully developed. The balance five billions i.e.80% inhabit the impoverished and grossly underdeveloped countries of Asia, Africa and Latin America.. While the present problems are of the highest magnitude for the former regions , they will have a much more devastating effect on the latter, steeped as they are in the mire of poverty, hunger, unemployment and absolute lack of even elementry needs of life. Obviously, the much needed change will have to take into account the deep chasm between them and allow necessary changes here and there while at the same time keep the basic architecture as analogous as possible. Even at 20% ovrall unemployment a total  of around  a billion people remain unemployed in this region even in normal times despite the “ Right To Employment” being a universal fundamental constitutional  right. Keynes and Gandhi do hold some promise on this front as against an absolute no no by the existing market driven economies..

This brings us to the last but not the least and probably the noblest and  the most plausible alternative proposed by the French President Nicolas Sarkozy. His path-breaking and bold declaration quoted below is an eye-opener:

                                                                            “For years people said that finance was a formidable  creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged  into a chaos .The crisis doesn’t only make us free to imagine other models, another future, another world. It obliges us to do so.”

Speaking on the first anniversary of the collapse of Lehman Brothers,  Sarkozy further  explained that “France will adapt its statistical tool box as recommended by two Nobel economists commissioned by his government to analyse new ways of measuring social progress.” His innovative and humanitarian idea to include’ happiness and well being’ in his country’s measurements of economic progress is in essence akin to the thinking of Max Weber, Benjamin Franklin and Gandhi. Beckoning other countries to join, he said “A great revolution is waiting for us.” It would certainly be a revolution in the way economic growth is tracked  and a miracle if the major countries agree to adopt, even in part, this enlightened and almost spiritual yardstick.

To put it in a nutshell the indispensable world wide web of markets, in socialist/capitalist democracies, can certainly achieve an Economic Nirvan  if it takes to the ideas of Keynes, Gandhi and Sarkozy in different configurations as compatible to each country’s stage of development and to the degree to which its basic human needs remain unfulfilled in terms of health, education and employment or in Sarkozy’s one single word. the degree to  which the “Happiness” of its citizens remains unfulfilled.

                                                                                       ..Submitted by Atul Jain

The current economic recession  which started in Dec’2007, triggered by the collapse of the US housing market and the ensuing global credit crisis, is the biggest and deepest meltdown since the great depression of the 1930s

With two successive catastrophes in the course of merely the last 80 years, serious questions have been raised about Capitalism itself .The enormous amount of .9 trillion provided to bail out banks and corporations is cause for great concern. The IMF estimates that this amount is less than one third of the requirement for quick recovery and further forecasts that the western world  GDP which has never shrunk since the 1930s great depression will hopefully inch up to 1.9% in 2010.Growth of less than 2% indicates global depression.

The Free Market Capitalism is in dock. The US unemployment rate has shot up to 17.5%.The Dollar is getting devalued. Capitalism has grown out of Adam Smith’s premise that economic agents make rational choices prompted by self-interest and that Free Market is an automatic mechanism to    move output and employment by assuming a general tendency of the economy towards an equilibrium of demand and supply but his advice about the need of financial regulations by governments to protect the citizens from what he called the “prodigals and projectors” who take excessive risks in their pursuit of profit, was probably lost sight of.. Its merits, however, as a creator of wealth was easily established by the magical   recovery of the ruined economy of Europe after world war II, by the greatest stimulus package of its time amounting to .4 billions, roughly 1 billions in terms of today’s dollar, provided by the US Marshall Plan.

In contrast, the post world war II Command economy and Central planning imposed by the Communist party resulted in the complete breakdown of the Soviet Russian economy by the end of 1980 despite Grabochev’s experiments with Prestorika and Glassnot. Ultimately, attempts were made by 1989 to transform the Communist economy into Market economy in eastern and central Europe and also in Soviet Russia in 1992 after its virtual breakup into a group of independent Republics on its eastern side. This shows beyond doubt that a purely centrally planned communist command economy is a nonviable concept.The Chineese Deng-era embrace of the market economy is likewise a proof of the superiority of the market economy.

However, the capitalist system’s runaway nature has never been a secret. In today’s globalised world its recurring quirks don’t stay localized as in earlier closed national economies. The answer, however, has less to do with “market” than with “human nature” which lures market operators to greed, fear, over speculation and irrational exuberance in wasteful investment and expenditure. We have to save Capitalism from casino capitalists.       

Fiscal stimuli may well mop up the present mess but it can’t prevent another future

It goes without saying that Capitalism does  suffer  from inherent instability as evidenced by successive gluts and booms. It is also accused of dehumanizing and degrading the working class by mechanizing to the extent of robotizing production and thus causing large scale unemployment. Further it helps concentration of wealth in the upper bracket. In US, for example, the lowest 20% of all households receive only 8.6% of the total national income and the topmost 20% appropriate 49% to  themselves . Global poverty on the whole is on the rise. Some 150 million more people slipped into poverty worldwide during 2007 and already a further 50 million thereafter, adding to the 1.4 billion estimated in 2005 to be living below the international poverty line of  .25 a day. The unbridled fillip to consumerism, an evil in itself, which is essential to prop up the capitalistic structure, has put the middle class as well in an economic cul-de-sac leaving them high and dry in the labyrinth of their highly materialized and automated lives.

The most decisive blow to capitalism is not by ideology but by ecology. The almost magical wealth creation property of Capitalism so far unwittingly ascribed to its reliance on market forces is actually to a very large extent   the result of the suicidal adoption of the cancerous high carbon economy. Climate change, untold damage to environment caused by industrial toxic emissions, CO2 concentration in the air having already exceeded 385  ppm,  perilously close to the life threatening 400-450 ppm level and  the utter disregard for the near exhaustion of the finite resources of our planet, are its greatest failings.

During the last two decades we were hotly debating   about the pace and scale of market reforms. This squabbling is passé now. The old style  “ free  market”  recognized

only  one bottom line—money profit. Today economists insist upon a triple

bottom   line—money profit along with generation of social and environmental good.

John Maynard Keynes in his “General theory of employment, interest and money”

(1935-36) rejected  the capitalistic theory that supply creates its own demand and that as such” a general glut is impossible” and believed that it was not so during economic downturns leading to high unemployment and loss of potential output. His theory maintains that deliberate government action can foster full employment by directly influencing the demand for goods and services by altering tax policies and public expenditure.

Keynes advocated a middle way between laissez-faire Capitalism and Socialism and his theory served with success as the economic model after the world war II Great Depression(1945-47).Franklin Roosevelt was influenced by his ideas and Keynesianism in part was gradually adopted in all socialist democracies in Europe and in USA after world war II. Out of the total 189 countries of the world a mere 13 of them were found to have an average annual GDP growth rate of 7% or a little above steadily for 25 years by the “Growth commission Report” led by Nobel Laureate Michel Spence. However, even though they are known as market driven economies, they owe their stable success primarily due to their committed, credible and capable governments which practically conforming to Keynesianismplay a vital facilitating role when the markets by themselves fail to overcome crises  during a downturn and essential investments go lacking.

Happily, the current recession has caused a resurgence of Keynesian economics and is supported by US President  Obama  and UK PM Gordon Brown and other global leaders.

Economics apparently is a social science, not an exact science. Different regions of world require varying configurations of economic paradigms compatible with their population, stage of overall development and last but not the least their culture. One magical “ Open Sesame” will not open all doors. It is therefore that a perturbed and distressed world today is in the lookout for more alternatives.

Mahatma Gandhi was no economic theorist but his socio-economic ideas are claiming worldwide interest and attention. Greatly influenced by the American writer Henry David Thoreau, Gandhi believed in an unbreakable interrelationship between politics, economics and ethics. Devoted as he was to the struggle for political freedom he was equally, if not more, concerned about human dignity, truth, nonviolence and eradication of poverty. The subhuman level of existence in terms of food, health ,employment, education and minimum basic rights of the teeming 75%  0f India’s population in its vilages (now over a billion) explains his austere life, his half-naked attire and his life- long daily routine at his spinning wheel and promotion of   hand-spun and hand-woven cloth, popularly known as“Khadi”,as a symbol of economic emancipation of the poor. It was for the same reason that he stood for labour intensive technology and was in principle against overall mass scale industrialization which led to unemployment and exploitation.

Gandhism  has affinity to socialism but does not reject private capitalism if it is amenable to its notion of “ Trusteeship”. In essence Gandhi gave supreme consideration to man rather than to money and advocated that means of economic development must be non-violent, ethical and should be limited to reasonable human needs without increasing consumer appetite which he likened to “animal appetite without end.”

Max Weber (1864-1920) the noted German sociologist, in his renowned book “The Protestant ethics and the spirit of Capitalism” also stressed on morality and honesty in market operations. Benjamin Franklin (1706-90), one of US’s founding fathers, was echoed by the Gandhian thinking that the pursuit of wealth stripped of its social and ethical meaning was to be abhorred. According to him the life of the capitalist entrepreneur should be distinguished by “a certain ascetic tendency” which almost paraphrases the “trusteeship ” concept of Gandhi.

The three gigantic problems, the recurring failure of free market economic system,  rising poverty and  climate change are such that we can not escape one without addressing the others. The cog in the intricately intermeshed wheels  of our material life is without doubt  the future metamorphosed  market we jointly decide upon, since in the present globalised world divergent and conflicting policies will not give the desired success.Out of the six million world population,only one billion  i.e.20% blong to Europe and North America which are affluent and fully developed. The balance five billions i.e.80% inhabit the impoverished and grossly underdeveloped countries of Asia, Africa and Latin America.. While the present problems are of the highest magnitude for the former regions , they will have a much more devastating effect on the latter, steeped as they are in the mire of poverty, hunger, unemployment and absolute lack of even elementry needs of life. Obviously, the much needed change will have to take into account the deep chasm between them and allow necessary changes here and there while at the same time keep the basic architecture as analogous as possible. Even at 20% ovrall unemployment a total  of around  a billion people remain unemployed in this region even in normal times despite the “ Right To Employment” being a universal fundamental constitutional  right. Keynes and Gandhi do hold some promise on this front as against an absolute no no by the existing market driven economies..

This brings us to the last but not the least and probably the noblest and  the most plausible alternative proposed by the French President Nicolas Sarkozy. His path-breaking and bold declaration quoted below is an eye-opener:

                                                                            “For years people said that finance was a formidable  creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged  into a chaos .The crisis doesn’t only make us free to imagine other models, another future, another world. It obliges us to do so.”

Speaking on the first anniversary of the collapse of Lehman Brothers,  Sarkozy further  explained that “France will adapt its statistical tool box as recommended by two Nobel economists commissioned by his government to analyse new ways of measuring social progress.” His innovative and humanitarian idea to include’ happiness and well being’ in his country’s measurements of economic progress is in essence akin to the thinking of Max Weber, Benjamin Franklin and Gandhi. Beckoning other countries to join, he said “A great revolution is waiting for us.” It would certainly be a revolution in the way economic growth is tracked  and a miracle if the major countries agree to adopt, even in part, this enlightened and almost spiritual yardstick.

To put it in a nutshell the indispensable world wide web of markets, in socialist/capitalist democracies, can certainly achieve an Economic Nirvan  if it takes to the ideas of Keynes, Gandhi and Sarkozy in different configurations as compatible to each country’s stage of development and to the degree to which its basic human needs remain unfulfilled in terms of health, education and employment or in Sarkozy’s one single word. the degree to  which the “Happiness” of its citizens remains unfulfilled.

                                                                                       ..Submitted by Atul Jain

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