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Wednesday, November 11, 2009

Flawed capitalism

I found this article criticizing contemporary capitalism on the website of Forbes magazine: it attracted my attention both because the writer is a Bengali businesswoman doing well in Silicon Valley and because I am broadly in sympathy with her views. However…

I believe that no matter what her credentials in engineering and business may be, Ms. Mitra never really took the trouble to understand economics well, though her gut-feelings, born of personal experience, are on the right track. As for her early (I guess teenage-) fascination with Ayn Rand, the less said the better: if Rand was a philosopher at all, she was no more than the rabble-rouser kind. In putting overwhelming stress on the individual and the worth and need of individualism, she lost her head completely, and never bothered to find out about how the world actually works. In real-world capitalism, individualism goes only thus far, and that is not very far at all. Without a great deal of cooperation, coercion, persuasion of large numbers and subterfuge (which is just a polite and fancy word for cheating) modern capitalism would never work at all… even the most talented, intrepid and energetic entrepreneur, inspired by the loftiest of visions, would find it impossible to get vast numbers of people to work their behinds off for him (for basically trifling rewards) and to buy blindly whatever he wants to sell to them to make his dreams come true; a Howard Roark would make very little headway in this world without the wile, ruthlessness and manipulative powers that are the hallmarks of political dictators who make it big. Napoleon, a historical figure, was infinitely better endowed than Roark (a fictional character), and he knew better than all others how little he could have achieved without brainwashing, inspiring, compelling and just plain hoodwinking millions of less clever, less cautious, less farsighted and less greedy people! Individualism works with the lone artist or scientist, or sage or writer or even teacher, maybe; it is nothing but silly (and rather dangerous) romantic nonsense in the marketplace as much as it is in government. As Galbraith never tired of pointing out, top-level corporate managers are just as much ‘organisation men’ as the most dyed-in-the-wool Soviet central planners of a bygone era, though much more subtle and flexible, maybe: they have little patience with, or space for, mavericks among their ranks. The occasional genius of a maverick comes along and rocks the boat and quickly becomes the stuff of legends, that’s all… the exception that proves the rule. For every Henry Ford or Edison or Bill Gates, you have a hundred thousand wheeler-dealers who hardly deserve to be glorified with the label ‘entrepreneur’.

Ms. Mitra hasn’t even got all her facts right, as so many commentators have already pointed out rather scathingly: to take just one of many instances, ‘union-enforced inflexibility’ was certainly not the main reason behind GM’s long decline and recent collapse. Personal success does not obviate the need for serious research when one is pontificating publicly – unless, of course, you are a beauty queen, whose pronouncements are not to be taken seriously.

And while it is absolutely true that capitalism rewards the lucky and amoral speculator much more than the creative man (unless the creative man himself turns speculator), my grouch against it is that it also rewards the salesman, the publicist, the showman, the opportunist, the hustler, the con-man and even the goon (if he is clever enough to stay clear of the law) much more than the genuinely creative folks, especially those among them who have the double disadvantage of being both honest and lacking in the aggressive money-making spirit. Thus so many artists have died hungry, while mere traders have made vast fortunes by cleverly marketing their creations… and no one will ever convince me that the most successful stockbroker or building contractor is a more ‘talented’ person than a good musician, mathematician, nurse, storyteller or teacher, or contributes more to real social welfare or cultural progress. Even more seriously, capitalism rewards people with criminal inequality; why on earth should a ‘great’ entrepreneur ‘need’ billions as a reward for his entrepreneuring when so many others who do difficult and dangerous jobs, from scientists to commandos, apparently function very well without ‘needing’ such obscene compensations (besides, we know perfectly well how CEOs of companies going bankrupt still manage to wangle huge pay-packets for themselves – what ‘talents’ justify their earnings?) Worst of all, unbridled capitalism sends out a wrong and pernicious signal to society, especially the foolish young – that money making is more glamorous, and therefore more desirable as a career than anything else, no matter how the money is made, so why should one ‘waste’ one’s time pursuing careers where the chances of making big money are not so great? And so, as we can see all around us, everyone wants to climb onto the B-school bandwagon (unless they are going into showbiz): where will this society find its future teachers, librarians, judges, writers, policemen, politicians, zoo-keepers, firemen, plumbers and carpenters (leave alone thinkers!), except among the residual riff-raff, those who couldn’t even manage to get an MBA from a third-rate B-school? And what sort of society will it be when just about everybody is either a salesman or a showman or a con-man?

So, as a lot of people are beginning to re-realize (I hope the wisdom lingers), capitalism has its plus-points, but it always (and not just now and then, when hit by a crisis) needs to be sternly regulated and guided by government in the larger social interest. The real worry is whether governments are as a rule well-qualified to play that role. Do our lawmakers even know and agree about what is good in the larger social interest? Can I expect higher IQs, higher GK, more foresight and better taste among our MPs than among our general population? Right now, in India and the US, at least, the legislatures are over-full of people who are themselves bedazzled by, in awe of, and often in the (indirect-) pay of those whose pernicious social influence they are supposed to restrict and regulate, to wit the moneybags who benefit from laissez-faire. The western European nations offer much better models: to the best of my knowledge, they have struck the happiest possible balance between unfettered (predatory) capitalism and the Soviet-style socio-political straitjacketing which I am sure nobody wants to come back… if the recent worldwide economic crisis has set people thinking along those lines again, I shall say it has been a very good thing on the whole. I fear, though, that its effects have not gone far enough. In the town where I live, looking at the market for everything from real estate to jewellery to cars and vegetables, it would seem as if nobody has heard that there’s a recession in large parts of the world!

P.S., Nov. 13: Try this article to have a glimpse of what giant financial institutions do, and what they claim to be doing...


aranibanerjee said...

Sramana Mitra is glib. One needs to be supercilious in the extreme to say:'But as I have developed a deeper understanding of how capitalism works today, I am beginning to see flaws that are unlikely to correct themselves.'And, one needs to be very cautious of people who swear by Ayan Rand. She is a techie who pretends to be an economist. She hasn't read Adam Smith, Robinson, or Pareto; she largely speaks out of B-school guts which is a strange mix of accountancy and business organization.
She clamours for three things: regulation, respect for innovators and creative geniuses, and the end of speculation. I, like Suvro-da, is greatly suspicious of regulation. In fact, it allows nothing but cheats of a variety to thrive without competition. And, I do not believe that a Rama Lingam Raju could thrive if he hadn't shared his loot with the governors of our country. Even Harshad Mehta did as much. I am a cynic to the extent that I believe that recessions are inevitable. I have read Marx with some sincerity and I can assure people that he predicted the 1930s recession alright. It is only that I do not trust his panacea. A business analyst for the Rajus recently told me that the thug would have never been caught had the banks not gone bust. In fact this friend of mine is in great demand these days: all the companies want to know the swindling strategies of Raju. From Buenos Aires to Singur the problem that plagues capitalism is the state's protection of its cronies. One way to avoid a the pains of a recession like the present one is to provide people with basic social security--health, food, and shelter.

Suvro-da: The book that I'm reading, Alan Beattie's 'False Econonmy' says that looking at Rome no one knew how bad the empire was and similarly Buenos Aires defies the bankruptcy of Argentina. It is the way cities are run in faltering economies. There is a concentration of an affluent few while the margin pushes the centre. Durgapur still survives on PSU wealth and the PSU employees have been bailed out by Manmohan's government. The recession is not just about loss of demand but an inability to invest in private enterprise. In Durgapur there are no new jobs that people look forward to, no new industries that are being set up--except for a few sponge iron factories. The illegal miners continue to make money and their coal being the pincipal fuel for these factories the furnaces remain functional. These are low-investment and high-return industries. Finally, Durgapur like any PSU economy was always high on saving and as its citizens we never went to multiplexes, Pizza Huts, and shopped at Malls. Even as salaries and incomes ar at par with any other Indian city, the low demand syndrome has caused prices to fall. And, the recession adds to it. My humble suggestion is that it is exactly why retailers are trading in Durgapur where people with traditional saving habits have the mullah to shop. This is a pure trading habit that does not create wealth. Durgapur like Delhi is also a city of hanger-ons who are still pampered by public money.
One final submission: while we worry our heads off for the recession, falling stocks and sad looking techies in malls, we forget that capitalism faces a greater challenge world wide. Extremists of one hue or the other are off the handle. Feudal wealth in the hands of a few and absentee landlords rolling in greens in urban centres have unleashed the Taliban in Lahore and the Maoists in Bengal, Bihar, Jharkhand, Andhra, and Chattisgarh are the cases in point. Capitalism cannot flourish if it promotes landed men and women and their cultural and political ambitions. Land reforms, mechanization of farms, consolidaton of holdings ensure that rural destitutes do not turn up in cities unleashing Frankensteins like Raj Thackerey. And, that they do not seek refuge in well-meaning mad caps like Charu Mazumdar or his proteges like Kishenji. The recession is the last straw on a camel overburdened with the great load of poor men and women for whom the Lehman Brothers never existed.

Suvro Chatterjee said...

You are right almost all the way, Arani. What makes me unhappy is that without regulation there is chaos, yet regulation itself turns out to be very bad medicine most of the time ... and, of course, as we both know from bitter experience, very often there is little to choose between the private and the public sector!

Shilpi said...

Suvro da,
I don’t disagree with any of your observations regarding real world capitalism. I don’t, any longer, see how capitalism based on a premise of moral individualism can be possible – maybe an ideal type one that Rand ‘cooked up’ as you once told me in ‘her feverish fantasy’ and somewhat similar in its construction to Marx’s ideal type vision of a socialist state with maybe even less excuse. I know too that I would never have even been willing to see the little bit of truth of real world capitalism that my mind is capable of grasping without your very lengthy letters to me on the same from some years ago.

Capitalism does favour second rate actors, rap artists, pop singers, and ‘celebrities’, and the disgusting sort who ‘just happen’ to make or have pots of wealth for no good reason. The ‘sextuplet’ in the sitcom 'Friends' ended up making $8 m a piece for their ‘performance’ in the last running season, and for the life of me I still don’t understand how they ‘deserved’ it. It makes both the vein and the artery in my head pop (and I actually watched Friends – not the expensive last season but still). I’ve got nothing against making money but there is something inherently wrong in a system which favours valuing something that will sell because it can be aggressively and cleverly marketed. Would Rowling, I can’t help but ask have been the first and only billionaire author if her books hadn’t been marketed effectively and aggressively and had not been transformed into a sensation?

There’s plenty that’s not right with capitalism (and as you point out something similar goes for socialism and communism). Your quote by Galbraith reminded me of what Weber said. Far more disillusioned and much more of a realist than Marx he had pointed out that neither socialism nor communism would solve the problem of disenchantment nor of the bureaucratic iron cage. Yet for the life of me I’m still no less confuzzled about how an appropriate system of values and prices could be adequately, sensibly, and intelligently decided upon by a social system, which doesn’t choose to clamp down on some section of people or the other. Does anyone have the right to be a billionaire? I know you’ve raised and answered this point over and over again in many of your essays – yet maybe I keep hoping that an extraordinarily creative and intelligent individual can make a billion through honest means – or at least should be allowed to…yet in countries where millions or even hundreds still starve? A little Newsweek special showed that there were 28 billionaires in the U.S, 8 billionaires in India and only 1 in the U.K – and these are ten-and-over-ten-billion dollar billionaires. Says something I’m sure, and even more so when one sees that the level of corruption goes from the highest in India (was there ever any doubt about that) to the least in the U.K.

And as you point out - who regulates? Will it be the government? When the government for the most part goes to bed with the gigantic corporations that control and stand for capitalism today? And corporations which to a significant extent control the media and the political centres? Yet I cannot help but think – if not the government then who/what? Yet even war operations these days aren’t carried out solely by the military unit of a country strictly monitored and controlled by the government and an international community. Private Military Firms are mushrooming and they don’t show any signs of going away…yet who/what controls them? And what about global corporations – who/what controls them?
Sadly enough and not to belittle myself but I know I don’t understand economics well enough nor do I have any in-depth understanding of how economic and political systems work in connection (or without) and so my questions and/or ponderings seem terribly na├»ve even to myself…

Shilpi said...

All that said I will say that Rand does still remain a philosopher for me, and of the best sort (no matter her many shortcomings, and even though she had no idea about real world capitalism or much about economics and even though I am no longer the quietly insane and rabid Rand fan that I once was...). The rabble rousing sort? Even with that I won’t disagree.
She pointed out to something vital – that in order to live one needed to know one’s self and needed to be true to it.
That one needed the courage not only to have certain values in place but also to stick to those values when in times of terrible choice making and opposition.
That the genuinely creative and that the genuine entrepreneurs needed the moral and intellectual freedom to operate within a society.
And that if one had much to be modest about then one should be thus and not claim for the same status as the giants and geniuses….

All these points and some others make her a philosopher for me. She didn't say anything absolutely novel of course - but she said something that can't be said often enough.

As for the article by Ms. Mitra – it leaves me unaffected on the whole (I don’t even know where she gets the idea that Rand imagined that the ‘leaders’ would be full of integrity. It’s a good thing that she placed ‘leaders’ within quotes too. Which leaders? Leaders of what? I don’t remember Rand ever thinking that leaders would fix any problems) and even I am frankly amazed that of all the articles and essays in the world, she chose to pick on Moore’s movie regarding GM’s downfall. Moore is the sole spokesman of the GM downfall, is it?
Thank you for this essay, and I’m sorry that I took so long to send in a comment but it wasn’t for lack of thinking – not this time around! Also sorry for the terribly long comment.

Shilpi said...

Been wondering where the following quote by Edward Murrow would fit best, and then decided I'd put it in here, although it would work for your 'Oh democracy' post as well among others.....
" If we were to do the Second Coming of Christ in color for a full hour, there would be a considerable number of stations which would decline to carry it on the grounds that a Western or a quiz show would be more profitable."
Do take care.

Suvro Chatterjee said...

So many highly educated readers, and so few comments on a subject as serious as this?!!!

Suvro Chatterjee said...

I hope the currently unravelling IPL-scandal will give some readers fresh motivation to reflect on the contents of this post, and wonder whether we are indeed living in the best of all possible worlds!

Suvro Chatterjee said...

This little article admirably summarises the grouches of all sane men against the kind of capitalism that is currently rampant worldwide, if only because no one can think of a better alternative:


Shilpi said...

I would have missed that nail-on-the-head list if you hadn't put up this comment. That bit of yours "...if only because no one can think of a better alternative" makes me smile and/or grin among other things.

I read some of the comments on that list, (was terribly tempted to comment myself) and I was wondering how it's possible that people know so little...to think that I may have been one of them. Gives me the creeps that. I sort of glanced through my comment above, and I'll retract one bit. Rand knew absolutely NOTHING of economics and NOTHING of real-world capitalism. It's alarming that grown up Americans are trying to use those ridiculous ideas of hers. The other bits regarding Rand, I'll still stick to....

I wonder why people think though that questioning capitalism means that one is questioning freedom and all forms of individualism and that the only alternative is some form of oppressive socialism. Not that the ardent Marxists/Leftists are any better. And they sound worse and more and more uneducated, and insipid the older they grow.

I'm reminded of too many of your long essays but of My Master's Word the most.

Thank you.