Know your capitalism

Finance Minister Arun Jaitley exuded quiet optimism when he remarked on his week-long visit to Japan that India’s two-trillion-dollar economy will soon grown into three trillion dollar to five- trillion-dollar economy in the next few years. He did not give a time frame either for his government or for the country to reach the target. What he expressed was a general perception that the Indian economy is bound to grow and there is little chance of it slipping back. Jaitley’s positive sentiment is anchored in the certainty that India will continue on the capitalist track, and capitalism is nothing if it is not based on the assumption of continuous growth.

It might seem quite an unrealistic statement to make when the global capitalist economy is in a sort of doldrums, and the irrational exuberance and the animal spirit that marked the economy in the pre-2008 crisis period show no signs of returning. But finance ministers must appear and remain cheerful in the face of inclement economic conditions. It might seem that Jaitley is dutifully acting his part as a finance minister. But he is not really too much off the mark in his projection about the growth of the Indian economy. Despite a couple of bad monsoons and sluggish markets, Indian economy will move up. The certainty that India is firmly set on the capitalist path, despite the wailing of ageing liberals and romantics of socialist vintage, should not make those who believe in the magic of the market economy to sit back and smirk with a sense of piggish self-satisfaction.

Capitalism requires everyone to be on their feet, and that would also mean that there is need to continuously think about the system and find ways of tinkering with it, as well as anticipate the shoals, storms and icebergs on the way. Capitalism is an unstable system and is risk-laden. It is no safe harbour. It is more like the open sea, exposed to dangers and opportunities of all kinds. Unfortunately, India’s pro-market economists are quite starry-eyed and naïve to the point of being ignorant in their faith in the market. They are still celebrating the liberation from the breaking of the shackles of a socialist-era economy. The truth is that India never had a proper, planned, socialist economy where the nanny State managed the lives of the people from birth to death; it never had a chance of becoming a reality in the country. For good or for bad, the socialist politicians in the country, including Jawaharlal Nehru and his daughter Indira Gandhi, never stuck to the socialist course with any consistency.

It seems that naïve market economists in the country, like those in the one-year-old National Institute for Transforming India (NITI) Aayog, are committing the same blunders as their former peers of the now-dead Planning Commission had done. They failed to see that no economy, socialist or capitalist, can ever be put on autopilot once the course has been set. There are too many unexpected turns on the way, and the economy needs to be watched through dark phases. So, in the last eight years or so, none in the angelic choir of market economists had broken from singing hallelujahs and cast a critical eye on the system, and the need for coping with unanticipated snags in the system. The uncritical bunch of market experts have to study seriously which way a kinetic system lurches and show the policy agility to shift accordingly.

Four books address the issue of the inherent problems of capitalism, and the authors of only one of the four can be called anti-capitalist or anti-market. Does Capitalism Have A Future? which is a colloquium of four scholars, Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian and Craig Calhoun, published by Oxford University Press in 2013, despite its barely-concealed hostility towards it, recognises that the collapse of capitalism is not imminent and that it is going to be a protracted affair. In the opening essay of the book, Marxist historical sociologist Immanuel Wallerstein states his thesis about the mortality of capitalism: “…capitalism is a system, and that all systems have lives; they are never eternal.” Most of the essays are based on the premise that even as the Soviet Union had collapsed despite its appearance of stability, something similar could happen to capitalism too. The parallels drawn to the end of capitalism in this book is from the collapse of the Soviet Union. It would be quite foolish to ignore the critique offered here.

An insider critique of capitalism comes from the conversational The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy by Michael Pettis, published by the Princeton University Press, again in 2013. Pettis straightaway goes to the heart of the problem: “The global crisis is a financial crisis driven primarily by global trade and capital imbalances, and it has almost unfolded in a textbook fashion.” Berating European policymakers and “the non-specialised Western media for their ignorance, Pettis points out, “There have been after all many well-recorded financial crises, dating at least from the Roman real estate crisis of 33 AD, which shared many if not most characteristics of the 2007 crisis.”

The third book, Financial Crises in Emerging Markets, by Alexandre Lamfalussy, and published by Yale University Press in 1999, is again an insider’s critique of the capitalist system.  Lamfalussy, who had worked as general manager of the Bank for International Settlements, analyses the financial crises in Latin America, 1982-83; Mexico, 1994-95; East Asia, 1997-98; and Russia, 1998, and draws some useful general conclusions. He says, “Probably, the most important, and surely the most obvious, channel through which globalisation has made life more difficult, and is likely to make it even more so in the future, is the disproportion between the actual or potential size of capital inflows into emerging markets and that of the markets themselves.”

Former US Fed Reserve chairman Ben Bernanke’s The Courage To Act: A Memoir Of A Crisis And Its Aftermath, published by WW Norton & Company in 2015, deals in detail with the American side of the present global maelstrom. He does not offer an overall analysis or comment on the system as such. He has, however, quoted Chuck Prince of Citicorp before the crisis and the chapter is entitled aptly, “The End of the  Beginning”. Prince tells the Financial Times reporter, “When the music stops things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” This is another variant of the famous Russian roulette. 
So, capitalism is a risky, exciting game. It is something like the Russian roulette, but not exactly that. It is not meant for innocent fans of the market.