Three seminal events have given rise to a new economic vision. It's called socio-capitalism, a term that seeks to combine the best ideals of socialism while mitigating the worst features of capitalism. It's being discussed in blogosphere, and some critics of market fundamentalism — Paul Krugman, Joseph Stiglitz and Raghuram Rajan, among others — have discussed it elliptically ("Saving Capitalism from the Capitalists", et al).
The three events are the fall of the Berlin Wall, the rise of China and the collapse of western financial institutions. The first discredited Soviet-style communism. We now know that state capitalism driven by bureaucratic elites cannot deliver the goods efficiently.
It's not as if the Soviet system didn't work at all. For several long decades, the USSR outperformed the west on growth rates. But, as the systemic inefficiencies became apparent, people stopped believing in it. "Communism failed as a system because people stopped believing in it…," said Krugman in one of his columns.
The second event, China's phenomenal growth and poverty reduction over the last three decades, showcased the results of combining political authoritarianism with capitalist economics ("capitalism with socialist characteristics"). It is still working. The third event, the shrinking of US and European banks, was triggered by the sub-prime mortgage crisis of 2007. It forced western governments to abandon laissez-faire economics and embrace state intervention as a critical life-support for capitalism.
The bailout of once-mighty banks such as Citicorp, Bear Stearns and Merrill Lynch has been dubbed "socialism with capitalist characteristics." A Newsweek headline summed up the changing mood in America thus: "We are all socialists now."
The world has been groping towards a new economic doctrine, something that combines the animal energies of capitalist entrepreneurship with the distributive justice of socialism.
Given the vast diversities in global culture and socio-economic development, we are likely to see a lot of experimentation before socio-capitalism can be defined more precisely. What is certain is its inevitability. Evidence of it is right there in the heart of capitalism, the corporate sector. Companies increasingly see competition and cooperation not as antagonistic features, but complementary.
It's called coopetition, where companies in the same space cooperate for mutual benefit in some areas (generic branding for market development, joint sourcing of raw materials to cut costs, etc) even while competing for markets and customers differently.
Unlike coopetition, though, where two opposing forces coexist, socialism and capitalism are not necessarily antagonistic. This is because socialism (or communism) is an ideology; capitalism is an engine. The former is a destination, a goal for society to achieve; the latter is a vehicle to get you there, if that's where you want to go. There need not be any contradiction between a vehicle and its destination as long as we know who's the driver. Socio-capitalism is about getting both society and capitalists to drive together.
Without an ideal, capitalism is like an unguided missile. It can land on any one, usually the poor and the unfortunate.
But, occasionally, it can also land on the rich - as it did this time. This is why it needs reprogramming regularly on the basis of a broader, inclusive agenda.
In India, we have had a mixed economy all along, but it hasn't worked. We tilted excessively towards state control in the first three decades after independence. Then we started easing up in the 1980s, before finally opting for a more market-driven economy after 1991.
However, we didn't get either the socialist part or the capitalist part right. In the early years, we didn't achieve growth or redistributive justice; in the last 15 years, we have seen better growth, and some reduction in poverty. But we do not have the best of both worlds.
We need to develop our own version of socio-capitalism, where poverty reduction is the primary goal of capitalism, with the lion's share of growth being redirected towards the poor.
Socio-capitalism is a non-doctrinaire world where nationalisation and privatisation are continuous processes —- driven by what is appropriate for a certain time and place. If nationalising banks is a cheaper way to save them (as the US is discovering now), so be it. Once they are fixed, they can be returned to investors. Government spending and private spending are also complementary: if schools are better run in the private sector with suitable tax breaks, well and good.
If no private party wants to run a hospital, the government can step in. It's also about expanding choice: if subsidies have to be given — say, for kerosene or schooling — it should be possible to credit cash directly into beneficiary bank accounts so that the citizen can decide what she wants. Choice must be available not only for the rich, but the poor.
Socio-capitalism is an idea whose time has come. It may not be easy to define what it embraces, but what it abandons is clear: market and ideological fundamentalism.
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