Friday, February 27, 2009

Alternatives to Capitalist Enterprise: An Unconventional Perspective

For lots of people, capitalism has failed. Their mortgaged houses were repossessed, their savings melted out in the hands [and pockets] of Bernie Madoff and his kind, their stock market portfolios look puny and they are no longer sure where to keep the savings anymore. Banks and other infallible institutions, like General Motors, General Electric and Toyota, look clueless. The leaders of the government are not proving any more enlightened than Uncle Joe down the road, who gambles upon the idiocy of the lenders to climb out of trouble every time. The deep downturn, after years of peak prosperity, is hurting more - and many people blame the greed of the capitalist, embodied in Wall Street bankers, for their trouble.

Media has caught on the mood and many respectable magazines have already announced 2009 to be the last year of Capitalism. The more conservative ones, like The Economist, which remains unrepentant about supporting George W. on Iraq to this day, have been thinking deeply where Capitalism has gone wrong. The current economic pain, for even those who see the upside, is seen as an inescapable consequence of capitalism, Schumpeter's Creative Destruction.

Karl Marx, who was pronounced dead in 1990 after the fall of Soviet Union, is suddenly getting a bit of media space. Che Guevara is back in fashion among college kids and Fidel Castro's collected works were seen at least in one mainstream book stores. Blogs and newspapers quoted Marx - without naming him upfront - to demonstrate how prescient he was about the capitalist crisis. Most people have started toning down their unashamedly greedy stance, partly in fear of getting caught in the wrong side just in case the economic system actually changes.

I am joking, alright. There is no imminent revolution, not even in the wretched countries like Burma. Not of the kind we are talking here, at least. The reason is simple - you will see that we have not mentioned Lenin anywhere here - there is no stomach for revolution anymore. Revolutionaries look forward to the future, but there is no appetite for future now. All we want is to go back to the past; for some, it is to the immediate past when house prices were higher and jobs were available; others want to go back 1500 years to the time of the prophet.

I realized a funny but rather obvious thing as I write this: Marx was a journalist. In his time, every economic downturn, he proclaimed the end of capitalism and advent of socialism. It goes to the credit of the New York Times that they had made exceptionally consistent choice of journalists - they all behaved in a similar fashion over last 150 years.

But that is beside the point. So far, despite all the distractions, capitalism proved to be the most dynamic economic system in the civilization of mankind. It has produced the kind of miracles a society needs in order to progress - spurring ordinary individuals to make unheroic contributions, day after day, in building collective prosperity. To me, this is the miracle of capitalism: That it worked as a perfect foil of Pandora's box, always ending in hope in the middle of despair, always inspiring individuals with self-responsibility and improvement.

So, despite journalistic proclamations and recent woes, capitalism lives on. The alternatives to it look unimaginative. We can see what a all encompassing socialist government can do in Burma or North Korea - clamping down all improvements and making the country a bureaucratic prison. Communism does not exist other than among a few species other than men, and we are currently waiting for them to reach a state of civilization to write a post facto Das Kapital. At this time, we have little choice but to live Capitalism.

However, lots of very successful men and women say there is something fundamentally wrong about capitalism, and it is the greed. There is something very obvious about this statement. Adam Smith, before he managed to write his capitalist doctrine, warned us against this in his little-read The Theory of Moral Sentiments. This remained unread, Malthus was generally dismissed as alarmist and Karl Marx as an amateur. However, the complaints have continued to this day, and some of the big names today, Dr. Md Younus, Bill Gates, Warren Buffet etc, are trying to evolve an alternative model of capitalism - the one without the greed bit - and calling it by various names, like creative capitalism or compassionate capitalism. On the other hand, of course, there are capitalist social thinkers who would want to take capitalism to its last frontier, to the depth of poverty, and a completely new approach in evolving through the works of Dr C K Prahalad, seeking Fortune at the Bottom of the Pyramid.

How far do these alternative, imaginative, ways improve capitalism? I think the core argument is against two of capitalism's main failures - that it is divisive and turns life into a zero-sum game [hence, we must create wealth and abandon greed] and that it fails to create a sustainable future [Malthus, and modern thinkers of Creative Capitalism, who wanted to solve world's problems including the environmental decline].

There is a merit in each one of these lines of thinking. But, there is also something fundamental to capitalism which these thinkers do not touch: the question of ownership. The growth of capitalism is closely identified with clear individual ownership of the means of production, as Marx saw 150 years back and Hernando Del Soto rediscovered the truth recently. In Del Soto's theorem, ownership is fundamental to the growth of capitalism, and hence, while the alternate models may seek redistributive justice in the outcome, the ownership of the means of production must be clear and unambiguous. [An example can be shown in Grameen-Danone project in Bangladesh, which has a clear ownership structure, but works towards social justice].

However, I think the current problem of capitalism is actually attached to too much of ownership. Michael Heller makes this point in his brilliant Gridlock Economy. It is plain to see when the logic of ownership is extended to creative output, to writing, to music, to everything else. The point of ownership is intellectual output is to encourage creativity by rewarding the artist; but this ownership structure, and the attendant overheads, actually discourage creativity by importing a structure in artistic enterprises and imposing a requirement of self-promotion in what used to be soulful work.

None of the alternate models address the issue of ownership. This is - because as Del Soto argues - central to capitalism. Its vices and virtues come from here. Its problems can not be fixed, or its achievements can be repeated, without addressing the ownership, its definition or understanding, first. Socialism provided an alternative, but that was an inefficient model, because that meant transferring ownership to people who did not work for it.

While we search for solutions, the answer may actually lie in the religion. The religion always focused on temporal nature of ownership, and the existence of a commons beyond one's own limited interests. We may as well blame our godlessness for our crisis: we tried to own too much for ourselves, and left too little for God, to end up in this crisis.

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