World Economic Forum 2012: Capitalism Need to be Fixed

Capitalism needs to be fixed “to serve society.” – Klaus Schwab

This pretty much sums up the Davos 2012 World Economic Summit. But the question remains, how? Because those who control global capitalism have no incentive to change it, and those who are suffering have no power to do it.

Wealth gap is the major source of misery and disquiet throughout the world. One percent families control two-fifth of wealth and one-third workers of the world (or about 1.1 billion), are out of job or living in poverty. If the current style of capitalism continues social unrest, protests, and disobedience will keep rising worldwide. The annual Global Risk Report of the Forum also names “severe income disparity” as a dominant global issue in coming years. The International Monetary Fund has also spotted income inequality as a major hurdle for economic growth.

West Standstill, East Rising!

We are not pawns!

The West is paralyzed by debt, sluggish growth, and indecision for the first time in recent decades. And also for the first time, some in the West are looking towards the emerging economies – particularly China– to provide some solace to their economic labor pain. In the 90’s the Western economic community used to scorn at the “Asian Crisis.” Now emerging Asian economies – China and India– are worried about the troubled Western economies – what a diametric shift in world economic vision!

The ongoing stagnant or growth-less Western economies, rising debt burdens, Eurozone crisis and the spread of Occupy movement throughout the “developed world” have all prompted a closer investigation of the current form of capitalism. Some experts are even putting question mark on the ultra-libertarian lifestyle of the Western world – and wonder whether it is already the end of the road for the current popular brand of capitalism.

The four year long turmoil in the US and European economies, that has seen unprecedented governmental interventions and yet no clear end in sight, is putting constant pressure on politicians and business leaders to rethink the existing business model and come up with a better model that is more reliable, more sustainable, and more inclusive.

Asia’s low debt to GDP and massive foreign exchange reserves stand in marked contrast to the over indebted and perplexed west. Much of the future growth will come from the developing world; so the direction of business and finance flow appear decided.

End of the Road for Shareholder Capitalism?

The sense of urgency was highlighted by David Rubenstein of Carlyle Investment Fund who said: “I think we have three to four years in the West to improve the economic model that we have, and if we don’t do that soon I think we’ve lost the game. … the game will be over for the type of capitalism that many of us have lived through and thought was the best type of capitalism.”

Professor Raghuram Rajan of the University of Chicago also echoed similar sentiments and warned, “As consumer demand moves to emerging markets, finance, marketing and innovation will move there as well. The West has about ten years to build new models or else high-skill service jobs will also migrate away.” The general secretary of the International Trade Union Confederation, Sharan Burrow, warned of backlash and urged corporations and governments to work with workers to develop a new economic model.

Rubenstein suggested that the alternate models such as the one practiced in China, needs careful consideration. Unlike the US or European capitalism model, the “Chinese capitalism” is state driven – though it steers clear of democratic reforms.Latin America, too, has seen success in the development of “state capitalism” in certain segments. According to Colombia’s mining and energy minister, Mauricio Cardenas, “You combine elements of private enterprise with public responsibility.”

Fixing Capitalism

It is amply clear that the present capitalism has a very narrow focus – on shareholders – at the cost of other stakeholders: employees, suppliers, society, environment, and even customer. This is at the core of wide gap in wealth distribution. Besides, the model fails to see employees as human beings who need assurance of job security, at least to some extent. They must be converted into stakeholders and investors of the companies they work for.

The new model must mitigate the booms and busts that separate the phases of economic prosperity in the current capitalism.

The new model must promote long term sustainable eco-friendly growth through market reforms that encourage long term value creation in place of short term profits. It must also necessarily discourage wasteful consumption of natural resources and conserve and replenish them where possible.

In summary: There is an urgent need to rekindle the shareholder capitalism” vs stakeholder capitalism debate more vigorously and consider the positive side of “state capitalism” too.

Q/A:  How can Capitalism be fixed here in America?

About Goodpal

I am a firm believer in healthy people (mind and body both), healthy societies and healthy environment. I also undertake content writing and documentation projects. Please feel free to comment, share and broadcast your views. If you wish to write for this blog, please contact me at vj.agra@yahoo.com Thanks for stopping by. Have a Good Day!
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