American Brand — Capitalism is it under fire now?

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I wrote an article in one of the leading newspapers titled “American Brand of capitalism –an icon shattered” on Aug 26, 2002, when Enron, World com and Arthur Andersen went bust and people thought capitalism was finished. Just think about what has happened in the financial markets during the last 10 years period. We’ve had several huge stock market crashes, several big accounting crises (Enron and WorldCom)lots of bankruptcies (GM, Fannie Mae, Bear Stearns, Lehman Brothers) a real estate bubble and collapse, a war in the Middle East, a massive financial credit crisis and most recently a credit downgrade of U.S. government debt.
However, fast forward from 2001 to 2012, 11 years have passed, American brand i.e. capitalism is under duress but not finished as yet. I am a strong believer of free markets which have resulted in many opportunities and economic success for many countries. If you read the book “How capitalism can save us” by Steve Forbes and Elizabeth Amy, mentioned on page 29 in which they stated on one hand for some people capitalism is amoral, its dog-eat-dog system of the market. But on the other hand, some people believe that capitalism and free markets have provided job, prosperity, innovative culture and economic growth for various regions in the world. I believe in the latter that capitalism is truly a source of inspiration for many people as they pursuit their entrepreneurial spirit for the social and economic well-being of the people. According to the greatest economist, Nobel laureate late Milton Friedman from University of Chicago, Booth School of Business, USA said capitalism is all about making free choices.
The famous book of Adam Smith in 1776 called Wealth of the Nations advocates for free markets and Invisible Hands that promote economic well being for the people as they pursue their own self interest. Some people call free markets as gambling. I tend to disagree. There is a difference between gambling and investing. Gambling is about entertainment. And investing is to finance future growth and innovation for economic prosperity. In today’s world Keynesian approach has failed with too much government intervention is precarious for economic growth.

Economic History—the guiding principle

USSR was broken and transformed herself in market based system. China changed from a socialist system to market based economic culture announced by Deng Xiaoping on Dec 22, 1978. India was following socialist Nehru system and believed in it for many years. The current prime minister of India and finance minister in 1991 Dr Manmoohan Singh announced a paradigm shift to market based economy to gear up to the structural change in the economic fundamentals for growth and economic progress. Many believed the economic integration to the global world would not be beneficial to Indians and they would lose out. The empirical evidence demonstrates a different story. India along with China, Brazil and Russia termed as BRIC economies, an acronym coined by Jim O’ Neill of Goldman Sachs and author of the book The Growth Map, the future growth engine of the global economy. China, Russia and India were not market based economies 20 to 30 years back. Looking at their economic growth in the last 10 years and many would believe the benefits of capitalism and entrepreneurial culture that it promotes for economic welfare.

Economic growth in the last 10 years [Average]

China GDP 10.2 per cent
India GDP 7.4 per cent
Russia GDP 6.1 per cent

Sources

World Bank, IMF, Economist, Financial Times, Wall Street Journal, Business-week, ADB, Goldman Sachs, Deutsche Bank, JP Morgan
These countries are driving the global economy with China being the economic power house to validate the point of capitalism gains they have achieved through free market system. China is the 2nd largest economy in the world just behind USA who is the master of capitalism. I would not be surprised if China becomes world’s leading economic power by 2015. I am not bold enough in my prediction but this is my rough estimate taking into account the current economic malaise of 2012 which might lead Europe in recession and may hit USA as well according to Professor Robert Shiller at Yale University, USA

Champion of Capitalism — USA

According to Famous professor of Free market Eugene Fama from University of Chicago, Booth School of Business, USA that capitalism itself is under fire. But that does not mean that we forget the good things in this world and companies like Apple, Google, LG, Dell, Baidu, Facebook, Sony, Lenova, HTC, Acer, Shanghai Tang, Nike, Coke, HP, Toyota, Samsung, GSK, J&J and many others who have transformed the lives of many individuals in this world, provided jobs and helped uplift the living standards of many people to make them economically powerful and socially empowered.
Capitalism and free markets is the real growth engine for any economy without government interference. I am not suggesting that capitalism is the solution to everything. There are short comings in every system and is not a panacea for all diseases. However, in recent times, countries, companies that have thrived exponentially in economic, social and technological area have benefitted a lot from capitalism and its merits for the betterment of people. Happy investing and supporting capitalism for the economic growth, integration and prosperity of the nation!

Shan Saeed is a financial market economist with 12 years of solid global market experience based in Asia Pacific. He has graduated from Uni of Chicago, Booth School of Business, USA and IBA Karachi. He can be reached out at [email protected]. Blogs at www.economistshan.blogspot.com

14 COMMENTS

  1. Shan
    India/China/Russia have gained momentum after free market economic system. Liked your article

    Mahindra Kumar
    Bombay, India

  2. All top newspapers are focusing on capitalism. This article is as great as any other article in financial times or new york times. I admire this insight from shan

    Peter Small
    London

  3. Pakistan Today is publishing some articles of much significance..Keep it up editor and your team

    Sohail Ahmed
    Karachi

  4. Sir,

    Have a look in those BRICS (Which now includes South Africa), It's not a totally free market. India is banning distributors such as Carrefour or Wal-Mart to sell to the consumers. These companies are present as a whole sale distributors in waiting for the market to be opened. Also, if a multi-national company wants to enter Indian market, they can't do it on their own. They'll have to find first Indian partners and work with them in collaboration. It's not free market. http://en.wikipedia.org/wiki/Retailing_in_India
    “Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets.”
    Free market would kill Indians entrepreneur.
    And you are talking about Freedman and Chicago boys. They killed so much economies and causes so much disaster especially in South America. I am inviting you to read the excellent book of Naomie Klein (The Shock Doctrine) and the concept Of Mr Friedman.
    GDP is not the best indicator to see how healthy is an economy and its population.
    And free market is not the right answer.

    • Thanks for your comments
      1. Yes, I am aware of the Indian decision. Markets would eventually open up as it would not destroy indian entrepreneurs or jobs. It would be beneficial for all players involved. Its a temporary decision. Where is india today is because , they have opened the markets for banks, insurance , pharmaceuticals, airlines and many others.
      2. Milton Friedman was advising Chinese leadership from 1984 to 1994. If you are aware of this fact. So they have lot of influence, authority and respect in the global economy. His work earned him a Nobel Price on 16 Oct 1976. Where is China today is infront of the world. No need to discuss. You can write 5 books easily on chinese success story and its transition .

      3. I will read your recommend book soon. South America is booming. I m bullish on Brazil, Chile, Venzeula, Argentina,

      4. GDP is not the only parameters. There are others as well. GDP does not measure the happiness or IQ of the nation. But GDP does measure the national income and living standard of the nation.

      5. If you read my last para, I have stated that there are short coming in every system. Free market is no exception. Hope I have answered your questions. Thank you

      Shan Saeed
      Singapore / Malaysia

      • Thanks for forwarding my comments . Yes, I was talking in global context.

        Shan Saeed
        Asia Pacific

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