American Brand — Capitalism is it under fire now?

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