So, what are the founding principles of Capitalism, after all? Let's see.
Capitalism (the good one) is all about -
- A firm belief in the inherent goodness of man (for his society), when he is allowed to pursue his personal enterprise and profits
- An 'invisible hand' that works for society's benefit (through employment generation etc.) even as the entrepreneur pursues his personal adventures
- The greatness and goodness of productivity enhancement, which is possible only through personal profit motives, and not social ones
- Leveraging the 'animal spirits' of human beings; the energy of reaching out to the stars; the madness and passion of undertaking ventures which seem impossible
- A near-perfect system of capital distribution to resources in society so that only who deserve it, get it, and those who don't are marginalised (deserve is in the sense of efforts they are willing to put in)
- Profits, profits, profits; and not as a dirty word, but as a reward for vision and toil of individuals
- They did not believe in any inherent goodness of man; they just pursued the economic goodness (to take a taste of this, just talk to the so-called PE funds .. their salivating mouths upon sensing a project that has promises of obscene economic returns (at whatever human and moral cost) will tell the whole story).
- Forget the invisible hand. Their visible hand was used to channelise maximum salaries and perks for themselves. Horror stories abound, even in Western media.
- Sitting in a banker's cabin, productivity enhancement of industry is the last thing on their minds. All they are concerned about is how to multiply their capital (and returns) by any means - genuine physical productivity enhancement or artificial ones.
- 'Animal spirits' indeed! They leveraged it to the fullest. Unfortunately, they leveraged their own, and not those whom they were supposed to fund and excite, so more real-world productivity could happen.
- Distribution of capital was totally flawed. Only a few banks (and bankers) had access to trillions of dollars, and this happened through years of what these criminals call 'industry consolidation' (another name for killing competition. Ironical, isn't it?)
- Profits, for sure! For themselves, and the next 100 generations of theirs.
So Extreme Capitalism took its toll. The key crimes of the regulators - the US government and Federal Reserve - through the past 15 years were -
- Being a silent observer of every conceivable excess, including leverage ratios like 1:33
- Allowing money to flood the system through easy (loose) monetary policies of the Fed (assuming that more money into the system will help boost consumer credit, which will boost consumer demand, which will boost everything else)
- Borrowing like mad from China (and some more nations)
- Allowing absolutely dangerous deregulation to take place (depository banks allowed to indulge in investment banking activities) under the amazingly stupid notion that "risks have been tamed in markets for the foreseeable future, through the rigorous statistical quantitative tools used by modern risk managers!" (the failure of LTCM was forgotten all too easily)
- Quietly allowing government officials and top corporate honchos to look like mirror images of each other (the man who was part of the gang responsible for creating the credit crisis in US (Henry Paulson, head of Goldman Sachs) was made the Treasury Secretary of federal govt.!)
- Maintaining a huge military presence around the world to artificially keep faith in the US dollar as the ultimate reserve currency intact (in people's minds around the world.. though many spoke their hearts out against the USD's domination of the world currency system and demanding a mixed basket of currencies instead)
- The biggest folly - despite being the land of capitalism's origin and genuine nurturing, silently allowing the system to corrode, become hostage to glib MBAs from Ivy-league institutions, and to spread the risk around the world by the fantastic tool called globalisation (so the villagers in Norway too went bankrupt when the beautifully created and fully-insured US CDOs collapsed!)
Thankfully, the Indian government and the RBI did not heed aggressive requests from the West to open the entire Indian banking sector, and to follow policies like they did in the West. If we had done that, India would have faced a civil war now (with the banking sector gone bust, and the government in no position to offer king-size bailouts like the US govt.). I suspect, with a smile, that the RBI knew all along what was coming their (the US's) way! As a colleague beautifully said - "If you know, then ignorance is bliss!"
- The US economic recovery will take at least 5 to 8 years. It will not happen in a hurry at all.
- The de-leveraging of the consumer households in the US (as they pay down their debts) will create further pains in the economy. Austerity drives will do so, too.
- Lots of loan defaults in US will happen (although, in all fairness, majority of the borrowers still pay in time)
- Europe will remain troubled for a long time. Big nations like Germany will not succumb easily to the cries of the vultures to help unconditionally. And that's fair enough.
The failure of US model, and its secondary European repercussions, is not a failure of Capitalism itself. It is a failure of the Western Man. His uncontrollable greed has undone him. Mahatma Gandhi was right when he reminded us that there is enough in this world for everyone's need, but not enough for even one person's greed. And so, I remain hopeful that men with reasonable ambition will again build the foundations of this wonderful creation called Capitalism.~