Saving capitalism in an integrated world

Citation

Ali, A.J. (2011), "Saving capitalism in an integrated world", Competitiveness Review, Vol. 21 No. 1. https://doi.org/10.1108/cr.2011.34721aaa.002

Saving capitalism in an integrated world

Article Type: Editorial From: Competitiveness Review: An International Business Journal, Volume 21, Issue 1

Whether or not we agree with any of the competing political camps on the nature of the financial crisis and economic downturn which began in 2008, these camps have pursued their own agenda irrespective of facts and logic. This is more obvious in the USA where rivalry and entrenched ideological loyalties have increasingly manifested dogmatism and blind commitment. Though rival camps claim to defend capitalism, each has its own understanding of the system and its economic tenets. Complicating the issue is the fact that the vast majority of the population appears to have only a vague idea of each camp’s stance. Members of this vast majority have seen their own fortunes dramatically diminish and become a victim of their own anxieties. Confronted with an uncertain economic future, members of this group tend to respond favorably to negative but aggressively promoted political messages.

Intellectuals and major media outlets have their agendas and designs, too. Many have questioned the wisdom of the government bailouts, be they at home or abroad, and in their arguments have relied on purely theoretical propositions divorced from reality and from the economic consequences to a broader range of population, especially the working class. The Economist (2010) acknowledged its rushed judgment in criticizing the Obama administration’s intervention to save GM. In its editorial the magazine declared, “An apology is due to Barack Obama.” It indicated that the intervention not only saved thousands of jobs, removed a threat to America’s highly integrated network of car-part suppliers, added discipline to managing the auto industry, but it also enabled GM and other automakers to regain their economic health.

Likewise, The New York Times (Egan, 2010) credited Obama for saving capitalism and keeping the motors of capitalism running. It stated that saving the American auto industry is “a monumental achievement that few appreciate” and that Washington managed to keep interest rates low while enabling corporations to realize a high level of profit –“it is one of the best years for earnings in a decade.” Fortune (Tseng, 2010), too, reported that major corporations have achieved huge profits and are awash with cash, stating, “for the seventh straight quarter, non-financial companies in the S&P 500 index reported that cash and cash equivalents during the three months ending in June surged to $842.5 billion – reflecting more than 11 percent of their value and five times their annual dividend payments.” Fortune further stated, “To some, the record levels seem almost unjustifiable, since business investment in corporate America makes up a large enough chunk of GDP to really drive growth. If they don’t spend, the economy can’t grow.”

The preceding evidence has two dimensions: political and economic. Politically, ordinary people generally lack resources and time and some may not have the needed sophistication to decipher facts from propaganda. In fact, organization and political analysts have indicated that ordinary individuals are often inclined to believe a message that is consistently repeated and aggressively promoted. However, this segment of the population, so pivotal in any national election in a democratic society, is often ignored by those in power after the election. Paul Craig Roberts, former Assistant Treasury Secretary during the Regan administration, recently summed up this segment’s dilemma by stating that its members who are “out of work, out of income, out of homes and prospects, and out of hope for their children’s careers are angry. But the political system offers them no way of bringing about change.”

Roberts speculates that as the economic situation is likely to continue deteriorating, the new Party that controls the House of Representatives will expand war and generate new foreign enemies. Reuters (Stewart, 2010) confirms that the House’s new majority is determined to press Obama to back away, for example, from withdrawing troops from Afghanistan. However, the belief that waging war is essential for thriving capitalism at home could further deepen the economic crisis and certainly constitute a threat to productive endeavors. More importantly, it deprives domestic markets and needs from vital resources thereby making resources needed by entrepreneurs and innovators a scarcity.

While politicians may utilize the worsening economic situation as a strategic tool in their political games, corporations may have their own games too. Fortune indicated that corporations do not shy away from flexing their political muscle. Though they are awash with cash, they are not yet willing to reinvest the new founded profits. They aim, among others, at exerting pressure, through financial donations and lobbying, on politicians to get more concessions. The New York Times asserted, “Money flows one way, to power. that promises tax cuts and deregulation.”

The economic dimension confirms that there is a remarkable misunderstanding of the capitalism system and what the system stands for. First, there is a common error in thinking that in capitalism the government has to keep its hands off the market function. Even Adam Smith, the father of the modern free market economy, never advocated that the state must not have a role in the marketplace. Smith was concerned with the intrusiveness of the state. Smith argued that the state has three primary responsibilities: protecting the society from the violence and invasion of other countries; protecting members of the society from the injustice of every other member; and erecting and maintaining certain public works and certain public institutions. Protecting consumers or employees from exploitation or preventing the manipulation of market mechanisms are part of the state’s responsibility. Even Friedrich Hayek, an ardent advocate of free-market capitalism, argued that the government has the role of promoting “freedom to compete” for economic agents, in which they have to maintain “rules of just conduct.” Like Smith, Hayek does not discount the role of government in the market. In fact, both of them situate safeguarding the interests of market actors and maintaining optimal market function as an essential role of the state.

Second, within the economic orb, traditional rival thoughts pertaining to the purpose of capitalism - serving capitalists or benefiting a wider segment of the population by opening more opportunities for them to improve the standard of living - still persist. In pursuing the goal of serving and optimizing the interests of capitalists, those in the first camp propose that relaxing rules on corporations and encouraging unfettered competition, along with leaving corporations to regulate themselves, results in a better outcome in the marketplace. The rival camp alleges that this philosophy tolerates “renegade practice.” Therefore, its members call for enacting regulations to limit corporations from engaging in questionable conduct.

Increasing numbers of capitalists have realized that economic reform is needed and that for capitalism to survive, a partnership among the business community, government, and NGOs is a must. These capitalists do not limit corporate activities to business ones. Instead, they believe that corporations must engage in social and political activities too and that alleviating social ills as an integral part of corporate activities. At the core of these capitalists’ beliefs (e.g. Bill Gates, George Soros, Ted Turner, Ratan Tata, etc.) is that for capitalism to avoid a major setback, it has to be inclusive and flexible by adapting to the changing global environment and to social demands. Indeed, Bill Gates calls for having a creative capitalism, a system that is responsive to societal needs and optimally serves the often neglected segment of the society, the poor.

These capitalists understand that greed and cheating do exist and that markets have to have guidelines and monitoring mechanisms to function properly. These can be provided by the government and must not be left to corporations. In addition, the government has to provide public goods, ensure justice, and prevent economic chaos. These functions make the government a natural partner to business corporations. In fact, in an era of economic globalization, the presence of government in the marketplace has taken on an added value. There are several factors which have made government partnerships with corporations at home and abroad a necessity. Chief among these factors are:

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  The shifting of economic influence and power to emerging economies, especially China, India, and Brazil. These countries witnessed a closer cooperation between their governments and the business communities.

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  Economic crises are no longer isolated phenomena and come to require international solutions. Their impact has been immediate and far-reaching, engulfing both governments and corporations and leaving individuals, even in remote areas, powerless and deprived of resources.

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  Mobility of capital across the globe and the flourishing of foreign exchange markets.

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  Governments across the globe competing in attracting corporations to invest in their market.

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  The ascendancy of international production and consumption systems.

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  The ownership of major corporations is no longer confined to a particular home country. In addition, these corporations have senior executives who come from various parts of the world.

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  Transnational crimes and terrorism impact both governments and corporations. Both appear to have mutual interests in eliminating or at least minimizing their reach.

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  Corporations in the last few decades have increasingly assumed social and political roles far beyond their traditional economic concerns.

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  Alliances among corporations across the globe.

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  Sovereign customers along with influential NGOs demand that corporations are held responsible for their conduct and provide safe and quality products.

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  The increasing role of sovereign wealth funds in business affairs and growth and the emergence of state enterprises as global business players; especially those found in China and oil producing countries.

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  Increasing role of transnational organizations in business affairs and in devising policies which simultaneously impact governments and corporations.

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  Increasing participation of major CEOs in global economic summits, among others.

These developments, while underscoring the necessity of government business partnerships, highlight the fact that the environment which eased and facilitated the birth of capitalism in the 18th century only remotely resembles today’s environment. Saving capitalism, therefore, demands creative thinking and new strategies. It calls for discovery and commitment to effective deployment of resources and energizing a national workforce, not waging wars. It further demands opening up economic opportunities for the middle class to expand and thrive. At the top of a list of priorities should be investing in upgrading and developing infrastructure, establishing institutions that strengthen responsible and transparent conduct, and encouraging corporations to invest in human capital formation while safeguarding the dignity of the majority of the population.

Capitalism is a man made system and it has to be responsive to the emerging and changing needs of the majority of the population. Treating capitalism as an instrument for the service of the few is a bankrupt ideology and certainly leads to the eroding of national competitiveness. It is an ideology that overlooks reality, discounts global logic, and contradicts contemporary societal and global events.

Abbas J. Ali