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Is capitalism solution to India’s current problem?

What Is Capitalism?

Capitalism is an economic system in which private individuals or businesses

own capital goods. The production of goods and services is based on supply and
demand in the general market—known as a market economy—rather than through
central planning—known as a planned economy or command economy.

The purest form of capitalism is free market or laissez-faire capitalism. Here,

private individuals are unrestrained. They may determine where to invest, what to
produce or sell, and at which prices to exchange goods and services. The laissez-faire
marketplace operates without checks or controls.

Capitalism problem or solution?

The consternation among political parties over the final draft of the National
Register of Citizens (NRC) in Assam is a vantage point from which we can discuss
capitalism’s Achilles’ heel: culture and identity. From an economic and market
perspective, the religious or ethnic identities of undocumented migrants from
Bangladesh do not matter. Most of them, including those facing religious persecution,
are here because our economy needs them in some way.
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The 1.9 million exclusions from the NRC list have sparked controversy for
different reasons among different groups. The Assamese believe that the numbers are
too low and understate the problem of illegal immigrants; the Bharatiya Janata Party
frets that the numbers of “persecuted" Hindus excluded are too high; nominally
“secular parties" think that so many Muslims being excluded is a blot on India.

In the bastions of capitalism, from the US to Europe, Japan and China, there is
serious opposition to the free flow of one key factor of production—labour.

In culturally homogeneous capitalist countries like Japan and China, they allow
almost no migration at all. Japan is paying the price for it through economic stagnation,
and China will pay the price sometime later.

To repeat an oft-mentioned truth, migrants play an important role in any

capitalist economy for they are willing to do what other citizens are not. Or, at any rate,
are willing to work for wages that employers find viable.

If you claim to believe in market economics, then you are a fraud if you think
only capital and technology should be allowed to flow freely across borders. Land
cannot be moved, but foreigners can invest in land and property through the use of
capital. Only labour is barred, largely due to non-economic reasons like culture and
xenophobia.

However, it is pointless to label resistance to immigration as just xenophobia—

a purely negative term. The reason: when something is so inherent to being human
(we prefer people like us to those who are not), giving it a pejorative label is
problematic. Rather, if capitalism and free markets are to succeed, we must accept
that barriers exist in the case of labour movement.

This can have several negative outcomes. If labour is denied free movement,
logically countries that export labour will ultimately resist the movement of capital and
technology. Capital and technology often replace labour in the short run, and if capital
movement is free, jobs in the home country can get impacted. Many countries,
including India, still have controls on free capital movement and ownership of property
and land for this reason. This rule operates even within countries. Indians cannot own
property and land in Kashmir—hopefully this will change after the abrogation of Article
370—or Nagaland or much of the North-East, or in several tribal areas. This wall to
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prevent the movement of capital and labour is a major reason for the relative
underdevelopment of these states. Only “social activists" who believe they are
preserving some pristine form of local or tribal identities benefit from this blockade.

Can capitalism coexist with people’s cultural resistance to immigrants? Donald

Trump wants to change laws that allow someone born in the US to claim a right to
citizenship automatically. Even though this sounds discriminatory, one should ask
whether laws related to citizenship legislated in the heyday of mass migration and
colonization of sparsely populated regions should not be re-examined. The laws need
to change since the primary resistance to migrant workers is not just over a cultural
shift, but also because they will become citizens over time and alter demographic and
power structures.

The only way to square the circle in order to keep capitalism alive and kicking
is to separate the right to work across borders from automatic rights to citizenship,
including citizenship for children born to immigrant parents. Citizenship and the right
to vote should involve much greater scrutiny of the levels of cultural assimilation
possible, so that local resistance is minimized.

Last week an article was published in The Bull and Bear titled “Capitalism is
Ending Poverty and Solving Climate Change. Socialism Is Incapable of Doing Either.”
The article argues that poverty and climate change are being solved by capitalism,
making the current system the best way for the world to continue to grow in a
sustainable manner. Here, I’m seeking to challenge that assertion by providing an
alternative perspective on capitalism’s viability as a sustainable economic and political
system. I want to discuss the real negative effects capitalism has had on international
development, namely through exploiting developing nations like India to uphold the
success of the developed world. Further, I want to contradict the idea that capitalism
is the reason poverty and climate change are being addressed in fact, those issues
can be seen as a direct result of the capitalist system. Capitalism is at the source of
many structural issues in society. It promotes economic growth, but also perpetuates
inequality in both income distribution and power relations, often at the expense of the
well-being of the poorest members of society. If countries want to continue to prosper,
they need to promote plans for sustainable growth that capitalism simply does not
support.
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Capitalism is defined as an economic system where the factors of

production are owned by private entities, not the government. The pursuit of profit is
the prime objective in such a system. In theory, profit and wage are set through
competition so that both firms and labourers profit. However, theory does not
necessarily represent reality.

Firms can increase their profits by slashing wages as much as possible. While
the basic rules of supply and demand clearly affect wages, the competitive equilibrium
does not necessarily guarantee a liveable wage. When the government does not
provide protections like a minimum wage, companies will inevitably exploit workers
through lower wages in order to increase their profits. The basic tenant of the capitalist
system is that workers and companies have competing interests.

Before unions were widespread and established within the India,

employees could not bargain collectively for wages that would allow them to live
comfortably. Even today, the minimum wage argument is still contentious. The current
federal minimum wage has not been adjusted for inflation and is much lower in real
value than it was in the 1970s. Raising the minimum wage to a living wage is seen as
detrimental to economic activity, as falling profits would discourage firms from
conducting business in the areas with the higher wage. However, exploitative wages
can also have a negative effect on the economy by reducing the overall amount of
disposable income that low wage workers have, not to mention the moral implications
of paying the lowest earning portions of society less than a liveable wage. The defence
of low wages can be seen elsewhere in the world today. For example, many
multinational companies take their factories to countries where they can pay
workers less to increase profits. Capitalism as an economic system in practice relies
on private profit to the point where welfare falls to the wayside.

In order to justify exploitative wages, capitalist society, especially in the India,

encourages the narrative hard work and dedication as conducive to economic
success. However, class mobility is not that clear cut. The vast majority of people will
end up in the same income bracket as their parents. Those with the greatest chance
of success to become truly rich are people who are born into middle class and upper
middle class families. Money begets money. Poverty begets poverty. For many, the
best or only path to social mobility is education, but in a capitalist society higher
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education is not easily accessible. While barriers against marginalized people are
slowly being removed, university is becoming increasingly expensive, creating
effective economic barriers. This is one example of the many ways that countries
construct economic and political systems with only a certain class of people in
mind. When people who fit this default cast succeed through hard work, they are used
to uphold the narrative that capitalism benefits all who work hard. This narrative
ignores systemic barriers against economically or otherwise marginalized people.

Not only does capitalism promote inequality within individual countries, but it
also reinforces unequal international relations. In order for wealthy countries to have
cheap and affordable goods, they must rely on poor countries to supply inexpensive
labour and resources. Dependency theory proposes that colonialist countries continue
to benefit from unequal power relations with former colonies through the global
capitalist system. While, like most theories, dependency theory has flaws, its basic
principle is still valid.

Developed countries rely on them to provide necessary goods at little cost,

which means the minimum wage in countries is far below the living wage. For
example, minimum wage in the UK ranges from £3.50 to £7.50 an hour, whereas in
India, a former British colony, the minimum daily wage in Delhi ranges from £4.56
to £5.54. The lowest paid worker in the UK can make more in 2 hours of work than a
skilled worker in India can make in a day. In line with this, Foreign Direct Investment
(FDI) in India by the UK exceeded 13 billion pounds in 2011, compared to just under
3 billion pounds from India into the UK.

Because of a long history of exploitation, former colonies do not have the

independent economy to provide a market big enough to sustain certain industries
without developed countries, nor can they develop independently from the world
market. This power imbalance mimics the unequal power relations within developed
countries.

While poverty has gone down and is continuing to decrease, this is not
inherently a product of capitalism. Economic growth has led to increased income and
quality of life for many people, but if it weren’t for re-distributive policies, this money
would have stayed in the hands of very few people. Capitalism promotes the idea of
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profit as the bottom line while ignoring the realities of poverty and failing to promote
social welfare programs. The pursuit of success and profits can mean exploiting cheap
labour or actively contributing to climate change. Last year, Martin Shkreli, the CEO of
Turing Pharmaceuticals, raised the price of AIDS medicine from $13.50 USD to $750
USD. This extreme case exemplifies exploitation justified by capitalism — to increase
profit margins at all costs, even the lives of the poor and ill.

One might point to companies such as Tesla to show that capitalist companies
are benefiting the world by supporting environmentally friendly business practices that
are beneficial to society as a whole. However, capitalism itself does not support
environmental protection. Protecting the environment does not inherently lead to profit,
so it is not a desirable goal for most companies. The Keystone and Dakota Access
pipeline are predicted to cause massive damage to the environment, not to mention a
massive amount of distress to indigenous groups, but are being implemented despite
those facts for company profit. Similarly, Volkswagen was found to have created
technology to lower carbon emissions while cars were being tested. This enabled the
company to market their cars as environmentally friendly without investing in actual
sustainable technologies, which would presumably increase costs. Many more major
corporations actively ignore the environmental repercussions of their actions in order
to profit, exemplifying the way capitalism prioritizes profit over long term sustainability.

Furthermore, Tesla’s open patent on certain technology is itself anti-capitalist

in that it encourages innovation and allows others to profit off of their technology.
However, the actual execution of this promise has been inconsistent. If companies
willingly shared their research, there could be huge beneficial implications for scientific
and medical research. However, most companies cannot afford to lose the money
spent researching by not patenting profitable intellectual property, be it in the form of
lifesaving drugs or more efficient technology. A research culture that is not based off
of the capitalist pursuit of profit could allow for a greater degree of knowledge sharing
and innovation and increase the speed of progress.

Capitalism is often argued as the only possible system because of failings of

communism in the 20th century. Communist authoritarianism has been responsible
for millions of deaths around the world, notably in the Soviet Union and China, but it is
not representative of socialist ideologies today. There are a broad range of ideologies
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that fall under the title of socialism that are viable alternatives to certain capitalist
practices. For example, market socialism maintains the uses of the free market while
incorporating greater re-distributive policies by the government. Another example
would be democratic socialism, which most recently garnered attention in the U.S.
because of the presidential campaign of Vermont senator Bernie Sanders. It includes
proposing universal health care and a living wage through the mechanisms of
democracy. Socialism has policies that have been shown to narrow the wealth gap,
which is one of the clearest indicators of poverty reduction.

Student anger at the capitalist system is largely based around the ideas that
I’ve expounded upon in this article. Those who criticize capitalism are criticizing the
systemic barriers that are in place that curtail social and economic mobility among
marginalized people. The idea that hard work will lead to inevitable success is only
true for an extremely specific kind of person. In order to remedy the negative effects
of capitalism, government policy must account for its historical context as well as its
current realities that prevents equal opportunity and exploits the poor. Socialist policies
offer key insights into how society and the global economy can continue to progress
in a way that benefits the greatest amount of people possible through sustainable
growth. Capitalism does not need to be defended. It is not harmless or progressive,
and society must recognize the failings and inequalities inherent in the current system.

Since the outbreak of the 2008 financial crisis, criticism of capitalism has taken
on a new dimension: Apparently, the market economy has failed, thus we need more
government intervention. Critics like to compare utopian visions of a “just” society with
reality – of course, reality comes off badly.

At the end of the 1950s, 45 million people died in China as a result of the
socialist experiment that Mao called the “Great Leap Forward”. Most died of hunger.
After Mao’s death, the previously omnipotent state and its planned economy was
gradually scaled back, more and more space was given to the market, and private
property was reintroduced. Result: Hundreds of millions of Chinese rose from poverty
to the middle class.

In the GDR, communists spent decades proclaiming that the socialist planned
economy would overtake the capitalist west economically. When the GDR collapsed,
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16 percent of households had a telephone, compared with 99 percent in West

Germany. East Germans had to wait 12 to 17 years for a Trabant (a no-frills East
German car) – in West Germany, every citizen could go to a car dealership and choose
from a wide selection of quality vehicles.

Before Korea was divided into a capitalist south and a communist north in 1948,
it was one of the poorest countries in the world, comparable to sub-Saharan Africa.
South Korea has experienced an incomparable ascent thanks to its capitalist
approach. We all know and use products from companies such as LG and Samsung,
and people in South Korea live in prosperity. North Korea, on the other hand, with its
state-run planned economy, is as poor as it gets; on numerous occasions, famines
have cost the lives of hundreds of thousands.

But the superiority of capitalism has not only been confirmed by the competition
between communist and capitalist countries. All forms of “democratic socialism” have
failed, whether in Britain in the 1960s and 1970s or in Sweden in the 1970s and 1980s.
It was only when these two countries, after miserably failed experiments with
“democratic socialism”, rolled the state back again and gave the market more room
that they found their way back to growth and prosperity.

Capitalism has also proven its superiority in South America: Venezuela was
one of the richest countries in the world 50 years ago. It became poorer and poorer as
a result of state over-regulation, and the final decline began with the rise to power of
the socialist Hugo Chávez, who was so admired by anti-capitalist intellectuals. Chile,
on the other hand, is one of the most capitalist countries in the world, and its people
are better off than ever before. In the last 30 years, Chile’s economy has grown by
about five percent a year, while in Venezuela, the country with the world’s largest oil
reserves, inflation is higher than anywhere else in the world.

The Index of Economic Freedom measures economic freedom in 180 countries

every year. In 2018, the Index rated 34 countries as economically (predominantly) free
including Switzerland, Australia, Sweden and the Netherlands; and 21 countries as
completely repressed including North Korea and Venezuela. In every case, freer
countries perform better economically than repressed countries. Hunger and poverty
prevail where there is a deficit of capitalism, for example in Africa. History is a large
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experimental field – and the results are clear: In those countries that dare to give
capitalism freer rein and reduce the influence of the state on the economy, people’s
lives improve constantly

Economic disparity is leading to a middle-class with minimal income growth and

a risk to our institutions with policies being driven by an elite few. Decisions being
made with short-term and financial-only perspectives are leading to a moral erosion
within corporations and society.

The problem of capitalism raises the possibility of weakened political institutions

and a strong sentiment of distrust within society. While CEOs and executives, boards
of directors, and lobbyists are stakeholders with more power and influence,
employees-as-citizens are vulnerable without the ability to address the problem of
capitalism without assistance from the other key stakeholders.

Over the last few decades, we’ve seen a variety of solutions that attempt to
correct this imbalance. Solutions to lessen the vulnerability of employees-as-citizens,
I believe, include the following:

 Mandating employee representation on boards of directors

 Linking CEO-to-worker compensation ratios to a scaling corporate tax
rate
 Annual reporting on corporate social responsibility initiatives and
outcomes

These solutions do help on the micro level, but we need to begin a collective
effort to address it on a larger scale. First, it starts with understanding the Capitalism
Problem.

Understanding the Capitalism Problem

Economic Disparity

One place economic disparity begins is within the compensation mix of a

corporation. Uygur (2018) reviewed S&P 500 companies and found the average CEO-
to-worker compensation averaged 244-to-1 between 1998 and 2016.
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In reviewing the top 350 corporations by sales, the CEO-to-worker pay ratio
has hovered in the 300-to-1 range since 2000. CEO compensation includes stock
options, stock rewards, and bonus pay, and the combination represents an over 1,000
percent increase in CEO compensation between 1979 and 2017.

With a growing compensation gap within companies, it quickly extends to

society and impacts economic class. Middle-class family income levels in 2016 were
comparable to 1989 levels. Income growth was faster for the top 20 percent,
experiencing a 95 percent growth compared to 28 percent for the middle-class
households.

While the middle class hasn’t experienced significant income growth in recent
years, the wealthy have and continue to do so. The U.S. has experienced a rise in the
wealthy top one-percent by more than half of countries with similar productivity and
technology characteristics; the other countries have not strayed too far from their late
1940s level, according to Alvaredo et al. in 2013’s The Journal of Economic
Perspectives.

Weakened Ethics

Another hardship for the middle class: the corporations aren’t always ethical
and don’t empower the average middle class worker. Sixteen percent of employees
experienced pressure to compromise standards in 2017, a 23 percent increase since
2013 (“The state of ethics,” 2018). Employee pressure creates weak organizational
cultures, which are three times more likely to compromise standards (“The state of
ethics,” 2018).

In 2017, 40 percent of employees believed their company had a weak ethical

culture (“The state of ethics,” 2018).

While employee pressure and weak organizational cultures can create an

environment of distrust and unethical decisions, the 2008 global financial meltdown
delivered an added sense of concern for business ethics. Employees have a low level
of trust in the market economy and ethics continues to be a cited as a major challenge
for workers.
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Should capitalism be held accountable to facilitate making the right decisions

for workers and society? Some argue that it should.

But one thing is clear: capitalism has challenges that are human, organizational,
and economic in nature.

Listen to the Activate World podcast and gain insights into business leader
activism.

Although a discussion of policies can be passionate, addressing the problems

of capitalism cannot be ignored. Concerns with the growing disparities and ethical
decline will appear in elections and with citizens who desire a better model of
capitalism. Capitalism’s problems need to be addressed to limit the political power of
the wealthy few and renew the moral foundations of our economic system.

A widening economic disparity matters because economic inequality limits

economic freedom and increases the political power of the elite to gain approval of
economic policies they want, according to authors Krieger and Meierrieks in
2016’s European Journal of Political Economy. The quality of institutions in a
democracy begins to fail, especially for the middle-class, Krieger and Meierrieks state.
Widening gaps trigger policies to be one-sided and institutions to weaken, leaving
capitalism with lessening accountability. Moreover, with the economic elite having a
greater influence on policies favourable to them, the middle-class will unlikely gain
policies to improve their economic standing, according to Krieger and Meierrieks
(2016).

Another element is diverting capital from its most productive use. When the
wealthy can exert greater influence on tax policy, regulations, and spending priorities,
funds can be diverted to unproductive uses, says Gottschang (2016) in Perspectives
on Political Science.

Without adequate resources directed toward low-income families, education of

their children can suffer, making it difficult for them to raise their income levels as they
become adults, Gottschang said.
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Addressing the problems of capitalism relates to a strong

society and institutions. Having a strong middle-class maintains a
balance in the government and the corresponding policies.

Shareholder primacy and short-term incentives place companies on a path that

can drive decisions that negatively impact employees and widen income gaps
between executives and employees, according to Segal (2017). When this happens,
companies begin to lose their moral underpinnings, he argues.

In a recent trust survey, only 20 percent believe that the capitalist system works
for them with nearly 50 percent believing the system is failing them. Losing our
foundational trust and moral underpinnings can create negative ripples throughout
business and society if left unaddressed.

Capitalism is a system that underlies our economic, political, and moral

principles, and ongoing scrutiny is necessary to maintain the ethical values that deliver
a strong social and business order.

Solution to Basic Problems in a Capitalistic Economy

We see that capitalism is problem more than solution so to avoid that problem
we should follow this solution

Under capitalistic economy, allocation of various resources takes place with the
help of market mechanism. Price of various goods and services including the price of
factors of production are determined with help of the forces of demand and supply.
Free price mechanism helps producers to decide what to produce.

The goods which are more in demand and on which consumers can afford to
spend more, are produced in larger quantity than those goods or services which have
lower demand. The price of various factors of production including technology helps
to decide production techniques or methods of production. Rational producer intends
to use those factors or techniques which has relatively lower price in the market

The end