Capitalism – a profit based economic system in which all or most means of production are operated and owned privately. Capital investment as also production, distribution and prices of goods and services are determined in a free market, rather than by the state.
Socialism – State owns the resources and the property. Production and resources are shared between people by the government.
Democracy – A system where all people collectively choose a smaller group of people to decide for them, the applicability of socialism or capitalism on a case by case basis.
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Yesterday, around 2 P.M. we lost power at our office. It lasted all for 5 minutes. One of my colleagues complained- “See what happens when you vote Kejriwal in, now there is going to be power cuts in winter, I can only imagine how summers will be like”. Interestingly, less than 2 months back he had voted for AAP in the Delhi elections. “He will cut electricity prices and ensure water for all but think about it, aren’t the resources limited? He needs to cut it back somewhere, which means we will get less of it” he went on, “get ready for a horrible summer”.
This got me thinking – is this friend of mine absolute nuts!!
He voted this man in, knew full well that there were some water and electricity redistribution plans and yet he is now upset with what? His own voting decision? Should he not be happy? His candidate won. I am not sure if I am more amazed at how quickly perceptions change or how careless people are with their vote. I am not particularly supportive or against any political outfit. If at all, I am quite a fan of Arvind’s style and expression. Especially the bit he does with that epic barb – “Sir ji, hum kaun log hain”? For that reason alone, I wish he stays around.
Anyways, coming back to the point – what role does capitalism play in deciding who comes to power? In fact, who really decides who comes to power? Is it really the aam aadmi? The burgeoning middle class of India? The media? The minorities? The super rich? The poor people?
- Basic math – Whoever gets the maximum number of votes comes to power.
Now if it is votes and votes only, then cutting electricity in a few VIP areas will save you enough MWs to light up 1000s of poor households.
- Basic math here – 4 votes lost and 100 votes won. Is that such a bad thing?
It begs the question – why don’t governments do more of this then? Why 24 hour electricity in VIP areas and none in slum clusters?
More people more problems – a typical retail sector nightmare.
In the simplest terms, too much effort will have to be put in, in order to get the poor votes if each of their demands had to be satisfied individually. There are just too many poor people all of whom have different demands.
Rich people on the other hand have the power to incentivize the candidate as also the money to influence the voter. Most of all, they are few in number so you know who you have to talk to.
How the whole voting scheme runs in a pure capitalist structure:
- Get a commitment from the candidate – if he comes to power he will do – X (like granting the company a right to set up a power project)
- Start marketing the candidate – Use media, hire some local people in the candidate’s locality, and finally, doll out some freebies (especially for a few months before the elections).
- Market everything that is wrong with the current system.
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Of course everyone wants to be rich. The inherent nature of capitalism is such that once the poor voter becomes rich he behaves no different. What could be an ideal solution? Is there such a thing as a socialist democracy?
You may also like to read the – Indian Economic Outlook – 2014 and my post on the Stock Market Outlook for 2014.
Alok Rodinhood Kejriwal
“Socialist Democracy” sounds like “Paav Bhaji Dosa”.
Its SHIT.
Govts. that TRY and implement this are neither Democrats or Republicans. (if you follow US Politics)
If you look at the massive collapse of the Socialist philosophy (Marx said – from each of his ability to each for his need), the concept of ‘Socialising democracy’ is a failure.
Why?
Coz MANKIND always looks upwards.
No one wants to be cast in any segment and then be stuck to it.
Marx felt that if the poor and middle class are not catered to, there will be an uprising and there will be a massive revolt leading to bloodshed and chaos.
That never happened.
All the major coups of the world have happened thanks to bad governance (mistreating or creating communal hatred) or raping the land of the country (Sudan, Balkans, French Revolution), never by people striving to do better and giving up.
Examples like Japan, Korea are shining examples of how a Country’s destiny is shaped by ALL ITS CITIZENS who move up in life – not in segments.
Germany after the second WW did exactly that – they rose vertically and repaired the vagaries of WAR.
Russia (complete believer in segmenting) had disintegrated and had the visionary of Gorbachev who lit fire to the dead corpse and reset the country.
China – still remains completely communist and hence a big bubble. (I have lived in and out of China for 5 years and built and sold a company there – ask me what the REAL CHINA is).
Look at Cuba, North Korea – folks who pretend to CURATE their countrymen – see what has happened!
2 interesting case studies:
30 years ago, at the height of the Cold War, a very prominent Economist set out to study the largest Steel Factories of the world and understand their approach to costings.
In his visit to a USA factory, the factory manager rattled off each and every cost input – including the cost per tonne of steel that the was added thanks to the lunch that was served everyday to the workers. The factory manager knew his costs to the last cent.
Impressed, the Economist then travelled to Russia.
There, the factory manager DID NOT UNDERSTAND the notion of COST. He showed the Economist the rail tracks that bought the raw material in, and the way they made steel and shipped it out. He did not understand what COST meant. The Russian govt supplied everything and took away everything. All he did was manage the process and pay the salaries (he did not understand why the salaries were fixed at what range) on time.
On a cost comparison done by the Economist, the Russian factory was producing Steel at 11X the cost of the USA factory. It was DOOMED.
Why? Coz there was NO OWNERSHIP of the business – the Russian system divided people into managers and workers – without any fear of them losing their jobs!
We know what happened to Russia….
In another very interesting case, there was a study why TIME SHARE HOLIDAY HOMES have failed to succeed in the world (I think Club Mahindra is also a duck):
It showed that intuitively people KNOW that their income and standard of living over years will IMPROVE each year of their lives – hence they DONT WANT TO COMMIT to a fixed standard of vacations (the quality of holiday homes typically remains fixed over years).
No one wants to be guaranteed a shitty 3 star hotel room for the rest of their lives (remain middle class) , when I can easily stay in a 5 star room (be rich) after a few years…
Clubbing together of 2 diverse ideologies is DEAD.
The flip is entrepreneurship – thats what liberates ALL CLASSES. Who was Marc Zuckerberg before facebook? Which classification did he follow? Dhirubhai, Google, Bill Gates, etc? Who was Steve Jobs father?
Virendra Pandey
Socialism is driven by virtue, virtue as defined by Mandeville is “every performance by which man, contrary to the impulse of nature, should endeavor the benefit of others, or the conquest of his own passions, out of a rational ambition of being good” It is detrimental to the state and its progress.
He defines “But it is the vice which which alone, by means of inventions and the circulation of capital in connection with luxurious living, stimulate society into action and progress”
The question has always been about choosing between these two extremes.
Both extremes of the economic philosophy have failed in history. United States a pure capitalist nation of the 19th century had to re balance its economic policies. A right blend of both economic philosophies is required for economic growth.
In India it is the deficiency of capital which makes serving the masses impossible. We just don’t have enough energy to produce electricity. We don’t have good technology to increase our incremental capital output ratio (Low productivity). And we don’t have capital for technological shift.
Its not about making promises to the masses, these promises can’t be fulfilled due to the scarcity of resources.
There is electricity in VIP area because they are paying for it. They are working so they can get profit/wages which can be used to afford these amenities. If someone is making profit/wage he is contributing into economic growth. You can’t deprive them of these amenities or else they will stop working which will be detrimental to the economic growth of the nation.
A socialist nation focuses on ‘forced savings’, so that this can be channelized into investment. Investment by State owned enterprises so that they have control over the surplus. This surplus is utilized for public expenditure. (Social expenditure) This is redistribution of income. Taking from rich and distributing to poor. But this forced saving can lead to less consumption which will hamper the economic growth (one’s consumption another’s income). Government have to trade off between the more productive investment (investment by the rich) and less productive investment (investment by the government. This mechanism of redistribution of wealth could lead to public unrest if productivity fells significantly.
Since more savings will be needed for redistribution.
Socialism can prevail only and only if you are able increase/maintain the productivity. (Total productivity factor)
To a certain extent China was successful in implementation of Deng Xiaoping’s economic reforms (1979).
From 1978-2005 China’s total factor productivity (TFP) grew by 3.8%. (Dwright Perkins and Tom Rawski). While US’ TFP growth from 1973-1990 was below 1%.
Indeed India has socialist democracy, leaders make false promises or the promises which are not economically viable (your observation) just to attract the masses.
There is nothing wrong with making nonviable promises but its fulfillment can result into economic mishap.
Government is helpless, they need to make promises because if they don’t someone else would. (Game theory common knowledge)
People in power strive for striking a balance in allocation of capital between high productive and less/non productive investments.
Socialist capitalism can survive only and only if the redistribution mechanism is efficient so that haves and have nots both are satisfied.
Rajat Sharma
Really interesting case study on Russia and the U.S. Alok. I remain in no doubt that capitalism has a lot more merit. The limited discussion point which led to the piece above was this – Is’nt merging socialism with democracy somewhat of a necessity for the very people who become rich? No matter what strata of the society they come from.
Imagine a situation where the government does little to safeguard the interests of the poor hence alienating them further. Imagine if government spending and support is replaced with total capitalism. In a country like India, where a large group of people feel that they are not given an equal shot at things, would that not create a society prone to absolute anarchy?
So while I agree with capitalism 100%, yet find it difficult to imagine a situation where capitalism takes over completely. Where you draw the line will be open to debate in all democracies, including the United States, which I think is a ‘much lesser socio-democracy’ than India. May be most capitalist in the world. No one would dispute that I think.
Virendra Pandey
I do agree merging socialism with democracy is necessary. Pure pro capitalist growth brings income inequality.
A right blend of socio-economic policies with pro market policies is necessary for reducing income inequality. In the long run income inequality hurts economic growth. Public unrest is inevitable if the economic policies are entirely motivated by capitalism. After all, we aim at economic development not economic growth.
I do not doubt the might of US economy, but there are issues relating to income inequality which needs to be fixed. (Occupy Wall Street movement).
We do have examples across the world substantiating the need of socio-economic approach in policy making, for example – United States’ healthcare reforms, France’s 75% tax rate etc.
But a populist government is completely detrimental to economic growth.
A difference should be made between being a populist government and the one having a socialist approach.
Vivek Srinivasan
Politics inherently involves money, no election campaign can be fought without money.
Some countries are open about the money coming in and source from which the money is coming, some countries don’t. We just need to cultivate a culture of making this transparent.
Kasthuri Kumaran
Having tried different ideologies from communism to socialism and capitalism, we understand the shortcoming of each ideologies. Also understanding hard coded human nature and traits, it is easy to foresee combining socialism and democracy will not be the ideal solution – Reasons are: it kills incentive to work hard & with a huge population expecting ‘hand me downs’, a country like India will be down the drain in no time.
While I don’t have the panacea to cure ills of the country, my 2 bitcoins:
1. Economically : Survival of the fittest – encourage competition, encourage entrepreneurship, encourage free trade. If you call it capitalism, let it be.
2. Politically: With India’s rotten political roots, uneducated / ignorant population & apathy of educated mass, democracy is not the panacea but the better evil. I hope our thoughts would evolve soon to catch up with ideologies like libertarianism.