Market participants will be nervously watching developments out of Athens as the countdown to PSI's paradox has commenced. These days, it seems like the entire world is on a 'razor's edge'. A senior pension fund manager told that the mood at Davos was "decisively somber" and that the Chinese boycotted this year's World Economic Forum because it fell on Chinese New Year.
How stupid! As I wrote last Sunday, Davos was another monumental failure. The word's "power elite" failed to address the most pressing socio-economic problems of our time, namely, youth unemployment, inequality and the retirement crisis looming across the developed world.
I happen to think that most billionaires are completely out of touch. As they jet-set all around the world, working on their next deal, they fail to realize what is going on in the world. There is a cancer in modern day financial capitalism that has yet to be addressed.
Vivek Dehejia, an economics professor at Carleton University in Ottawa, wrote an excellent op-ed column for Hindustan Times, Can capitalism and morality be friends?:
‘Does the free market corrode moral character?’ This is the provocative title of a recent online conversation hosted by the John Templeton Foundation. The lead essay was penned by the economist Jagdish Bhagwati, an ardent advocate in favour of globalisation and free trade.
Bhagwati essentially restates the case made by Adam Smith more than 200 years ago: The free market, far from corroding moral character, enriches it. Smith’s original thesis was that the uncoordinated action of selfish individuals, when given play in the market system, would ultimately lead to the best outcome for society even though each individual is only pursuing his own interest. This occurs by itself as though the actions of individuals are guided by, in Smith’s famous phrase, an ‘invisible hand’.
But Bhagwati doesn’t merely restate Smith’s case; he adds to it. He writes approvingly of the Protestants of Europe and the Jains of Gujarat, who turned profit-making into a virtue by funneling their wealth to good causes such as charity, rather than to ‘conspicuous consumption’. This example, paradoxically, would seem to undermine the thrust of the original Smithian case since it concedes, implicitly, that self-interest must be embedded within a framework of morality for it to have its desired effect.
In a recent blog post for the Financial Times, this wedge in the door is thrust open by American economist and social activist Jeffrey Sachs, who is, ironically, Bhagwati’s colleague at Columbia University. The title of the essay tells us immediately where Sachs is coming from: ‘Self-interest, without morals, leads to capitalism’s self-destruction’. Taking a leaf from John Kenneth Galbraith, American capitalism’s sternest critic from within its fold, Sachs invokes the prospect that self-interest, unalloyed by redeeming moral virtues, will lead to “gluttony”.
Yet Sachs’s case, or Galbraith’s, harks back at its core to the thinking of Karl Marx, who presents a view of the world diametrically opposed to Max Weber. If, for Weber, it is values that create an economic system, Marx turns this argument on its head. In the Marxist vision, it is, rather the economic system that generates the values that support it, with individuals who have imbibed those values often not even conscious of this process, or “falsely conscious” of its opposite. Thus, the Protestant ethic exists to legitimise the process of capitalist accumulation, rather than creating it in any causal sense.
The conflation of these two conflicting ideas has allowed great wealth and great poverty to co-exist in the heartland of Anglo-American capitalism. Even today, some latter-day Christian evangelists will tell their flock that great wealth is a sign that god has looked favourably upon them, and, by implication, poverty is a signal that one must have sinned pretty badly along the way. At its psychological core, it’s not that different from the doctrine of karma, which allows those who believe in it to rationalise one’s success and another’s suffering.
So who is right? Weber or Marx? Bhagwati or Sachs? The truth, as often it does, probably lies somewhere in between. It’s true that markets, when left to themselves, tend to produce greater wealth than any other economic system humans have ever known, and that this wealth may be deployed for the social good. But it’s also true that markets are prone to failure, to capture, and to be preyed upon, and that the very individualistic ethos of capitalism, its Darwinian, winner-take-all mentality, will churn up great inequalities of wealth and income. Income and wealth inequalities in America are more uneven today than at any time since the Great Depression.
And here in India, our embrace of economic liberalisation, however partial it may be for its acolytes, has produced billionaires and fueled an emerging middle class, while it has left many others, who lack the tools to succeed in the cut-throat capitalist world, out in the cold. Just how moral it is for the richest man in India to tower above a shanty dwelling at his feet is, as with so much in this country, in the eye of the beholder.
My biggest fear is that great inequality will lead to desperation and social unrest throughout the world. So, as Madonnna sings and dances during today's Super Bowl halftime show, promising the "greatest show on earth", I think she needs to go back to 1993, and sing Michael Jackson's classic, Heal the World. At a time of great economic uncertainty, the world needs lots of healing. It also needs a prayer and a ray of light. :)