Capitalism is considered by many to be the most effective way to allocate resources and facilitate economic growth. Indeed, the spread of capitalism has seen the development of large middle classes over the past couple of centuries.
However, unbridled forms of capitalism have been blamed for triggering periodic economic crises and excessive volatility, causing resource depletion and environmental degradation, continually increasing the wealth of a few and widening income gaps, and thus keeping millions of people hungry and in poverty. In particular, the financial crises of 1997 and 2007–2008 illustrate the processes and consequences of unchecked capitalism.
Greed drives predators to exploit any loophole in the system, causing considerable economic and social distress to others. An alternative, more benign, sufficiency oriented model of capitalism is needed to help create a fairer and more sustainable world.
“A persistent assumption seems to be that economics is the only viable lens through which to view the world,” said Dr Prasopchoke Mongsawad, Assistant Professor, School of Development Economics, National Institute of Development Administration( NIDA). “One could be excused for thinking that economic indices such as GDP growth rate, share prices, exchange rates and corporate profits are all that matters. However, each of us knows that there is more to life than just making money—particularly health, family, community, religion and happiness. Governments measure many economic indices, but rarely outcomes such as Gross National Happiness, as Bhutan has done. Recurring economic, social and environmental crises indicate that an over-reliance on economic theories and dysfunctional market models that do not consider social and environmental imperatives can have disastrous consequences for individuals, enterprises, countries and the entire planet.”
“Understandably, many people—especially in emerging economies— want to ‘catch up’ economically with their counterparts in the developed world, and often seek to do this by adopting forms of capitalism that are widely advocated, notwithstanding their manifest failings. The solution, therefore, is not to eliminate capitalism, but rather to ‘civilise’ it: a solution that considers social and environmental needs and is tempered by moderation, reasonableness and prudence.”
To be clear, some of the more extreme manifestations of capitalism are not the result of following any particular theory of economics, but instead a mutation of an essentially reasonable idea, namely the free exchange of goods and services. The United Kingdom Parliamentary Commission on Banking Standards’ finding that the global banking sector manipulated the markets, incentivised and rewarded banker misconduct, took excessive risks and condoned managerial ignorance exhibited before and during the Global Financial Crisis, cannot be explained in terms of any particular theory of economics. It simply is a case of moral failure that resulted from poor governance, inappropriate incentives, ineffective enforcement policies, regulatory deficits, governments and parliaments neglecting their responsibilities, and poorly functioning and undisciplined markets.
A second feature of all market economies is wealth inequality. French Economist Thomas Piketty’s analysis in his book “Capital in the Twenty First Century” shows that ‘inequality in the United States is probably higher than in any other society at any time in the past, anywhere in the world…with the American one per cent owned about a third of all the wealth and the European one percent owned about a quarter.”
REGAINING CONTROL OF CAPITALISM
While Piketty holds that capitalism automatically generates arbitrary and unsustainable inequalities, he does not propose eliminating capitalism. Neither does Joseph Stiglitz, an American Economics Professor at Columbia University and Nobel Memorial Prize Winner ( 2001). Instead, these economists from different traditions suggest that we need to regain control of capitalism and ensure that the public interest reigns supreme. Interestingly, Piketty dismisses employing alternative systems, such as socialist or communist regimes.
The task is to improve capitalism, starting with eradicating—or at least reducing—poverty. At a global level, there has been some alleviation of poverty, most notably in China, but also in Indonesia, the Philippines, Thailand, Malaysia and Vietnam.
Benign forms of capitalism
“The good news is that more benign forms of capitalism exist, where the wealth and benefits are more evenly shared across society, and damage to the environment is minimised. Think of the Scandinavian countries, for example, which lead the world on most social, economic and environmental indices. The ways in which various countries develop and apply capitalism have profound effects on national economic, social and environmental performance. Rather than damning mainstream economic theory in its entirety, it is useful to identify some of the key differences in how various countries apply the theory, and then examine the pros and cons in each case.”
Parallel to this, alternative frameworks for economic development have arisen. Examples include the circular economy, which is concerned with the intelligent use of natural resources and environmental conservation for future generations, as well as building resilience into enterprises and economies. Another example comes from Happiness Economics, which focuses on aspects of life such as values, freedom, religion and self- security rather than the pursuit of money.
“Clearly, some economic systems and markets are more attuned to the needs of the planet and its inhabitants than others. Quite strikingly, but not completely unexpectedly, the countries that score highly on unemployment protection and unemployment benefits are the same countries that an exploratory study found to be high per-formers on economic, social and environmental indices.”
Those same countries also tend to perform well on the Gini index measure of income, wealth and other forms of inequality. Out of 116 countries, the top ten countries with the lowest—that is, best— Gini index are all European capitalist countries. In order of ranking, they are Sweden, Hungary, Denmark, Norway, Slovakia, Austria, Finland, Germany, Belarus and Belgium (World Bank, 2012). These countries fall into two clear groups: seven established capitalist democracies and three former communist states. Among the poor performers are a mixture of capitalist countries (the United Kingdom, United States, Singapore and Brazil), ex-communist Russia, and communist China, Vietnam and Laos.
Capitalism can be an efficient way to allocate resources and help an economy to achieve maximum productivity and rapid growth. Yet the potential drawbacks of extreme forms of capitalism—namely economic turmoil, environmental degradation and social distress—are extremely costly, particularly for third parties. Such pitfalls originate, first, from greedy individuals who seek benefits from any loophole in the system even if it exploits and disadvantages ordinary people and, second, gullible and/or corrupt politicians who subscribe to the perpetrators’ mantra that the markets will rectify any and all problems. The reality differs starkly. Inequality and social conflict are increasing, the planet is suffering and poverty is still too high, with many people having no access to sufficient food and clean water. The world needs an alternative, more moral, form of capitalism.
“This is far from impossible. As already noted, more moral forms of capitalism already operate at the national level in parts of Europe. Germany, for example, traditionally ran its highly successful economy using Rhineland capitalism, which considers both market and social/ environmental aspects. Moral capitalism is the norm in Sweden and Finland—again, very successful countries. The Sufficiency Economy Philosophy provides a moral filter for individuals to use before engaging in any economic or non-economic activities and should be considered as an alternative and compelling way to make capitalism work better for all,” concluded Dr. Prasopchoke.