MARKET, STATE AND SOCIETY- An Updated Overview
Introduction- A Contextual Perspective
The role of State in the national economic activity has been the paramount discriminator in differentiating the economic models of pure ‘laissez Faire’ Capitalist version of the West and that of the pure ‘Command economy ‘ of Communism pioneered by the Soviet Bloc and China. Both can be considered as the extremities of a continuum representing Minimum role of the state and the Maximum role of the state in shaping the economic development and growth of the nations, respectively. All the other economic models of the developing economies in Latin America, Asia and Africa and the Middle East are only the variants of a combination of these two extremes, some positioning nearer to free economy model and some towards socialism.( Diagram 1) This, in essence, is the meaning of legendary statement of Mao “ Let Thousand Flowers Bloom ”. Indian version of Mixed Economy in a democratic set-up with the orientation of Socialistic Pattern of Society has over the years proved an approximate bench mark for an ideal combination of the two extremes, specifically since 1991.
These economic models basically deal with the evolutionary process of market mechanisms, role of state in it and society as the ultimate stakeholder. Over the years the focus has moved from commercial aspects of markets to broader perspective of social aspects. This has lead to a convergence of the two extreme models particularly after the disintegration of Soviet Bloc and he recent Global financial debacle in the West. The role of the State has become more active in ensuring the market mechanism to be constructive to deliver its responsibilities to the social benefits. The Mega Trends of Privatization, Liberalization and Globalization have made the role of the state universally accepted in its Regulatory, Promotional and Developmental Roles.
The recent shut Down, showdown and the final temporary relief for the budget and debt limit approval arrived in the American Parliament is in fact a tussle between those conservative Republicans, particularly Tea Party, who would like to ensure pristine capitalism with reduced role of the government against the liberal minded Democrats who would like to ensure societal interests through greater state intervention. Arguments for and against Obama care is a case in point. There has been an intense on-going discussion on the future of the American Capitalism in terms of publication of academic and general articles in the journals and news magazines. An updated list of this is given in the bibliography.
Capitalism- Latest Connotations
The new connotations of capitalism revolve around the terminologies such as “American Crony Capitalism” and China’s “State Capitalism” and between the “Welfare Capitalism”. Crony capitalism is a system that is designed by and run for a small elite group of people rather than by people at large. It focuses on creating profits and wealth for the stockholder s rather than stakeholders which breeds acute inequality in the society. State Capitalism is the promotion of private initiative without losing the total state control on the resultant activities. Welfare Capitalism aims at a constructive role of the state in ensuring the gradual reduction in the inequalities through public welfare measures.
The core of American capitalism in the recent decades has been the large investment banks and financial service institutions whose operations have been the cause of recent economic upheavals. Fuzziness of this crony capitalism is well acknowledged when the Nobel Prize Committee awarded the Nobel Prize for Economics recently to be shared by three economists two of whom have extremely opposite views on the efficiency of financial free market mechanism ( Ref. Swaminathan Iyer on “ Noble Prize Winners say markets are irrational, yet efficient” TOI Oct 20,2013). The three economists are, Eugene Fama and Lars Peter Hansen of both from the University of Chicago and Robert Schiller of Yale University. Schiller, a behavioral economist, is famous for his two version of his book “Irrational Exuberance” in 2001 and 2005. In 2001 he correctly predicted the bursting of the Dot.Com Bubble and in 2005 that of the Prime Lending Housing Bubble. Both the incidents resulted in enormous national and global financial collapse. In fact, the 2008 collapse was akin to the Great Depression of 1929. Eugene Fama for his advocacy of “efficient markets hypothesis’ based on computer information processing and analytics of large volumes of relevant data sourced from the millions of economic actors and hence generate more efficient long-run valuations than any expert advice. He considers market behavior as random and the future behavior cannot be easily forecast. He advocates investing in groups shares based on composite index such as Sensex and Nifty in India which has proved efficient method. “Many former students and associates of Fama, who now inhabit the world of finance in the country, remember himqu7ite respectfully’ ( Fama wins Nobel and many Indian Hearts as well, ET Oct 16, p6). This clearly brings out the limitations of the capitalism and free market mechanism. Our own incumbent RBI governor, Raghu Rajan, is accredit with correctly forecasting the 2005 debacle in a paper jointly authored and presented at an IMF conference.
First section of this write-up covers the following ( sec 2&3 will deal with country specific analysis of India and a Generic Conceptual Frame work for further research, respectively)
· All the salient features of the global situation are tied to be captured in an integrated way in the accompanying Diagram by the author.
· The major reasons triggering this convergence are the failure of capitalism in correcting the recurrent occurrence of financial debacles leading to abysmal downswings in the economic activity, national and global. Cases in point are the Great Depression of the 1930’s and the recent global financial collapse of 2008. It is curious to note that the culprit for both has been the greed exhibited by the financial business and traders in the US. Keynesian prescriptions for the former and the stimulus packages for the latter are nothing but the universal acceptance of the essential role of the state to ensure return to economic and social stability which could not be left in the hands of private sector self-seekers. Most of the developing countries which were caught in the Asian financial crisis learnt this in a hard way. Globalisation process requires this constant vigilance and active role of the state as a regulatory. To-day’s American Economy is more of a regulated free-economy while the erstwhile command economies have reduced the role of the state to stringent regulatory phase ensuring healthy privatization.
· On the other extreme of Communistic model, disintegration of Soviet Bloc was again the failure of the State to take into consideration the essential consumer needs of the society rather than intensely focusing on the industrial capital goods oriented technological development becoming a notional Super Power. China had the foresight to liberalise its agriculture to a minimum extent far earlier and the trigger given by Deng in 1978 towards privatization without losing overall state control has resulted in State Capitalism. Gradual marketisation of the Soviet Bloc economies has also a contribution towards the convergence.
· This gradual process of convergence is validated by the “ Index of Economic Freedom” annually published by the Wall Street Journal and Heritage Foundation, Washington’s No1 Think Tank.
· It is a composite index based on ten equally weighted indicators of freedom. They are
1. Rule of Law (property rights and freedom from corruption)
2. Limited Government ( fiscal freedom and government spending)
3. Regulatory Efficiency ( business freedom, labor freedom and monetary freedom)
4. Open Markets (trade freedom, investment freedom and financial freedom)
· Country-wise index for 2013 is given in the table. The countries are ranked as follows as per the ranges with maximum 100 to minimum 0, as follows
1. Free- 100-80- 5 countries- HK,Singapore, Australia, NZ, Switzer
2. Mostly Free 79-70- 30 US,UK,Canada ,Germany, most of West Euro, Middle
3. Moderately Free 69.9-60- 50 France,Isreal,South Africa,Malayasia ,Sri Lanka
4. Mostly Unfree-59.9-50- 59 China, India , Indonesia, Russia, Pakistan,Brazil
5. Repressed 49.9-0- 33 Cuba, North Korrea
The future seems to be more towards closer convergence because of the public pressure, political compulsions and civic consciousness of inequalities at the global and national levels which would force the nations to focus on the larger interests of the society., through state regulated capitalism to ensure constructive and healthy competitive market mechanisms. This seems to be a balanced view of the inter-relations of State, Market and Society for the times to come.
Dr.Ramesh.G.Tagat,Academic Mentor & Professor,ISME
Following articles from “ US News- A World Report”
· Walsh KT: The state of the Union is not Strong, Americans Say (Survey results) July 18, 2013
· Rick Newmann: Why the Tension between Socialism an Capitalism will intensify” Dec 8 2012
· Scott Galupo: Don’t Believe the Pundits who Praise China as a Capitalist Paradise Oct 3, 2011
· Stephen Glain: The Limits of Free Market Capitalism June 2, 2011
· Zingale interview: We need to restore American Capitalism Aug 10, 2012
· John Peterson;: Shut Down,Showdown and the Crisis of US Capitalism In Defense of Marxism Oct 9, 2013
· Peter Cay: The Tea Party’s Pyrrhic Victory, Business Week,Oct 17,3013