Ruchir Sharma for the uninitiated is an NRI who has lived the American dream after finishing school at DPS Delhi and College at SRCC. He spent 25 years at Morgan Stanley as head of investment management and is now head of Rockefeller Capital Management. In the interim he has written 4 books.
His latest is on what went wrong with Capitalism. Now that is a guy who knows a thing or two about the working of capitalism.
And he is disturbed that capitalism is going off the rails. In Western democracies, there is inflation, recessionary trends, deficits are high, youth are dissatisfied, income inequality is a big issue and govts in desperation are intervening everywhere with little to show for it.
And so RS proceeds to analyze what went wrong. It is the analysis of a believer. A snapshot of his prognosis:
Western govts have grown too big. They have been spending too much as a percentage of the GDP. And to meet this aspect they have borrowed recklessly. They have been in continuous stimulus mode, lowering interest rates. They have not allowed companies to fail.
He quotes Bernie Sanders to say, ‘modern capitalism is socialism of the rich’.
There has been a growing tendency to regulate, stimulate and rescue and that has struck capitalism at the very root. There has been a drop in productivity per worker and that has resulted in benefits not passing to the worker.
Over regulation has not allowed small companies to take off? Oligopolies have emerged. Stimulation and rescue have allowed inefficient companies to stay afloat. They do not even cover their interest payments. 1 in 5 companies are like that. They are able to raise fresh debt and get away with it.
Inequality has emerged because of oligopolies and their staff getting enormous pay packets. The govt has been extending the safety net from the poor to the middle class to the rich.
His recipe is simple. Do not interfere in the market. Let companies sink or float as per market dynamics. That will cut down on deficits.”
His book mentions in passing some aspects of capitalism that could be the more serious cause.
Truth is, his source of inspiration to move to the US, Reagan himself spawned deficits and increased the size of govt. He wanted to out arm the Commies and that needed money. The Cold War had to be won. And deficits were generated.
It is amazing that he does not make a mention of the trillions gone down the tube in intervening in countries across the globe to promote US interests and with nothing to show for it. Iraq, Afghanistan, Syria…
He does not for a moment wonder why anti-trust actions against oligopolies have not been initiated with more gusto. Roosevelt, Truman and Eisenhower went after the biggies and that allowed a lot of competition to surface. He accepts that Europe is in fact doing more in this direction.
And a possible answer mentioned in passing says the biggies spend more on lobbying and campaign contributions….
But these are just some snapshots.
The big picture is that barely 4 decades after the West had written obituaries about socialism as an ideology, it seems to be making a comeback amongst the young in the US. Now that worries RS.
As per his data, by 2020, only half of the adults under 40 years in the US, approved of capitalism, 1/3 were willing to try communism and 70% said they were likely to vote socialist.
Socialism failed because the smaller cogs in the wheel said, what is in it for me and the State and its henchmen visibly had it all. Today, replace the State and its henchmen of the socialist era by Corporations.
The question that the smaller cogs have remains the same. What is there in it for me? And that may be the genesis of the phrase, ‘quiet quitting’ in modern vocabulary.
He rejects the disparity in pay packets currently in vogue that may be contributing to this disaffection. He says the top 1% in any firm earn 20 times the bottom 90%. And the gap is only slightly more than in 1980. CEO pays were more than 375 times the bottom rung till 2000, now they are up only to 400 times.
And you think of the cliché about stats hiding more than they reveal. See how sweetly he lumps the bottom 90% together in a firm to compare salaries. Bunching a worker pay with an intern and a manager to pad up figures is just not fair analysis.
In the same breath he writes that since 1980 wealth has gone up 4 times in the top1%, 3 times in next 9%, 2 times in next 40% and zero for the bottom 50%. Wonder how that happened?
The sad fact of the matter is that minimum wage in the US was 75cents per hour in 1950. In 1968 it was 1.6 dollars per hour. At 1968 terms its value in 2022 should be 13.46 dollars per hour. Today it is 7.25 dollars per hour.
As a true believer, RS does not mention these stats in his book.
Another reason he claims that bottom rung salaries have not gone up is because productivity per worker has gone down. He says AI will help boost productivity.
And here the world is worried how jobs will be lost due to AI. It is a fact that since the 80s job creation has reduced as technology has reduced the blue collar worker strength. With AI, white collar workers should be next.
The real reason for slippage if not failure of capitalism or socialism is that all systems are vulnerable to human dynamics. Human greed ensures there can be no level playing field. And there is no limit to human greed.
The Hindujas who are billionaires and more have been indicted in a Swiss court for ill treating house staff. They face up to 4 years in jail. In a US court they would have walked with a plea bargain and a fine at worst.
Bezos , the billionaire extraordinaire runs warehouses in India, where pay is at 11,000 rupees per month and workers have to take a no water break and no toilet break pledge.
Another tenet in the book states, ‘Capitalism is the economic soul mate of democracy, equally fair and flawed’.
The problem is that the US has been sliding on the Democracy index. In 2016 they were at number 16. In 2020, they stand at number 36. He steers away from expanding on this connection.
The fact of the matter is that decision making in democratic govts has slipped into the hands of big money. Big spend on elections requires that. Democracy is no longer a level playing field. Leaders have looked the other way as systems under their govts have become more and more unfair.
Maybe it is time for some more obituaries and some more churn…..
Decipheringnews 