Unbridled Capitalism? – Guest post by Sanjeev Sabhlok
Dear All: Over the next several weeks, I will be publishing a few articles from Sanjeev Sabhlok – of the founders of Freedom Team of India.
The articles are Sanjeev’s personal views expressed after active consultation with FTI members but do not necessarily represent the views of FTI. Needless to say, Sanjeev remains open to newer and better ideas at all times. Here is the first one, provocatively titled:
UNBRIDLED CAPITALISM?
Sanjeev Sabhlok
This month I want to focus on a topic on which great confusion prevails in India: the issue of capitalism. I wrote to an eminent Indian economist seeking comment on my draft manuscript of The Discovery of Freedom. Without yet reading the manuscript, he wrote to me that “completely unbridled capitalism has rarely been followed. I am not sure whether it should be followed. It needs an overarching architecture based on local culture, traditions, history and legal system, among other things.â€
I though this response was unwarranted. My manuscript already discusses the institutions of freedom at great length. So that couldn’t possibly be an issue. We both agree that good institutions like tolerance, democracy and justice are crucial. Thomas Hobbes showed why we need a strong state to defend our life and liberty; capitalism is therefore founded on the rule of law and the enforcement of justice. But I find unwarranted and gratuitous the suggestion about not following “completely unbridled capitalismâ€. Since this perspective reflects widely held misconceptions, I thought it might be worthwhile to examine it more closely.
Whatever else is true about capitalism, this much is clear that never did John Locke, David Hume, Adam Smith, J.S. Mill, Ayn Rand, F.A. Hayek, or Milton Friedman advocate unbridled capitalism or freedom. It seems that socialists like Marx and Nehru have badly sullied the reputation of liberty. The socialists have repeatedly alleged that capitalism caters to so-called ‘capitalists’ and gives them unbridled powers to exploit the weak. But that is totally false. Philosophers of liberty have always insisted that freedom comes with responsibility and justice. Adam Smith opposed mercantilism and monopolistic industrial interests. David Ricardo wanted more competition and free trade. Adam Smith and J.S. Mill advocated labour unions to face the economic power of the owners of industry.
By repeating lies against liberty long enough, socialists have made it appear that the system of natural liberty encourages corruption and things like the sub-prime crisis. But what are the actual facts? Capitalism begins by looking at human nature. The fathers of capitalism, Hobbes and Locke, pointed out that since human nature is far from perfect, some people will always try to cheat, mislead, and misuse their powers. So if anyone cheats, then systems of justice should catch and punish the cheats. Thus everyone must be held equally to account and no one is to be above the law. In this manner, by ensuring all crimes are punished, capitalist societies are today among the most ethical on this planet.
Capitalism is also a system of continuous improvement. Lessons from events like the sub-prime crisis are quickly learned and such events prevented from happening again. Some events are complex and finding their causes can take time; but overall, capitalism is a political and economic system founded on democratic choice, law and order, and continuous improvement. And since the governance of capitalist societies is built on the system of checks and balances advocated by Montesquieu and Thomas Jefferson, the concept of capitalism being unbridled simply does not arise!
We know from history that the rulers of the West did not like capitalism one bit since it insisted on equal freedom for all. Many people like Locke, Voltaire, Burke and Mill had to fight the vested feudal interests to win freedom for ordinary peoples everywhere.
And so our quarrel cannot possibly be with capitalism. Our quarrel must be with socialism. In socialist societies, based as the spurious concept of economic equality, state-sanctioned corruption is the norm. After having worked in the Indian and Australian bureaucracies for a total of 26 years I can say with confidence that there is almost no corruption in the West today. On the other hand, corruption is endemic in socialist India, where not one politician is completely honest and few bureaucrats completely so. For very fundamental reasons, no society can run ethically on the ideas of socialism. But did this eminent economist express concerns about ‘unbridled’ socialism? No! For capitalism has become the customary whipping boy. Protect the criminal and point fingers at the saint: that seems to be the norm.
Consider and compare, for a moment, how life is defended in India and in the West. Employers in India are, for all practical purposes, unaccountable for the safety of their workers. Hundreds, if not thousands of lives are lost in India every year in preventable workplaces ‘accidents’, even as capitalist societies like Australia have astonishing low rates of worker injury. While working for the safety regulator in the state of Victoria I found that not only are safety laws in the West strongly focused on employer accountability, but negligence is punished severely. If I was a mine worker I would be scared to work in socialist India but would happily work in capitalist Australia where my life is well protected.
So who is really unbridled? Who is really immoral? Is it socialist India – where the governments are totally corrupt, where industrialists are gifted monopoly powers by the corrupt state, and where lives of workers are treated with disdain – or is it the capitalist West where governments wage a systematic battle against all forms of corruption and irresponsible behaviour? Clearly, it is not capitalism but socialism we must be afraid of.
It is time that India looks at the facts. We must not be afraid to use the system of natural liberty which was invented by the Englishman John Locke just because it was invented in England. After all, the West happily takes advantage of Indian thinking by using the number system we invented. So let us listen to what Locke said.
Freedom Team of India
Without security of life there can be no freedom. One of the strongest indicators of a free society is therefore the absence of organised killings of citizens. The endless spate of killings in India is telling us that we are not yet free. When Muslim and Maoist terrorists momentarily pause their mayhem, fascist Hindus appear on the scene to kill Christians; and so on… until it has become hard to distinguish what is happening and who is killing whom. Life and liberty are on the back foot, fighting for survival.
Our education system has clearly failed to imbibe the basic virtues of good citizenship. In a democracy those who have grievances should participate in the political process and change things they don’t like. If that doesn’t work, they can lodge their protest through non-violent civil disobedience. But there is a total absence of good leaders in India today to guide the people. In this situation, if liberals don’t unite to lead India then they or their children could well get caught in the crossfire of mis-governance. Why is it that in 1959 an old man aged eighty could start a major political party (“Swatantra Party”) and give battle for our liberty, but people today have given up without trying?
I would like to thank those who have written to me in support of the Freedom Team. For those who have not yet got involved, I suggest that you to do so. Working together, we can defend life, liberty and the pursuit of happiness for everyone in India.
***
Sanjeev can be contacted at sabhlok @ yahoo.com. His series of articles is available here
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I wonder what he makes of libertarian socialism.
I wouldn’t make a sweeping statement like that about the West, when in the US, we’ve had scandals involving Jack Abramoff, Ted Stevens, Tom Delay, and other scandals involving state officials over the past two years. The politicians in the US are as corrupt as those in India – though their methods may be different, and in many cases, what would be considered corruption is made a part of the system and sanitized.
I’d agree with you that when it comes to everyday things like getting a phone, or paying bills, or getting some official documents, dealing with the police, filing papers to start a business etc., an average citizen doesn’t have to grease palms like in India.
So, are we adopting the US Declaration of Independence in India? 😉
Sanjeev, what are your views on corporate personhood?
http://en.wikipedia.org/wiki/Corporate_personhood_debate
In theory, true. But not so in practice. Take S&L crisis ( http://en.wikipedia.org/wiki/Savings_and_loan_crisis ) and taxpayer funded bailout in the 80s, which had some parallels to the current economic crisis. Seems to me that there’s a cyclic process happening here: tighter regulations, then chafing, successful attempts to loosen the regulations, leading to an economic crisis, then back to tighter regulations. Rinse and repeat, with no learning from past mistakes. I wouldn’t be surprised if there’s a crisis similar to what we had this year, 20 years down the line; that is, if the US is still the global superpower by then. 😉
Also, what’s capitalism doing to internalize the negative externalities, which are anything but minuscule?
Once you economists start addressing and correcting these problems with capitalism, it will make it easier to accept it.
@ Kaffir: Thanks for sharing your thoughts…I will let Sanjeev respond…
I did not understand what you meant by:
Can you pl. elaborate?
Shantanu, here’s a link that explains external costs, and specifically, negative externalities.
http://en.wikipedia.org/wiki/Externality
Chaitanya has written some posts on his blog about it.
http://chaitanya1.wordpress.com/2007/07/18/markets-and-environment/
@ Kaffir: Thanks…Now I understand!
The point about pollution (and environmental damage/impact) that you referred to (and Chaitanya wrote so articulately about) is probably not unique to capitalism…
As you mentioned in your comment (and Chaitanya emphasised in his post), internalizing the negative externalities needs to happen but this will need to be a political decision…and in this sense, would not really depend on “capitalism” or “socialism”…right? Or am I missing something?
Thanks, Kaffir, for giving me the opportunity to elaborate on the issue of internalising negative externalities and a few other issues. It is always good to have concerns raised about one’s argument – for through the ensuing debate everyone can learn (including me).
a) “Once you economists start addressing and correcting these problems with capitalism, it will make it easier to accept it.”
Let me begin by stating that I hold no brief for ‘economists’. There are economist-quacks and then there are serious economists who are essentially philosophers of liberty and not technicians. The former group comprises people like Karl Marx and John Keynes. The latter includes people like Adam Smith and Friedrich Hayek. So it all depends on whom you are calling an economist.
Just having a degree in economics does not make one an economist. Economics is NOT a science like medicine. It is always to be seen as a branch of political philosophy. Its proponents must be treated as philosophers, not technical scientists. The technical toolkit of economics is very weak and insufficient (I say this after a reasonable study of economics). As a result, economists always fall back on philosophy. Without philosophy there can be no theory in economics.
The philosophy of classical liberalism that I am espousing has many implications for economics. I’m happy to clarify what this means to us. To do that I am writing a book (Discovery of Freedom at http://sanjeev.sabhlokcity.com/discovery.html) to show what capitalism is all about. Capitalism is founded on five simple propositions (see details in my draft manuscript):
Proposition 1. Life is the yardstick of ultimate value
Proposition 2. We are born free and must remain free
Proposition 3. Freedom comes with matching accountability
Proposition 4. To ensure freedom we need to build a collective fortress
Proposition 5. Within this fortress we need a modern social contract
Note the critical importance of accountability in this model. This flows on to the concept of negative externalities as well.
2) Negative externalities. I have discussed negative externalities at length in ‘Breaking Free of Nehru’ including in its Online notes (see preview and details at: http://www.sanjeev.sabhlokcity.com/breakingfree.html)
=EXTRACT FROM ‘Breaking Free of Nehru’ ==
Accountability or justice is the foremost value in a free society. Passing on costs to the rest of the society and the environment cannot be tolerated. Polluters will be made to pay, if necessary with deterrent levels of penalties. The following strategies, discussed in detail in Chapter 2, will be adopted:
Cost recovery: To the extent that polluters can be individually identified, external costs will be recovered from them directly and polluters will be forced to repay the affected community. This can include mandatory requirements for polluters to clean up toxic spills, failure to do which would lead to imprisonment for extended periods.
Pigovian taxes: To the extent that polluters cannot be individually identified, Pigovian taxes will be imposed on the activity that approximates most closely the activity undertaken by the polluters. A range of incentives-based solutions, such as trading of permits within limits to pollute, will also be used. In particular, carbon taxes will be imposed in a phased manner on electricity produced from coal. The revenue so collected will be used as follows:
– to provide (compensatory) subsidies to companies to increase plantations and forests. These subsidies will be paid based on the actual growth of these forests confirmed through satellite imagery;
– to fund Indian investors to build nuclear power stations while meeting the world’s highest standards of safety and security under international supervision; and
– if funds remain, to fund industry and universities, based on demonstrable results, to increase research in non-polluting technology.
In the Online Notes I have also discussed the international ramifications of carbon pollution and how the West will be asked to deploy carbon taxes both to increase the developing world’s forest cover through private plantations (see Chapter 2 on how this can be done) and also to significantly increase their own forests.
==END OF EXTRACT==
What we have today in the West is a rather weak version of capitalism. The West has a VERY long way to go to imbibe the philosophy of freedom. India, of course, is even further behind!
However, India can lead the world in freedom if it imbibes the classical liberal philosophy and the relevant policy implications. It can even become the role model for the West. That is what I am asking for – and writing a couple of books about to explain what this means.
Plus I am requesting those who want genuine freedom (and accountability) to join the Freedom Team (http://freedomteam.in). I urge you to consider these thoughts and if you agree, then consider joining the Freedom Team to deliver liberty to India.
Regards
Sanjeev
Many of you will find this article in the latest edition of Knowledge @ Wharton interesting and thought-provoking:
The Poor as Stakeholders: Can ‘Inclusive Capitalism’ Thrive in India?.
Long(ish) excerpts from a deeply thought provoking essay titled, “Markets and Morals” by Nicholas Kristof (emphasis added):
What do you think? Has the US moved too far away down the path of “free markets”?