by elycefeliz

Crisis in World Economy and the proposed New Model for sustainable development.

The ongoing turmoil in world economy raised the doubt that present model of capitalism cannot be sustained for environmental and social reasons. Respected thinkers and scientists have pointed to this reality. Now we should look ahead to a new system that is sustainable and humane. Otherwise whatever wealth is created would be wiped out by environmental disasters and social upheavals. Whole system is complicated by lack of transparency. It is not clear where all the money gets invested. Hedge funds are cloaked in secrecy- even bailout money has disappeared with no effect to the economy. Even now nobody knows which are the real bad toxic assets, so stock market is also not recovering.

In this treatise some key issues in this crisis are discussed and a new  model is proposed that will engineer a balanced global society  globally conscious, active and sustainable.   

Regarding overpaid CEOs

Let us ponder over some news those captured the attention across the globe. Washington Mutual Chief Executive Alan Fishman could walk away with more than 18 million dollar in salary, bonuses and severance after less than three weeks on the job as golden parachute from flight WaMu in danger, according to the terms of his employment agreement. Lehman Brothers was handing out 23 million dollar to three executives just days before it collapsed. It paid 2.5 BILLION dollar bonus fund after failing. CEO of American Express saw his pay go up much more than double although shares price nosedived. Hewlett Packard CEO destroyed half the wealth of her investors and yet still earned almost 100 million dollars in total payments. Exactly same is the case with Informix Software CEO. The list goes on and on. It means what?  This isn’t a diatribe against CEO pay. Point is failure has become a recipe for financial success of CEOs especially in America by virtue of their intelligent manipulation and abuse of power.  Martin Whitman, economist and the great advocate of capitalism opined that apart from corruption another reason as to why a free market situation is probably doomed to failure is very exorbitant levels of executive compensation.

 Regarding free-market economy

I do not think free market is really free. Those who say they favor a free market are speaking in a relative term.  In an absolutely free-market economy, all capital, goods, services, and money flow are unregulated by the government. There is simply no free market yet, given the degree of state intervention in even the most capitalist of countries. For example US government took an 80% stake in AIG in return for an 85 billion dollar investment to save the company. Recent news of Citi bank is being given a bail out package of 326 billion dollars and Jaguar’s requirement of 1 billion pound for sustaining economic meltdown are significant. Under pure capitalist theory, none of these actions should’ve been taken; the government should have stood by idly while the economy tanked. So how can a free market be free if it’s regulated?  The fall out of free market economy such as black Market, underground economy, Drug trade essentially justifies government’s intervention to remedy the situation and establishes the argument against free market as an impractical ideal that engenders vested wealthy interests. Experiments in absolute adherence to free market principles evince signal failures in Military, Road, Health Care, Civic Amenities, Education, R & D etc. Free- market economy is a fantasy – outside of the bounds of reality in a complex system with opposing interests and different distributions of wealth. Time and again world is realizing this fact is a harder way. Hence I align with those critics who are in favour of a planned economy  as advocated by socialism and who associate markets with greed  as the basis of capitalism. I believe it is inherently immoral. More over one practical objection is that free market economy does not take into account the externalities i.e. effects of transactions that affect third parties, such as the negative effects of Global Warming that brought world to Apocalypse in foreseeable future. I guess that in well-run industrial economies like Japan, Singapore and China, there is marriage between government and the private sector, each benefiting from the other. Any temporary prosperity on an extremely austere free market concept can crumble like a pack of cards, like it happened in USA.

Regarding Nationalisation and regulation.

 What does the US federal government taking control of financially crumbling mortgage holders Fannie Mae and Freddie Mac with a bail out package of staggering 800 billion?  Why on the earth Fed and other regulators are coming into the picture particularly for some of those that got overextended with the subprime and other kind of mortgage debt? Nationalization occurs when full or partial control is taken of private financial institutions, usually to avert a crisis. Scandinavian nations successfully averted an economic meltdown through nationalization in the early 1990s, and in recent times. US government is taking similar actions. It looked at the global fallouts and how politically they will be viewed by the world powers. So they bailed out finance industries, but not agreeing so easily to the auto industry. these issues are interlinked with power, military, oil.

 Regarding mortgage financing

It was the proponents of Capitalism who supported advantage of loan facilities and low interest rates for houses to be owned by people at low income group. There was enormous marketing effort to dupe people into it.  Logic was simple. If one buys house, he will also buy complimentary household goods like furniture, Fans, AC, Cars etc. creating a demand pull in the economy. Banks also extended the moratorium on interest and principle up to 5 years to convince the borrowers. When crisis occurs, should we brand common people as “lazy bummers”? Similarly it is unfair to blame the common investors for lost speculative fortune when Stock Market is institutionalized by system as a socially and ethically valid means of income.

Regarding targeting CEOs

In our capitalist system, you’re free to earn what you can, and what the market will bear- this logic does not hold water since big companies are increasingly depending on public money for a bail out. Hence I support newest trend of shareholders in raising questions and putting pressure on boards and compensation committees to make sure compensation is fair but not excessive. The interesting News was that US Law Makers asked blunt questions to CEOs like Wagoner, Nardelli, Mulally of GM, Chrysler and Ford who came to the Capital Hill with a begging bowl for 25 Billion of Tax Payers money, when each one of them preferred to fly in their individual Private Jets, when as many as 24 non stop flights fly daily from Detroit to Washington. Lifestyle and salary should definitely be a valid question when companies are using public money. That is why companies are facing “say on pay” resolutions from shareholders. The board of directors should have taken this role, but instead they normally abdicate it. Most CEOs considers keeping board members happy as their primary duties. For example taking the board members on an all-expenses paid trip to a five-star international resort, allowing his compensation to spiral out of control, which is nothing but intelligent corruption and abuse of power.

Myth regarding the CEOs’ ‘sheer value-add’ in the corporate world.

For a company to become successful entails billions of variables, which are oftentimes beyond the ambit of human ability of one individual. Even with our full regard on Narayanmurthy’s ability, we must accept Infosis’s success was primarily on account of flattening effect of world by Internet revolution in 92.  Jerry Yang, co founder of Yahoo, considered to be a great CEO, had to step down amid mounting pressure from investors after he botched takeover talks with Microsoft Corp. and failed to broker an online advertising agreement with Google Inc. Many CEOs were rated highly for certain techno bubble, which turned out to be utterly divorced from any business purpose whatsoever. Of course there is positive effect too- it attracts lot of investment and accelerates the pace of innovation. The trophy cases of HP CEO with so many industry awards and accolades were crucified for her destructive reign of terror with “Silicon Valley greed.” Hence it is fundamentally wrong to empower one individual so much for the success and failure of an organization. In Japanese and Chinese model, system is ascribed more powerful than an individual.  Once CEOs become all-powerful, their executive staff is reluctant to challenge them. Instead, the natural tendency is for these dominant leaders to become cocooned from reality. They are told only what they want to hear and hear only what they want to be told. Sequestered from the rest of the company, they lose the pulse of the business eventually.

Regarding Capitalism vs. Socialism

By virtue of the extremely clever indoctrination, a spin-off of media advertising especially of US kind, our thought process is getting clouded driving us towards more personal interest, freedom and power than social responsibility. Do we really need large waves of money sloshing daily around the planet for benefit of only a few, waves often generated by speculation capable of dislocating economies? Do we need larger and larger corporations which concentrate economic power into fewer and fewer hands? When seen in this light, capitalism has a shadow side. Economy in its root sense means acquiring the basic material things we need to lead a human life: food, shelter, energy, etc. But this is something quite different than a quest for a so-called higher standard of living. This really is the unending quest for a higher level of consumption. Our material needs are finite. After a certain point we are simply embellishing them. Then we begin to distort them making them the carriers of our own disordered desires.  Recent news of bra and panty for men in Japan is the right example for such disorder. We need shelter but we don’t need 50,000 square feet trophy homes when billions of people can’t even afford a shanty. Now we are living in a time when we don’t even feel shame. We have become so much closeted within ourselves that even with the back up of enormous fortune, we feel unsafe with the slightest possibility of economic meltdown.  Capitalism propels us to become shameless consumers and run our lives according to the design of the contemporary social machine, which foreshadows world destruction, whereas our true nature favours a life closer to nature. If American Capitalism is a kind of religion with its own dogma, then its God is Money and its driving force is Greed.  The fall out of this ruthless system is obscenities of unemployment, homelessness and economic insecurity and hence is not sustainable in its present form. The whole system is designed to make fewer and fewer people richer and richer at the cost of resources of the multitude. It definitely operates below the level of consciousness and no longer works for us.  I understand one very simple thing – goods and services generated in an economy must be shared equitably in a population. Otherwise those who will be deprived will take resort to unethical or socially unacceptable means- theft, dacoity, terrorism, drug, killing, cheating, narrow politics and what not.   Recent examples of everyday terrorism, Piracy, Mao attacks, dark killing are the pointers to this fact.   

Even in USA people are facing dark side of capitalism when blue collar Americans have been losing jobs because of outsourcing and off shoring in the mask of progress for real intention of more profit.  What is the social damage? Skills for manufacturing a certain product developed over the years are getting lost in the society.  Capitalist countries use capitalist ideals as a matter of convenience.  When Government owns hospitals, libraries, transportation systems, utilities, army, Navy, Air Force, forests and national perks- yet, who would call these institutions examples of socialism?  Socialism means a government in which the people collectively own and democratically operate the industries and social services through an economic democracy by ending the waste, duplication and inefficiency of capitalist industries. Under capitalism the industries operate for one purpose – profit maximization. As per Capitalism profit is also a cost, cost of staying in the business. Under Socialism goods are produced for use and to satisfy the needs of all the people. Under this system everyone could live comfortably with no giant gaps between rich and poor. Is it not really humane? Just because a system is not strictly as per lower merits of human nature say greed, it should not be rejected. Socialism talks about higher sense of our human values and existence.  After Industrial resolution act 1956 in India, socialistic pattern of economy in India has produced wonderful developments in sectors till seventies. Hence we can infer that Socialistic system can produce wonderful results under certain conditions and social environment.  However I do agree classical form of Socialism may not take into account of the Individual brilliance and creative pursuit, which is probably its one of its weaknesses.

The New Model

Having said this, we should find out whether there can be a balance between the two systems and what kind of mechanism society should develop so that one can approximate the ideals of good life in his individual life and in the life of community of which he is a member. I feel it is possible to have our modern global economy while being socially, culturally & environmentally responsible at the same time. Society has go through a difficult paradigm shift in personal values, which will instill a degree of awareness in our mind as opposed to the blind, materialistic way we are living.

I have thought of one model that will engineer a balanced global society that is globally conscious, active and sustainable. Way out is to lead humanity by the collective wisdom of most talented people in a society or country- a kind of meritocracy.  Mechanism to harness collective wisdom will be -say for any policy and contentious issue, opinions of most eminent people of the country will be  collected by a network of computers and looking into the wisdom of eminent people who are most knowledgeable on the subject under consideration, decision can be made in real time. Their services can be hired at a cost; they can be selected based on the track record etc. Decisions can be taken in National forum if discussion and debate are warranted. Experiments, research and its implications can be interpreted by eminent people only and that is why collective wisdom as instrumentality for decision support system may be a model worth trying for. One may argue country does not need only dry knowledge culled from books. There must be leaders to make certain things happen. Yes leaders are required. But a leader can be chosen by collective wisdom, which should be supremely empowered. A leader will resort to collective wisdom for at least for major decision. The collective wisdom is likely to veer country to right direction. Humanity has to go though different experiments and whatever evolved as better model will be accepted and perfected in course of time. We should never be blind to state that capitalism or the socialism is the right system with dogmatic finality.

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