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Published : April 13, 2011 | Author : sujay_ilnu
Category : Company Law | Total Views : 3752 | Unrated

Sujay Dixit, BA.LL.B(Hons in Corporate Law) Institute of Law,Nirma University

Is Capitalism Dead....

Capitalism is the world’s dominant and effective economic system. Income in a Capitalist system is split between the business owners and the workers, with profit is sent to the owners, in other words the Capitalists, who have invested money in businesses, and wages are paid to workers. Capitalism has time and again proved itself that it is the most effective and result oriented system. It has proved itself by making United States the world’s greatest economies but even then I believe that it is not the best economic system and there can be a better system than this. Not only myself but many people are nowadays accepting that the capitalism has now lost its shine and there is a need of another ideology to take over capitalism in the same way capitalism has taken over feudalism. Though capitalism has many success stories but the ghost of failure has haunted it many times.

For instance if we study the great depression we can find out the reasons for the failure of the capitalists system and how that failure was overcome. The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s.In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline.

Causes of the great depression -The causes include the structural weaknesses and specific events that turned it into a major depression and the manner in which the downturn spread from country to country. In relation to the 1929 downturn, historians emphasize structural factors like massive bank failures and the stock market crash. In contrast, economists (such as Barry Eichengreen, Milton Friedman and Peter Temin) point to monetary factors such as actions by the US Federal Reserve that contracted the money supply, as well as Britain's decision to return to the Gold Standard at pre–World War I parities (US$4.86:£1).

Thus, the personal political and policy view points of scholars greatly colors their analysis of historic events occurring eight decades ago. An even larger question is whether the Great Depression was primarily a failure on the part of free markets or, alternately, a failure of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply. Those who believe in a larger economic role for the state believe that it was primarily a failure of free markets. At that time also the Keynesian theory was used and was applied with the capitalism and which has helped the American economy to recover .Keynes’s basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing, as the private sector would not invest enough to keep production at the normal level and bring the economy out of recession. Keynesian economists called on governments during times of economic crisis to pick up the slack by increasing government spending or cutting taxes. As the Depression wore on, Franklin D. Roosevelt tried public works, farm subsidies, and other devices to restart the economy, but never completely gave up trying to balance the budget. According to the Keynesians, this improved the economy the root cause of the Great Depression was a global over-investment in heavy industry capacity compared to wages and earnings from independent businesses, such as farms. The solution was the government must pump money into consumers' pockets. That is, it must redistribute purchasing power, maintain the industrial base, but re-inflate prices and wages to force as much of the inflationary increase in purchasing power into consumer spending. Foster and Catchings recommended federal and state governments start large construction projects, a program followed by Hoover and Roosevelt. Thus then in 1930 the government has to intervene and Keynesian principles were used so that itself was the evidence of the death of the pure capitalism. In 1971, Republican US President Richard Nixon even proclaimed "we are all Keynesians now.

Study the financial crisis 2007-The financial crisis from 2007 to the present is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.It was triggered by a liquidity shortfall in the United States banking system,and has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity.

In a June 2008 speech, President and CEO of the New York Federal Reserve Bank Timothy Geithner — who in 2009 became Secretary of the United States Treasury — placed significant blame for the freezing of credit markets on a "run" on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls.

Paul Krugman, laureate of the Nobel Prize in Economics, described the run on the shadow banking system as the "core of what happened" to cause the crisis. He referred to this lack of controls as "malign neglect" and argued that regulation should have been imposed on all banking-like activity

If we look at the capitalism we find that it is not perfect but if we study it historically than it will be absurd to deny that price and profit signals under capitalism have done a far better job of allocating scarce resources and sustaining long periods of economic growth than any other alternative. So, if you were to closely observe the dirty, disordered canvas of economic progress during the 20th and 21st century, you should conclude that, for all its warts, capitalism has been the winner. It has sometimes caused pain; suffered from serious cycles; and often needed the clout of the state such as we have seen from September 2008. It has also been quite resistant to sensible regulation. Even so, the basic institutions of capitalism have worked, not just in the US and the OECD (Organization for Economic Co-operation and development) nations, but also many developing countries, of which India is one. And worked better than alternative mechanisms. But capitalism itself has a serious flaw and that is the minimal government control in private affairs of the company and that it helps the companies to make and execute all such policies which favours their interests withstanding the interest of the nation and when such selfish policies are acted they proved to be disastrous and then finally it requires the state to intervene.

If we study the sociological approach we may find that it is a approach favouring the lower classes and for that they took away the money from those at the top ie. the rich class of people while in the capitalist it is just opposite to socialism and it favors the rich class against the poor classes. And in both the systems after a considerable amount of time any of the mentioned classes revolts and changes the system. I think that today's need is the system which is called Democratic Socialism and many countries which top the Human Development Index (HDI) are following it and it is working for them then it should also work for us. All Scandinavian countries work within a social democratic frame, much like Sweden and Norway, which means that despite capitalist opportunities, they have a strong welfare system, providing a safety net for people who are out of a job. As the third pillar of said social structure, these countries have policies to ensure that no one can exploit the system, and people are required to actively seek employment if they're healthy and otherwise able to work.
# John A. Garraty, The Great Depression (1986)
# Charles Duhigg, "Depression, You Say? Check Those Safety Nets", New York Times, March 23, 2011.
# Available at http://en.wikipedia.org/wiki/Great_Depression visited on March 14,2011.
# Klein, Lawrence R. (1947). The Keynesian Revolution. New York: Macmillan. pp. 56–58, 169, 177–79; Rosenof, Theodore (1997). Economics in the Long Run: New Deal Theorists and Their Legacies, # 1933–1993. Chapel Hill: University of North Carolina Press. ISBN 0807823155
# The Road to Plenty (1928).
# Lewis, Paul (August 15, 1976). "Nixon's Economic Policies Return to Haunt the G.O.P.". New York Times.

# Three top economists agree 2009 worst financial crisis since great depression; risks increase if right steps are not taken. (February 29, 2009). Reuters. Retrieved 2009-09-30, from Business Wire News database..
# Ivry, Bob (September 24, 2008). "(quoting Joshua Rosner as stating "It's not a liquidity problem, it's a valuation problem.''". Bloomberg. Retrieved June 27, 2010.
# "Brookings-Financial Crisis" (PDF). Retrieved May 1, 2010.
# Krugman, Paul (2009). The Return of Depression Economics and the Crisis of 2008. W.W. Norton Company Limited. ISBN 978-0-393-07101-6.
# Available at http://wiki.answers.com/Q/What_countries_still_operate_under_socialism_laws visited on March 25 ,2011.

Authors contact info - articles The  author can be reached at: sujay_ilnu@legalserviceindia.com

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