Capitalism on Steroids

I, a common man, can only stand at the sidelines watching the chaos in the global capitalist arena. I, like many others, have seen the rise of the i-banks, the roaring pay days of Wall Street, the wave of rapid modernization of the emerging markets bringing them together with the developed Western markets, the massive industrial expansion plans that are roiling in dust now, then the impending gloom ensued by the irrationality and hubris practised during the hay days of capitalism and then the downfall of the goliaths of high-finance and the begging cries of those corporations that had aimed to reach for the stars but unfortunately landed in gutters. I have seen it all, all that a common man can see through his innocent eyes and unmanipulative mind, about the ways of the world. And as every common man would wonder, when will this vicious cycle end???

Pick up any news magazine or wire service and bright are the chances of seeing some big corporation being rescued by the government of the country it belongs to. Companies given lifelines, bridge loans, bankruptcy protection and what not. Isn't this what you can call capitalism on steroids? There are side effects that are being ignored in a mad scramble to survive, the consequences can come later. In an ideal (read steroidal) world, a corporation big enough would never fail, which essentially means that no matter what you do, no matter how much you screw-up, Uncle Sam or his counterparts will save you. In short, it's a license to screw-up as much as you want.

I feel capitalists through the ages have not only become more perverted but also have become equally good at hiding their perversion when it suits their end. On one hand, capitalism argues for no government intervention in the markets, in Greenspan-speak laissez faire capitalism. On the other hand, the same government becomes an object of worship when the free ways of free markets don't seem to work. The hypocratic stance is compounded by the fact that governments are criticised for not taking an interest in saving the companies from failing and when it demands for more regulation in return to save the markets from further upheavels, the capitalists cry foul for too much government interference in business.

Agreed that we vote a government into power in liberal democracies to make sure that they serve our common interests, that the interests of all sections are taken into account and appropriate provisions be made in government policies to take care of demands, but, there is a simply a limit to the amount of concessions that can be extracted from policymakers in the name of free markets or bailouts. The inherent flaw in the entire capitalistic mindset is the extereme subservience it demands out of government. The government is supposed to relax the rules when we want them to be relaxed to suit our needs and then we expect the government to pull us out of doom by using its monetary muscle when we blow up and then the government is supposed to stand back in a corner and watch us go about our business in the laissez-faire way. I think this is blatantly unfair. It simply shows how easy it is for a bunch of rich capitalists to hold the economy to ransom and then do what they please expecting no intereference from the government whose job is to not just serve the capitalists but also the common man.

I find myself grumbling: "Down with capitalist pigs!"

Securitizing Poverty

Yesterday i read an article in The Mint about the securitization of microfinance loans by Deutsche Bank AG. The article was upbeat about the prospects of microfinance being linked with the world of mainstream capitalism and the possibility of using this to alleviate poverty. However, the piece also gave a very cautious note about the perils of modern day finance and how it can possibly lead to the takeover of microfinance by greedy i-bankers.

In a report published by the BusinessWeek magazine many months ago, in Latin American countries such as Venezuela, microfinance has failed to make the planned impact because of the collusion between consumer good companies such as LG, Samsung and microfinance firms. In a very disturbing example, the loans are shelled out by microfinance firms to the poor people who are lured by these producers into buying high-end LCD screen TVs that are practically useless given the cost incurred. When the debtors default, local goons are hired by the finance firms to force the debtors into repaying the debt.

While microfinance moves from an NGO based model to a for-profit model, financiers need to keep in mind the basic principle behind the foundation of this industry. People need to understand that while the US housing crisis was more or less due to the misuse of government policies and lax monitoring of Wall Street dons, a crisis of this sort in microfinance will not just impact the capitalists again but the intensity of it will be exponentially ampilified for the poor helpless people who find it hard to eke out 2 square meals a day without some assistance.

While pursuit of profit is indeed a noble goal in itself, the pursuit of inclusive prosperity with the less fortunate is nobler.

The importance of being Nobel: Why Indians need to!

I have been quite involved lately in the frenzy surrounding the awarding of the Nobel Peace Prize to Barack Obama. Before I have readers wondering which side I am on, I want to clarify that even I think that the prize was quite premature. However, not getting further into a topic that has been much debated and much written about, I want to appreciate the symbolism that a Nobel Prize carries and why Indians should think more of getting some.I remember that when I was a kid, I wanted to be a physicist, I wanted to discover how the world works, how nature or nurture plays its part and how the mind of God works. I did a lot of digging into the general stuff about physics, read lots of books by some famous authors who wrote for the general audience but could never get myself past a 12th standard physics textbook forget about quantum mechanics and astrophysics. Soon I realised that it was not for me and chucked all of that to think in an old-fashioned way about making money like most of my predecessors have done. I think I fit in that mould and I am comfortable.
However, there is one little quirk that I still have despite my dissociation from all scientific thought and that is my eagerness to know the names of the Nobel Prize winners every year. I do this partly out of curiosity and partly due to my hopes that someday another Indian will win the Nobel Prize. Thankfully I didn't have to wait for long and this year an Indian won a Chemistry Nobel. I was extremely delighted but I was also sad that the winner did not work in an Indian laboratory, he was working in one of the Ivory Towers of Cambridge where he had access to everything and the freedom to do what he wanted.
I still don't understand why Indians have not woken up to the idea of original thought. That is precisely what the Nobel Prize stands for. It is a celebration and appreciation of original thought! Why is it that after 62 years of independence we still think that original thought and scientific pursuits are a ticket to full-fledged madness???? Why is it that Indians survive and do well not because of the system but despite the system????This world is changing and it is changing fast enough to make all that irrelevant which cannot keep pace with it. We risk becoming irrelevant too if we don't start thinking with a mind of our own and start endorsing sincerely the idea of free thought, entrepreneurial spirit and scientific pursuits. If nothing else, a Nobel Prize can atleast act as motivation for future generations of Indian students to go out, into the wild, and do something original!

Sovereign Wealth Funds: The New Imperialist Weapon and Why India Shouldn't Possess One

I have been reading quite a bit about sovereign wealth fund recently. I found that startling amounts of money is being poured into such funds by the governments that own them. For laymen, a sovereign wealth fund is an entity that is funded by the forex reserves of a nation and is directly managed by government appointed fund managers who are entrusted with the task of investing the money on behalf of the government to generate above normal returns. The investment is usually made in global companies in the private sector in the form of debt or equity. In the recent times, a spate of new SWFs (as they are known) owned by governments in Asia have sprung out with ludicrous amounts of money. Some of the owners include Temasek Private Equity and GIC owned by the Gov. of Singapore, Abu Dhabi Investment Authority owned by the Abu Dhabi sulatanate and CIC owned by the Gov. of China. These funds have been equipped with enormous amounts of money, in the range of $100-$200 billion each and have been in the news recently due to their invetsments in beleagured American banks desperately looking for cash to avoid shutting shop. A lot of this money has been lost by the funds as their cash could make little difference to save the misery of these banks. While this is definitely of concern given the amount of forex lost, it is also a weapon of strategic dominance in economic realm. Somehow, it seems that the money these funds have is spent on investment in strategically important companies, such as financial services behemoths, natural resources companies such as oil and gas producers. There have been questions in the US Senate about the growing dominance of SWFs as the US gov suspects ulterior motives of other governments than just pure risk-return play.

It is interesting that while some SWFs such as GIC or Temasek are actually pure risk-return plays, others such as CIC owned by China seem more politically motivated as a means of driving the Chinese agenda of world dominance. While China is developing at breakneck speed, it is still not a developed nation and the government stills has to do much more and spend much more to put China in the league of developed nations. So it's a little fishy out there!

Coming to the question of why India should or should not have it's own SWF given the growing pile of forex reserves, it is easy to answer the question in not just one, but many ways. First, India is far behind China in development and there is a crying need for government investment in providing basic amenities and infrastructure for the whole country. According to recent estimates, India needs an investment of around $350 billion in the next 5 years if it aims to sustain it second fastest growing economy status in the world. Second, the rampant corruption in India and the bureaucracy that is deeply entangled will prove a huge deterrent in meaningful deployment of funds that are entrusted with the managers. Also, the political climate of the country does not seem conducive as it is easy to see that even the fund managers will fall prey to political manouvering and nepotism that hasn't spared even the best run PSUs. Third, it is not the government's business to be in business.

The Return to Innocence

I watched the Walt Disney-Pixar created animated movie UP last Saturday and I was completely blown away by the superb use of computer technology in creating the movie. Even the sunlight coming through the window looked so real! I must say that the animation industry has come of age and everytime its Pixar that leads the race by a million miles. Hats off to Mr. Jobs and the ground-breaking company he created!!!

However, more than that, I was struck by the underlying theme of the movie. The theme was refreshingly simple: It's never too late to follow your dreams. I could feel that the movie had an undercurrent of childlike innocence in the protagonist of the movie, an old retired man who was living alone in a small home he had built with his now deceased wife while both of them nursed a dream of making it to the mythic Paradise Falls somewhere in South America. The old man pushed to the wall by the modernising world of glass and concrete finally decides to take the plunge of real adventure carrying the dream of his wife and refusing to spend the rest of his years in an old age home.

The whole concept struck me deeply and I couldn't help thinking how much innocence we have lost as we grew up. Innocence here just doesn't mean inability to swindle or lie, but a simple and honest belief in one's dream. I could not help thinking how easily we give up chasing our dreams. A toothless, old, hunched man spending the last solitary years of his life refused to resigned to fate and got where he wanted to simply because it was a dream he had lived to accomplish.

The innocence of single minded dedication and hunger for accomplishment disappears so quickly from within us. Can we not live this life one moment at a time??? Can we not realise that the real purpose of life is to serve that one overarching dream we have nurtured from the bottom of our hearts??? Will the universe not conspire to help us achieve something we truly want???

Why capitalism still works......

In the past few months all media has been flooded with news about casualties of an economic recession touted by some as the worst since the Great Depression of the '30s. The crisis being the worst of its kind has seen millions of people losing their livelihoods while hundreds of corporations scramble for help in all directions to stay afloat. It was easy to see that the hunky-dory era of post dot-com boom was just a house of cards that crashed with the smallest whiff of wind and brought down the entire edifice of capitalism.
It made people question the very fundamentals of a capitalist society and gave fodder to communists ( as I last read in the papers this morning) to brag about their objections to financial reforms in the Indian economy which insulated India to a great extent from the financial downturn in the rest of the world. Being a believer in democracy myself, I find this argument a little disquieting yet a little bit true. All pro-reformists have been asking for easing restrictions on financial entities such as hedge funds so that they can play the Indian markets and play well they should. I am all for the multi-million dollar bonuses of the hedge fund managers who predicted the downturn many years ago and placed huge bets that reaped benefits later.

However, I believe that just because we have a strong lobby of pro-reformists, we should not give into the temptations of opening up an adolescent yet not-so-mature market to the vagaries of global capitalism. From a bull run of 20,000 points to the bear hug of 9000, the Sensex had left little counter evidence against the fact that it was the FIIs who were able to play the Indian markets to their shrewd schemes and left the common investor gaping in surprise when the extraordinary returns simply diminshed overnight. We also forget that in an era of money cheaper than dirt, the Private Equity firms in US and UK were able to take millions of dollars of debt and thrust it on corporations they took under their fold in an excuse of increasing value by leveraging the balance sheet. Little did we know that the Frankenstein monster would devour its own master when several healthy companies went bankrupt after PEs took over because of their inability to service the large amount of debt they took. We must also not forget the billions of dollars of institutional money lost in the Madoff scam, a one of its kind Ponzi scheme that shook the very cauldrons of capitalism and raised a very fundamental question: Is there a limit to man's greed???? We were again shook by the Satyam scandal which became an unerasable blot on the Indian IT landscape. Talk about rubbing salt on wounds!!!! We must also not forget that after all the bloodbath, everyone suddenly thanked Keynes for giving them the golden principle of getting out of such a mess and opened a begging bowl in front of the US government to save them and save the planet! So in comes Obama and the age of multi-billion dollar aid packages to save the industry and the letting go of wayward children after a light spank on the back side.
After so much of capitalism bashing, here are the reasons why capitalism still works:
(1) It goes hand in hand with democracy where people have the fundamental right to pursue wealth and enterprise thereby bringing advancement to society.
(2) Capitalistic thought in itself is a motivator for innovations in industry and all other fields of study as it serves for a perfect risk-reward mechanism.
(3) Despite the late awakening of capitalism to the benefits of investing in the social sector, the only way to integrate the world's poor with the rest of the masses and create widespread poverty is to actually treat them as a part of a capitalistic society with a perfect producer-consumer relationship.
(4) When we looking at communism or its relatives, we need little prodding to actually take a loook at what history has to say about socities built on communist ideals.
(5) While capitalism involves trade-offs between economic protectionism and free-market liberalism, it serves as the only viable mechanism of attaining development and prosperity in the long run.
The only bone in the neck here is the economic hooliganism that seems to repeat itself every few decades. Is this some sort of divine intervention into the ways of a chaotic world??????