General Awareness

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Capitalism or Socialism?

MBA Aspirants are expected to understand fundamentals of economic concerns. Debate is on for a long time on turning Indian economy to capitalism or Socialism? 
 
To understand pros and cons; read:  India’s Dilemma: Capitalism or Socialism? 
 
They say, ‘the best way to predict the future is to invent it’. But for invention or innovation, resources needs to be deployed and as resources comes at a cost, efficiency is of paramount importance. 
 
Moreover, financial resources needed for the developmental innovations can only come when surpluses are generated within a system. As both efficiency & surpluses are the hallmarks of capitalism, it can prove to be a boon for emerging nations like India. 
 
Innovations, if done cautiously, can lead to the world where flora & fauna can peacefully coexist. But generally intelligentsia has always believed that innovation and caution are always at loggerheads in the capitalist world. But capitalism has inbuilt mechanisms to eliminate this dichotomy if they are explored during the course of innovation.
 
Countries, organizations and individuals time and again have proved that it is possible to come out with fruitful innovations for the welfare of not only humans but also flora and fauna around us.
 
X-ray machine is one classic example among others like gene-banks. In gene-banks, germplasm of endangered species is stored so that it can be used to increase the population of the said species before they become extinct. This innovation has proved to be a boon to counter the harmful effects of global warming on our ecological balance.
 
But one may argue that innovations have even happened in socialist societies and what good or better can capitalism bring to the table. Well,  the biggest advantage of capitalism starts where socialist strategy ends. Innovation per se is not enough. 
 
Mass production and last mile distribution of any innovation brings down its cost and makes it affordable to the masses. This cannot happen without three E’s – Execution, Efficiency and Effectiveness. 
 
Most socialist economies in general and communist regimes in particular have failed in the last century to achieve these three 3E’s. At the same time, capitalist economies have largely succeeded in achieving the same 3E’s in many innovations. 
 
Thomas Friedman in his book ‘The World is flat’ has quoted that “Capitalism makes people unequally rich but socialism makes them equally poor”. What he means from the above statement is that any political & economical ideology has some or the other flaws but one has to choose the ideology with least number of flaws.
 
The advantage with capitalism is that it creates surpluses whereas the disadvantage is that the inequalities arise as a byproduct. Now the question is how does one solve this critical dichotomy in capitalism? What are the rules of the road to be followed by a country while adopting capitalism? Which countries have succeeded and what lessons can be learnt from them? The following paragraphs try to answer that through cases & examples.
 
Brazil is the number one commodity exporter to the world which has resulted in creating a lot of surpluses for the state. But as it was done under the ambit of capitalism, the byproduct was the rising inequality in Brazil. 
 
So the Government of Brazil launched a welfare program called Bolsa familia for the destitute & the needy. It is the most successful welfare program in the modern history of the world. But it was only possible through the surpluses created by the commodity industry. The rule of the road is that surpluses garnered through capitalism can be used in social sectors to bridge inequality. The caveat is that principles of socialism rather than capitalism should be applied in social sectors. 
 
USA did a big mistake by adopting only capitalism even in sectors like health. Today healthcare sector of USA is in big mess. Obama’s first presidential election campaign included the same issue among others and after coming to office, he tried and ever succeeded to a certain extent in reforming healthcare sector. Healthcare sector is very different because by adopting only capitalism, it becomes unaffordable for the masses.
China on the other hand has embraced capitalism in manufacturing and surpluses out of it have been used in healthcare sector which is almost completely government funded (public sector owned). 
 
Therefore we see that a healthy mix of both ideologies can co-exist in a country.
 
 
Stay informed, Stay ahead and stay inspired with  MBA Rendezvous
 

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