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Free-market capitalism has done a great deal to make the world the place it is today - both good and bad. But now capitalism is in for a major overhaul.
Most proponents of the current form of capitalism justify it by comparing it with communism. This assumes that human ingenuity is so limited that we have to rely on only two philosophies of managing production and consumption.
Unless we take the dialog to a higher plane and generate alternatives, we will remain stuck in a system that has reached the limits of its ability to serve humanity.
I think capitalism has gone off the tracks for three fundamental reasons:
1. All players are not equal:
Economics 101 taught us that in a perfect market, supply and demand are naturally balanced by hundreds and thousands of players, relatively equal in their power and influence, all with perfect information. Monopolies and oligopolies can lead to cartels that that take advantage of the other players and lead to imperfect markets.
In today's world markets, a few big banks have inordinate power and influence. Recently, the U.S. SEC levied a $550 million penalty against Goldman Sachs for misleading investors into buying risky securities based on subprime mortgages.
Mind you, Goldman's customers were not lay investors like you and me. Their customers were large Fortune 1000 corporations whose sophisticated CFO's who still got misled.
Throughout the markets in recent years, George Soros has estimated that more than 90% of the Credit Default Swaps - worth tens of trillions - were traded back and forth among only 17 large global financial institutions.
When a relative handful of financial powerhouses are so dominant, there is no way the markets can be a level playing field for average investors. This is true not only for financial markets, but all markets where mega-corporations operate as virtual monopolies defying the principles of free and open competition.
2. Products are beyond comprehension:
In the financial markets, most institutions that bought CDO's and CDS's were clearly not aware of the nature of these products, according to Michael Lewis in The Big Short. In our everyday lives, the average consumer does not really understand the terms of an insurance or annuity contract or a credit card agreement.
Apart from finances, people have little idea of the deadly chemicals that go into many products we use daily, and we should be concerned at growing evidence about the harmful effects of packaged foods as well as medicines.
The consumer today has no real understanding of what he or she is buying. Many executives running companies have no real understanding of what they are selling. In this free-for-all of greed and imperfect knowledge, unregulated free-market mechanisms are bound to create disasters with increasing regularity.
3. Too much distance between buyer and seller:
With the growth of global trade in products and services, the distance between the producer and the consumer has increased dramatically. Producers see their consumers as faceless, nameless sources of revenue. This distance reduces the level of personal accountability and responsibility.
As an example, one of the world's leading suppliers of genetically modified foods has banned its own foods from its employee cafeterias in the UK, while at the same time lobbying the Indian government - directly and indirectly - to allow the sale of those foods in India.
The next version of capitalism - whatever it is called - will need to address these core issues in creating a more holistic philosophy to address human economic endeavor. Do share your own ideas on capitalism in a Connected Age.
About this Author
The New Constructs is an initiative to examine our beliefs and assumptions - about life and living - that we need to reinvent in order to create a more inclusive and sustainable world. It is an opportunity for each one of us to connect, collaborate and co-create the world that we will rebuild for posterity. Do post your own examples on the Wall.
Sudhakar Ram is Chairman and Co-Founder of IT solutions provider, Mastek. He believes that creating a sustainable world would require a shift in the "constructs" that drive our attitudes and actions.
Article Source: http://EzineArticles.com/?expert=Sudhakar_Ram
