Book Review | A capitalist’s diagnosis of what ails capitalism

The advantage with Ruchir Sharma is that he is your friendly next-door market guy, and so he would not be seen as a socialist party-pooper with a title of the book like What Went Wrong with Capitalism. He makes a good beginning by narrating the sob story of the Indian middle class how he grew up in the maximum security prison of socialism of the pre-1991 India, and how he escaped the welfare state gulag and escaped to the free market Singapore and then to the capitalist paradise, the United States. And this book is a guided tour of the back-alleys of capitalism, especially in the financial sector, a far cry from the poor, from the inequality debate et al.

In India, as there were once fanatical socialist evangelists, there are now cringing market fundamentalists who cannot see the Titanic of capitalism moving towards the iceberg. They refuse to see the iceberg. And what is the iceberg? The expanded role of the state in the market economies, the bailout packages which Central banks work out to save the private companies caught in a market squall. Sharma sums it up all in non-threatening prose. He writes towards the end: “It makes intuitive and moral sense that when a nation’s government accounts for more than half of all spending in the economy or takes more than half of an individual’s income in taxes, that nation is getting less free.”

And this is the state of affairs not so much in the developing and emerging market economies but in advanced economies like the United States, the European Union and Japan. The startling, and perhaps not so startling, news is the existence of “zombie” companies, the companies that do not produce anything useful and do not earn profits existing because the easy loans provided by banks and the bailout packages that follow to save those companies. They were first detected in Japan, and then it was found that they exist in Europe and America as well.

Sharma finds the role of governments intervening to save private sector companies to protect national economies counterproductive, and along with greater state spending on welfare programmes, harmful. The critics of capitalism would point to the evil of welfare measures, and the critics of capitalism will point an accusing finger at the bailout packages. Sharma shows the expanded role of the state, the dependence of the people and private companies on the state to be the canker in the system of capitalism.

He provides a panoramic view of how the markets have been working in the West and how the benevolent role of the states in the market system has weakened the sinews of the people. He refers to the “revolution of pain management” which the Western states have mastered through bailout packages instead of letting the people and the companies feel the pain of the boom-bust natural cycle. He says that young people today do not believe in the government’s false promise of endless economic growth, and that they are aware of the natural limits.

Sharma paints a vivid picture of the story of market crises, especially the 2008-09 financial markets meltdown — which the blinkered Indian market economists refuse to acknowledge — and the saga of bailout packages in America from the 1970s onwards — and how the so-called neoliberal Reagan revolution of rolling back the state only managed to increase budget deficit! The lesson: Something terribly wrong with capitalism. The answer of course is not socialism!

What Went Wrong with Capitalism

By Ruchir Sharma

Allen Lane

pp. 367; Rs 999