Policy based on free market capitalism that can curb corruption.Potential challenges and strategies to deal with them.

Background:The twentieth century was the age of advanced capitalist economies. There has been rapid change and development in the economic structures of almost every nation. Performance and structural change have been inseparable in most economies. The rise in per capita income since the early years has not been however the result of a balanced growth and has been accompanied by transformations forcing economists and policy makers to distinguish between precapitalist and post capitalist phases. The second half of the last century has almost settled the debate over which economic systems are best for state and society. Change has been central to capitalism: both economic and institutional change. However, a clear verdict has been delivered: Capitalism is by far the best system for the production of wealth. The paper aims to provide possible and pragmatic solutions about what we need to do to renew free market capitalism and spread its enormous potential among the whole of humanity.

Global Capitalism: Boon or Bane?

Policy makers and business people have long argued that free markets, open borders are the best means for creating wealth, that this wealth will eventually trickle down the hierarchy and eventually in the long run it makes all of us significantly better off. Today, capitalism outperforms socialism in numerous dimensions. Conscious capitalism channels self-interest into mutually beneficial behavior. However, when I tell this to my slum-dweller friend of Dharavi confronted by the belief that markets don't work, such words will be poor succor. Capitalism today runs a reputational risk. Millions of people in developing and transitional economies scoff at free markets, regarding the concept as license to steal as they see the rich growing richer by illicitly enriching themselves. The ability of people in power to be notionally legal but ethically and morally bankrupt is destroying capitalism today.

The challenge of crony capitalism. Making money out of nowhere.

In many countries powerful aristocratic elites have opposed widespread access to markets. The reasons are mostly obvious. Freer markets and greater competition stand to make them lose out in the race. Developed world economists today widely believe that it is acceptable to sacrifice the rights and interests of some people for the good of others, thus despising the idea of inalienable rights.

This idea- that the well-being of the poor can and should be over-ridden for the advantage of the rich completely brutalizes the idea of free-market capitalism as though of by its seminal thinkers like Adam Smith. As a result, trillions of dollars of dirty money derived from illegal and venal activities lodged in accounts all around the world make their way into markets everyday affecting. The past 30 or 40 years has seen enormous financial transfers from the poor to the rich. More importantly the World Bank has been largely silent on the movement of trillions of dollars from Asia, Africa and Latin Africa to Western coffers by the leaders of these countries itself. Billions of dollars meant for public welfare in Nigeria and Indonesia made their way to Citibank private accounts in New York during the corrupt reign of Sani Abacha and Mohamed Suharto respectively. Closer home, Benazir Bhutto and Nawaz Sharif clearly understood the meaning of self-enrichment. Investigations have revealed that the Bhutto regime gave instructions for billions of rupees of unsecured government loans to large projects. The loans were sanctioned in the name of designated front men but went to the 'Bhutto-Zardari' combine. Nawaz Sharif was no better once authorizing import of 50,000 new vehicles duty free because a new highway built allegedly needed new cars costing the government $700 million in custom duties. The three forms of dirty money-criminal, corrupt and commercial use basically the same mechanisms promoted and developed by Western businesses and banking firms for bringing in money into their countries. Shocking but these bag of tricks: false documentation, dummy corporations, shell banks, tax havens, mispricing, kickbacks, wire transfers that disguise transactions have been perfected by none other than what should be otherwise the Who's Who of Propriety: Citibank, JP Morgan Chase, Bank of America, Bank of New York. Major ethical lapses and scandals by American corporations like Enron, Arthur Anderson, Tyco, WorldCom and AIG only made stronger the belief that Wall Street was taking the world for a ride thanks to the growing greed of its managers and banks. The fact that all these financial institutions are American origin with the largest base in Europe brings before us an important revelation. Developed countries have far long exploited developing countries. The attitude of the world's largest economy plays a vital role in determining what form of capitalism people across the world experience and this case we have faced its most brutal face. The long held belief that the nastiest of people for the nastiest of reasons will somehow work for the benefit of all of us proved to be false. What hurts the world's poor are the intelligent and well-off guys in the myriad ways they have always taken advantage of the the third world countries, often weak and corrupt economies.

Role of International Institutions:In order to secure the conditions for the expanded accumulation of global capital , the World Bank and International Monetary Fund (IMF)should be involved in an explicit project to assert their autonomy from all particular national state and capitalist interests especially in cases of countries like USA and UK. The World Bank and IMF need to get rid of the image of a living embodiment of Capitalist social relations among the rich nations. In order to promote the condition for freer markets and thereby greater prosperity among people of the developing nations, the World Bank and IMF have to face the enormous

challenge of securing their relative autonomy from all vested capitalist interests. The World Bank should try to reinvent its current role in the governance of global capitalist endeavours to be more fitting in accordance with the crisis-laden world of today, especially to be in sync with the concerns and problems of developing economies. The international institutions today face enormous challenges ranging from the pressure of dominant member states like US and UK who primarily fund it to global social movements and localised struggles in countries still suffering from the lack of a proper democratic framework. Amongst all these,it becomes the duty of these great institutions, namely the IMF and World Bank in restoring the faith of the common man in the benefits of free-market capitalism.

Renewing free market capitalism. Spreading prosperity.:How many poor people are there in the world today? How poor are they? Half a century into business and development, what still makes them poor? Basic questions but no policy maker or business person has a clear answer. And this is where the biggest ill of present time - free market capitalism will play the most vital role. Poverty and inequality can be cut with a properly functioning free market system. People around the world have acknowledged the superiority of the capitalist system to raise standards of living and reduce global poverty. The developed world today needs markets to grow in the developing countries among the poorest sections of people because a growing unrest in the former resulting out of hunger, lack of sanitation facilities and proper housing will not just result in economic refugees to the former but there will be no one to absorb the developed country goods today. And to do this we need the crony capitalists both at the domestic and international level to be motivated more by the opportunities of mutual growth and prosperity than by the fear of competition.

The Indian Challenge. Role of Free market capitalism in making lives better.
The major challenge we face here is bringing the poor into its fold in a country like India. Developed countries like America has over time realized that they by the virtue of their previous actions that they face the problem of rapidly aging rich populations with fewer and fewer young people to carry it forward. As such,they will be forced to invest in young developing countries like India but we need to ensure we find better ways than in the past to ensure the security of the investment and making the growth resulting of this investment inclusive all strata of society. This is what precisely mattered in Korea in the last few decades.South Korea espoused capitalism and has since moved from underdeveloped to developed country status in a generation while in the same time socialist North Korea today has descended into starvation and destitution.

Yes, the challenges, context will all be different in the Indian story. However, few lessons like open borders, efficient ownership of productive assets, a new safety net focused on individuals will ensure greater access to credit, more entrepreneurial activity and thereby an amazing growth rate of inclusive economic development.

References:Articles: Why doesnt capitalism flow to poor countries?(Brookings Papers on Economic Activity,Spring 2009)by Rafael Di Tella(Harvard Business School) and Robert Macculloch(Imperial College London). Books: Capitalisms Achilles Heel by Raymond W.Baker. Corruption,Fiscal Policy and Fiscal Management published by United States Agency for Economic Development originally prepared by Georgia State University.

By: Sushman Das, BA Economics (H),1st Year Shri Ram College Of Commerce, University Of Delhi,Delhi-110007 Ph.No:-08376886023

Declaration The above article has not been published or submitted for publication elsewhere.