Beginning of the End of Capitalism PDF Print E-mail
Economics
Written by Mahesh Pradesh   
Now the time has come to recognize that unbridled greed, only profit motive-besides creating strain between poor and rich relationships lead man to grosser tendencies responsible for many a crime generated out of want.
American economy is in deep crisis. Lehman Brothers, the biggest bank, has gone bankrupt; other financial giants namely Freddic Mac, Fennie Mae, AIG, Merril Lynch have failed. Inflation has risen, thousands of jobs have been cut, consumer trading has fallen, share market has considerably depressed. People are just shocked. Future has suddenly become uncertain. Congress has passed $700 billion bill as a bail out package. Global bail out package is estimated at 2 trillion. Experts, however, feel that it will have little impact on the health of economy and that the worst is yet not over!
Thus, the common American is at a loss to reconcile that the till now Super Power is reeling under actual pressure of a depressed economy.
In a global scenario, no country can remain unaffected. India has been quick to feel the crunch. From staggering 19785 on 14-9-07 Sensex came down rolling to less than 12000 as on today. Indian investors have lost 6.6 lakh crores while investors across the globe have lost 10 trillions dollars. Aviva has lost 30% of surplus capital. Luxmi Mittal is poorer by 16 billion pounds. He is among ten super rich in Britain who have lost by now 23 billions in all. Such ramifications will continue.
In order to infuse life in the falling American economy, the FFIs (foreign financial institutions) started heavy selling their stock in India to raise money. With comparatively few buyers, Sensex had to feel the punch. The future is further bleak. With financial market depressed, the oil consumption is down in USA which has affected oil price bringing it down from whopping $157 to 90 per barrel. This is going to adversely affect oil based economies in Gulf and Middle East. Dubai has started feeling the punch. Tourists will have little impetus to visit countries which will affect hotel industry every where. In India's context, besides the above, exports will not be boosted while imports will become costlier. Retail sale of consumer items will decrease as the money market shrinks. India is, thus, going to be affected a lot, the bold face and assurances of PM and FM notwithstanding.
China has invested heavily in USA. With the current financial crisis there, its economy is also going to suffer with the drop in demand of consumables thus putting strain on manu-facturing industry. Even IT manufacturing sector will not escape the crunch. So must be with other economies at the global level. To quote an anonymous writer: Image: “A deserted play ground in front of a newly built and nearly empty apartment building in Sesena near Madrid, Spain. The downturn of the Spanish housing market has turned the place into a ghost town.”
How and why all this happened? With lending interest rate being as low as 1% for a pretty long time, the American dream of comfortable living and a good house found a great temptation in such a cheap credit. At the same time, this demand was exploited and cashed by robust financial institutions. These FIs took huge loans from regular banks on the basis of their credibility and then passed it on to thousands of house loan seekers on very high interest rates called sub-prime rates. The loan was to be paid back at regular intervals called EMIs. In the craze for high profit and greed no verification was done about credit worthiness of these loan seekers, and thus, deliberately these FIs ran the risk. They even raised the securities on the basis of house loans and the money thus raised was paid back to the banks against loan taken to show the credibility and secured more loans in the chain.  
Thus the vicious cycle continued. Curiously, these sub-prime rates were also floating i.e. varying with market position. As such, there was no fixed EMI (equated monthly installments). As these debtors were already low and uncertain income customers, they started defaulting with high EMIs. The increase in the US interest rates increased the EMI and further contributed to more defaults.
With huge defaults, thus, these FIs could not pay assured interest to those investors who had purchased the securities raised by these FIs.
With the crash of the value in real estate, as a consequence, the real worth of these FIs dropped heavily. The net result has been the bankruptcy or failure of these huge financial giants creating overall panic and global financial crisis.
Experts say that the bursting of house loan bubble is not the only reason. Sheer size of global giants is the worry. Total revenue of the five failed above mentioned giants during 2007 was $321.6 billion. There are 185 countries, including fairly developed economies like Denmark or Greece, whose GDP cannot match that size. In fact, even the combined GDP of the 96 smallest economies doesn't add up to the aggregate revenues of these Wall Street giants which were often considered too big to collapse. Between them, the CEOs running these firms had an annual compensation package of $118 million last year.
In fact, the above exorbitant compensations have impacted society in other ways also. The multinationals, everywhere, on the one hand, have allured the scientists, engineers, technologists et al from their societal or national obligations while, on the other, high salaries have only boosted greed for more and more, rendering the balance between the haves and have-nots fragile. For instance, in the glamour of corporate world, youths are not joining military services in India with the result that over 11 thousand officers' posts are lying vacant seriously affecting the fighting capability of the army. Even civil services remain no more coveted. With the result there is a serious brain drain in Public Sector. The present global crisis may be a blessing in disguise for such countries, who knows?
The other cause is definitely conspicuous–an extravagant consumption and unbridled greed in the materialistic society as it has become. Sunday edition of New York Times carries some 800 pages! This must require cutting down of thousands of trees for pulp.  
One person driving a big car with no sharing to 50 -100 miles and back daily to attend work place consequently depletes oil resources built by nature in millions of years. One family using over $15 million to construct a palatial house of 30 rooms with swimming pools and other similar facilities. Are these not signs of sick mentality, enjoying at the cost of starving millions?
The people with low or uncertain income, through either coaxing, jealousy of the neighbor, advertisement, allurement with no higher pursuits of life except consumption were natural victim of the phenomenon of materialism propagated and fostered by state as well as society down from the time of Adam Smith to the present age of Nobel Laureates. This philosophy assured the people of ever lasting hegemony of market forces; profit became the only guiding factor in commercial relations; consumption became the creed and thus was born the present day Capitalism. Since baser tendencies of mind have a sweeping influence, the higher pursuits beyond intellectual (psychic) level were ignored completely. As a result, lust, greed and jealousy giving vent to more and more consumption became the order of the day. All these had their limitation. they had to fall and they fell.
Thus, India has a lot to learn. With three economic luminaries at the top we have emulated the American module and moulded our economy on that pattern. We also started giving loans to farmers, automobile buyers, students, to consumers of all kinds without ascertaing their credibility. The loose ends were exploited by the unscrupulous bank staff, rural agents, government officials and whosoever was concerned in the chain. The result: Defaults and then waiver of huge loans in installments. First, it was 10,000 crores and now it is Rs. 70,000 thousand crores in one go. The tragedy is that still there is no respite from suicides (of highly indebted farmers), a national shame. Our Non performing assets (NFAs) alone are of over one lakh crores.
Ravi Battra, an economist of repute, teaching in Dallas (USA), in his memorable book 'The Great Depression of 1990' had forecast the fall. But, that time corrective measures were taken in time and the disaster was averted. This time again he had forewarned that the house-loan bubble will burst and USA will face a great financial crisis. Boosted by the previous efforts when USA was able to counter the depression and bathed in the (false) glory of their booming economy and an inflated ego of a super power no attention was paid. The result is before us all.
Prout has always advocated a balanced economy in which people's economy plays a great role, and has denounced the formation of big corporations in private sector for the simple reason that ultimately such giants promote greed and thus exploitation. Only State has been allowed to man public utility big formations like transport, communication facilities, power, steel and the like. Such intermediaries like Lehman Brothers, Freddic Mae, AIG etc. have no space in Prout's economy. Prout has emphatically declared that: Communism makes a man beast while Capitalism makes a man beggar. The events of today prove: How true!
Even the Nobel Laureates have started questioning the liberal economic philosophy called capitalism and in the consequence also doubting the legacy of the Nobel Economics awards with prized liberal market theories being blamed for the mess while some experts say that the turmoil in future will push the prize itself in new direction. To quote: “I think the crisis is leading to a fundamental change in the philosophy. We have seen that unfettered markets can be a disaster”, said Joseph Stiglitz, a Columbia University professor who himself won the 2001 Nobel Economic Prize. Out of 58 Nobel Economics prize winners 69% have been US citizens while 70% worked at US Universities who were keen advocates of liberal markets – now being blamed for present crisis.
Now the time has come to recognize and realise that unbridled greed, only profit motive – besides creating strain between poor and rich relationships and seriously affecting the balance in society lead man to grosser tendencies responsible for many a crime generated out of want. This is heartening to note that many people have started reposing their trust in God and prayer after losing all they had. Thus, it is high time that after shedding all prejudices we must work out a new economic philosophy which will wipe out tears from every eye and still give incentive to persons of talent and high performance.
It is not out of place to mention that, in India, we had a different culture. For thousands of years its social life was guided by spirituality which had contentment (santosh) and renunciation (aparigrah) as its essential norms. Thus, we carried on for long with little needs but with high thoughts and culture, a magnetic attraction for thousands of depressed souls from the materialistic fold. We need that now even more.
Some good must come out of this crisis. Human existence is trifarious : physical, psychic and spiritual. None of these can be ignored in the interest of balanced development of either individual or society. It is heartening that the desperate people have started moving towards the third force i.e. God. But, here also, the conventional God or religion will prove only a palliative, not a solution. Spirituality, and only pure spirituality, can move a man to balanced life. Through clash and cohesion, the present scenario offers an opportunity whereby a man is bound to rise from all negativities. This will lead him to a resplendent new destiny.

Mahesh Pradesh