Capitalism V/s Socialism (Part-I)

Posted on June 3, 2009 in Business and Economy

Guha Rajan

With much talks about recession and job loss these days, I was wondering about Capitalism Vs Socialism and where is the world heading?

What’s Socialism and Capitalism?

More than a decade now, capitalism has been the world’s dominant economic system, Which means, production and distribution are owned by individuals, private ownership and free enterprise and competition between enterprises is believed to lead to more efficiency, lower prices, better products and rising prosperity.

On the other hand, Socialism advocates the ownership and control of the means of production and industry by the community as a whole: the community is believed to be both just and efficient through central planning.

Indian move towards capitalism….

India’s freedom struggle was more towards non violence and more democratic in nature. Hence, after independence India was oriented towards socialism, many Public Sector Units (PSUs) were created as democracy was related to ‘of the people, for the people and by the people’. India’s previous generation leaders thought more towards socialism, which is definetly a boon if it works effeciently. However, due to various factors many PSUs turned incurred a loss.

In the late 80’s, Indian economy was in a bad shape and hence no new public sector undertaking was promoted and around the same time USSR started crumbling, also at the same time western countries were more towards capitalism and were on the lookout to sell its products & services and India which had a huge market potential; India was also looking at IMF for its financial needs.

Indian market liberalization started in late 1980’s, which paved the way for capitalism which was practised in west. When the collapse of USSR started nothing much was mentioned about socialism and it was thought to be a failed model.

Is Western economy moving towards socialism?….

Capitalism gained ground and it was working effectively until the financial ‘tsunami ‘ took over recently, and I believe this recession was created more out of greed. In most cases, capitalism lead to greediness, they innovated techniques and more importantly they were able to sell these techniques and thereby started creating a bubble in commodities and real estate markets. When the bubble burst most of the industry started getting affected slowly and eventually leading to a liquidity crunch. Most of the western companies revenue went southwards and they were on look out for finance, but unfortunately US banks and financial sectors were equally hit, badly, due to toxic asset which were mortgaged at a higher value during boom times.

Eventually, not only the US industries but also the US banks are now looking at the US Govt to bail them out from the mess. In the last few months US Tax payer money is being used to bail out banks. What is interesting is after failure of Enron, Sarbanes Oxley compliance was brought into play and in spite of this, companies failed. US is now in the process of putting more control in place since Tax payers money is being used for the bail out.

So the question is, Is US moving towards Socialism, which was once thought to be the captain of capitalism? and would eventually world economy move towards socialism?

Do read part 2 for more…