Capitalism V/s Socialism (Part II)

Posted on June 6, 2009 in Specials

Guha Rajan

This is in continuation to my earlier write up on the same topic on 3rd June, ’09.

Subprime crisis had been one of the factors contributing to the economic recession. Banks and financial product companies were directly involved in subprime crises and hence there capital got eroded. Free flow of money was stopped thus triggering recession. Since people lost jobs, spending decreased and the revenue got hit, which led companies to move into a protective mode.

Since unemployment peaked up, there were talks at the Govenment level as well, to look at ways to stop outsourcing to low cost destinations, so that adequate employment opportunities are available locally. Of course this is the right thinking, there is no point in providing opportunities to outsider and displacing the locals.

Now, on a different spectrum, none can deny that USA has been one of the main innovators of Technology. IT has been one of the major one, right from CPUs, Laptops, servers, Operating systems, open source software, package entreprise software, databases, etc. the US corporates have been leaders in this sector. It is not only the IT, US had dominated many other sectors as well.

Over the decades, all the US corporates have grown exponentially and for US corporates, US alone is not the market, world is the market. Truly so, the expectations of capitalist approach is to have a free market so that fittest one survives.

Having considered the above point, if one thinks of a situation of restricting outsourcing, what could happen, is, the corporate sector could think of having a plan or task allocated in US location for US and western markets and plan in China or India for Asian Market. The implication could be: since the cost of living is different, it might end up manufacturing out of US as US has a higher price as compared to a product manufactured in China or India location. Such approach will fail and can lead to other problems like the black marketing or illegal trade or even business getting closed or acquired.

So, I believe the only approach for the world countries is to have a collobrative approach and continue to have ab free market regime and thereby, have competition, which allows consumer to get the best. Ultimately one has to look at the root cause to solved this issue, there could be many options, some of them might look like:

* Revaluation or devalution of US currency against world currencies.

* Options of having salary cut instead of providing pink slips OR making salary parity based on skill level, attitude and experience instead of location based.

* Further,I really fail to understand, as what benefit the US economy gets by trading or bench marking Oil in USD. I believe it creates artificial demand for US currency which in turn make USD appreciate. But in the long term, I do not see a real benefit to the US economy.

I still believe capitalist and free market are the best for world economy & for further growth as well, so that consumers have the best product at a best price at the right point of time.

I welcome readers comments ……