Depression 2008: Do We Really Need a New Economic System?

The clamorous and rather blatting recession, emerged from US and called as ‘the depression 2008’, has not only slashed a lot the income and the employment in free capitalistic developed economies of America and Europe but it is also advancing fast to encompass the Asian developing economies without discriminating between the capitalistic developing economies like India and the socialistic developing economies like China. This prevailing and rather contagious economic meltdown throughout the world has made us to think not only how to come out of the predicament but to descend in the deep fathom and evaluate if there is some defect causing un-sustainability or rather un-viability to the presently prevailing economic systems in the world. A large number of adroit and dexterous thinkers have turned their concern to this side. They are ingenuously giving their opinions and views whereby emanating and rather gushing bulks of articles, research papers and treatises are hitting a big space in the world media.

Some of the articles are purely the diatribes against free market system while some others critically evaluate the capitalism. For some the socialism is the desired remedy while some others speak of overhauling the prevailing form of capitalism. Some of the writers have advocated socialism and some others have suggested the policy of protected trade instead of the prevailing globalisation. A few of the authors have also paced a bit farther to give new economic paradigms to replace the prevailing socialistic or capitalistic systems which seem to have become non-sustainable. Having gone through many of these articles and the suggested alternative paradigms I found myself more firmly adhered to my old view that the depressive trend has stood emerged and set in the rigour of world economies not by chance or as an aftermath of certain temporary betides of market events. It has betided but due to mismanagement of the economic systems on account of our neglecting the preconditions essential for sustainability or viability of our respective economic systems.

Man is eventually an effigy of several desires and tendencies in his economic behaviour. Some of them nourish and are compatible to the smooth running of the adopted economic system while some others encounter and rather harm it. Therefore, State formulates certain laws or acts to curb the encountering desires and tendencies of the people. These regulatory laws form the set of dos and don’ts of an economic system. Every economic system thus has some preconditions for its smooth running and its being sustainable. These preconditions sprout out of the above said don’ts pertaining to and required for sustainability of an economic system. Therefore, an economy would run smoothly on the path of sustained economic growth and development so long as the preconditions pertaining to its economic system are strictly followed. Even if mere a single precondition is neglected and left un-followed, it will start eroding the system and the day will definitely come when the eroding effect attains a depth worth placing powerful obstacles in the way of running the normal economic activities and the economy starts advancing towards collapse or meltdown like that which the world economies are at present coming across to. Neither capitalism is superior to socialism and nor the vice-versa. Each one is separately a complete economic system having its own merits and demerits, dos and don’ts or, in other words, positives and negatives.

Of the prevailing economic systems in the present world, capitalism is perhaps the oldest one. Despite its coming under heavy fire in the near past, it still retains its marked existence in most of the prosperous and powerful economies of the world. Among various features the principal advantages of capitalism are the right to private property, the right of inheritance, the freedom of individual initiative and the free competition. Moreover, the striking merits of capitalism are its automaticity, resilience, innovative motivation and democratic character. All the same, capitalism is not free from demerits. Its merits may survive and advantages may be drawn only so long as government regulation and intervention persist to see that the freedom and the rights provided therein are used by individuals for their personal interest but not beyond the permissible limit. A well regulated, legitimately executed, properly governed and equitably managed capitalistic economic system is most acceptable on humanitarian, social, ethical and even cultural grounds. But, in the absence of a certain level of government intervention as regards to the desired regulation, execution and management the merits of capitalism also start turning into the demerits on account of human avarice and greed. A free capitalistic economy is prone to glaring economic inequalities whereby handful few may roll in luxuries and wealth even when the vast majority face hunger and starvation. The economic inequalities also prevent the equality of opportunities from reaching to all the citizens whereby the poor and the non-privileged would always have to start with a handicap and to contend themselves with only subordinate positions whatever able and intelligent they may be. The right of private property and the right of inheritance, if not limited to a legitimate extent, create, maintain and also perpetuate social parasitism whereby an increasing group of such people emerges who live on the income derived from the rent of land or interest of capital. Such people put in no labour for their own subsistence but live rather luxuriously. Unchecked competition becomes transformed into an unfair competition resulting into unduly increasing costs on account of large funds spent on advertisements and salesmanship to attract a desired size of a group of potential buyers in addition to the lots of money wasted merely to oust rivals from the field. The free market system in democratic capitalistic economy needs government intervention because, beyond certain limit of market freedom and democracy, vested wealthy interests and greed become capable of veering the economy towards not only the social and economic vices like exploitation, corruption, adulteration but also towards the economic turmoil like meltdown or depression or cost push hyper inflation.

On the another side and opposite to capitalism there is socialism as an alternative economic system in which the material means of production are owned by the whole community and operated by representatives of the community according to a general plan for the benefit of the whole community. Ownership of the means of production by the State (as representative of the community), general planning of economic activities and equitable distribution of national income among the people are the essential prerequisites of socialism. It is a fully regulated system and individual freedom has only a flimsy existence therein. A properly regulated socialistic system is though regarded as unacceptable on humanitarian and ethical grounds but it is very much acceptable on economic and social grounds. The fast development and powerful appearance of present China and pre-divided USSR registered in the world scenario prove the efficacy of a properly regulated and managed socialistic system. It eliminates trade cycles, prevents unemployment, extenuates economic inequalities and discards social parasitism. But, if the prerequisites are not properly followed the state control goes a bit higher than the required level and the individual freedom finds therein a bit lesser or no room, the defects or shortcomings or demerits like too much concentration of power in State hands, evils of bureaucracy, graft, dishonesty and frustration start emerging and a socialistic economy too is veered towards economic turmoil as in case of capitalism. Division of USSR and trickling of the ‘depression 2008’ into Chinese economy are the examples.

The above discussion, though short, is sufficient for the inference to be drawn from that neither the hard core capitalism with full market freedom and without any degree of government intervention and nor the hard core socialism with full State control and without any trace of individual or market freedom, can work as a sustainable or  viable economic system. Therefore, a certain degree of government control or intervention in capitalism and a certain degree of individual or market freedom in socialism is necessary for sustainability and viability of the economic system. Resting upon the so drawn inference I would like to repeat once again in the end of this treatise that neither capitalism is responsible and nor socialism is a solution for the world’s present predicament pertaining to economic turmoil on account of the ‘depression 2008’, but the lower than the required level of government intervention in capitalistic economies and higher than the required level of regulation and management in socialistic economies caused this all. Therefore, there is no need of any search for a new paradigm of economic system. The new paradigms appeared recently in the writings of some writers, too, lie on the segment between the hard core and the sustainable (or viable) paradigms of either a capitalistic or a socialistic economic system. Therefore, not any new economic system but proper regulation and management of the existing systems is a solution for the prevailing depression problem.