Capitalism in jeopardy: Why India holds the key

Twenty-and-odd years ago, after the fall of the Berlin Wall, capitalists declared a premature victory over communism. Today, as protests against a failing capitalist model in the west go mainstream, the question is whether the world is going to head in the opposite direction: validate all the failed ideas of the past, including greater state control and socialism in some form or the other.

Not quite.

First, capitalism is not an ideology like communism. It is, at best, a mechanism, a signalling device where one uses the markets for feedback on what to produce, what to buy or sell, what works and what doesn’t. Capitalists have done us all - and themselves - a disservice by elevating capitalism to the level of ideology when it is nothing of the kind.

Secondly, markets do not always work in all situations. So even if we reduce capitalism to merely a belief in markets, we need to recognise when markets work, and when they don’t. For example, the markets don’t work when it comes to pricing ecology - despite carbon credits and Nobel prizes being given to climate change groups. Markets work only when the information field is clear and unbiased. The market for a more sensible ecology will work when we have more information in this domain.

Third, the markets are values-neutral. They deliver results, but the results may not be what you want. The angry people occupying Wall Street are saying the markets don’t work for them because the outcomes they expected from it are not happening: they are not getting the jobs they want, or the welfare they seek. They are also emotionally upset about what the markets actually delivered - unfair rewards to some Wall Streeters, who landed the Lehmans in the doghouse and destroyed wealth of epic proportions by taking on risks using complex financial instruments that nobody understood.

Fourth, if we take capitalism as short-hand for a belief in markets and free choice based on prices, the fact is, a system based on information can never fail permanently. Ideologies can fail, ideas can fail, but information systems can only fail till better information becomes available. Even as we get into bouts of anti-capitalist rage (“Rage against the machine”, as The Economist calls it), capitalism is already mutating to survive.

For evidence, look at the number of capitalisms competing for survival. In Europe we have welfare capitalism in crisis. In America we find the Occupy Wall Streeters questioning laissez faire capitalism; in China we have a thriving authoritarian capitalism, and we also have partly successful chaebol-keiretsu capitalism in the rest of Asia (minus China and India).

In India we have what I would call “Hindu capitalism” - a huge diversity of approaches where we have an Infosys at one end that runs to western notions of institutional capitalism and corporate governance, and huge, family-controlled business empires that are representative of feudal capitalism, at the other. Corporate governance is a secondary goal here.

In nowhere land is Indian muddle-path state capitalism - encompassing highly profitable companies in the raw materials and energy sectors (ONGC, Coal India, Nalco) and unprofitable basket cases that operate in competitive industries like telecom and aviation (BSNL, Air India).

Little wonder, The Economist, which has devoted a special issue to India Inc, concludes that “while India’s capitalism does have oodles of vim, it is writing its own rules, some better than others.” In the magazine’s view, Infosys is the exception, not the rule. “A Martian investor landing on Mumbai’s streets of gold might judge its business scene a mix of Sao Paulo, Seoul and Shanghai, with only a dash of Silicon Valley.”

Where The Economist goes wrong is in assuming that India needs a Deng Xiaoping or Margaret Thatcher to give Indian capitalism a new lease of life.

However, Indian capitalism is about diversity, not homogeneity. Which is why it is more appropriate to call it Hindu capitalism - which is the acceptance of multiple approaches to capitalism without prejudging what will work. It is a non-ideological approach to see which capitalism works.

As any evolutionary biologist will tell you, when you have diversity and multiple approaches, you are more likely to stumble upon the right answer in due course.

Different countries in the world are adopting different approaches to capitalism. In India, we have adopted all the major approaches. May the best approach win.