Economy - Perspectives on US, China and India

Joseph Stiglitz, one of the economists i try to follow online, has an article - more of an extract from his book Free Fall - in Telegraph. He argues that we need to question the underlying concept of Capitalism as practiced in the west. I for one believe in active regulation of the markets by the government, thereby guaranteeing a level playing fair field for all the stakeholders. Anyone who has followed this crisis and the way the US Govt has gone about bailing out "Too Big to Fail" banks without any new regulations or slap in the wrist of the bankers who were responsible for the whole thing will know that what is practiced in the US is Crony Capitalism. From Telegraph -

Government needs to play a role, and not just in rescuing the economy when markets fail and in regulating markets to prevent the kinds of failures we have just experienced. Economies need a balance between the role of markets and the role of government – with important contributions by non-market and non-governmental institutions. In the last 25 years, America lost that balance, and it pushed its unbalanced perspective on countries around the world.

The current crisis has uncovered fundamental flaws in the capitalist system, or at least the peculiar version of capitalism that emerged in the latter part of the 20th century in the US (sometimes called American-style capitalism). It is not just a matter of flawed individuals or specific mistakes, nor is it a matter of fixing a few minor problems or tweaking a few policies.

It has been hard to see these flaws because we Americans wanted so much to believe in our economic system. "Our team" had done so much better than our arch enemy, the Soviet bloc

While speaking about economy, capitalism and such, it wouldn't make sense to not include China. With its break neck speed of growth, unforeseen levels of foreign exchange reserves and growing political muscle, it most likely is the next superpower. However i don't think they have the softpower or other ideologies that might attract people from every part of the globe towards it. Here is an article from Rediff which purports to show how the world with China as the predominant power would be very different. From Rediff -

Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: Community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilisation from which to draw strength. It will not simply fold under western values and institutions.

A world order centred on China will reflect Chinese values rather than western ones, Jacques argues. Beijing [ Images ] will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He's voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.

(If you have read the article above, do you see the inherent contradiction within the article.)

So, in all this talk about Capitalism and big economies, where does our country stand? Are we on the right path or are we just a few decades behind, but on the same path that led to western economies to this mess? We have escaped this crisis without being hurt bad because of the regulations that were put in place. Foreign money was not allowed in to provide for a credit explosion. Though there was a bubble in the real estate field, since most of real estate (not including commercial real estate) were bought by end users themselves, not by speculators like in Dubal, any crash in that market wouldn't be as big as we see in other places. We must note that this was not coincidence but by design. Reserve Bank had proper regulations and controls over our banks. In the coming years, we would see a lot of noise about the need to open up a lot of sectors and regulations, but i hope India too doesn't succumb to the lure of short term gains in place of long term well being.

I hate when guys from the west preach to us about why we should not be mimicking the west, whilst doing nothing in their home turf. Yes, mindless materialism leads to a meaningless life and all that. But this is akin to US citizens lecturing us about resource utilization. We all know what we saw when TATA introduced NANO. We heard endlessly about how India shouldn't learn the bad habits from the west. Yeah, we must all risk our lives with 4 riding a scooter, while monstrosities like Hummers and other SUVs are the norm in the US.

Anyways, for what its worth, from Times of India -

Maybe 50 years ago, the effects of massive consumption were largely ignored. But today, most people acknowledge many planets would be required if everyone picked up American consumer habits.

Even the western toilets have become a status symbol in Indian middle-class homes. Millions of fancy flush toilets are added every year to new trendy restaurants, malls, condominiums and five-star hotels in Indian cities. Instead of adopting unsustainable imports from the West, there are areas wherein India should inspire the latter. With its traditional squatting toilet for instance. Not just because it is cheaper, more hygienic and better adapted to the human anatomy, but mostly, in a context where clean water is increasingly rare and pricy, because it requires much less of it. Countless other sustainable concepts, values and products from India could benefit Westerners. Strong extended family ties, respect for elders, kriya yoga and tongue-scrapers are just a few of them.

Indian needs to avoid repeating the West’s mistakes. Only enlightened citizens can show the way towards a more viable economy by putting pressure on government, stressing India’s success should not be measured by GDP growth rates and spending habits alone. Nor should it aspire to become like the US or China.

What do you think India should do?