Can Capitalism Bring Inclusive Growth?

World of Interminable Words

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The recent Oxfam Report, 2016 has once again brought forth the debate on global inequality in light of its findings that the richest 1 per cent of the world’s population now own more than the rest of us combined. This debate on global inequality in contemporary times also raises a question mark on the ability of capitalism – the economic system predominantly being followed all over the world, barring a few exceptions, to deliver inclusive growth. Capitalism is an economic system believed to have been born in the aftermath of the industrial revolution in the eighteenth-century Europe. It is based on private enterprise and private ownership of means of production like land, labor, capital etc. as compared to the economic system of Socialism, on the other end of the spectrum, which encourages public or state ownership of means of production. The producers belonging to the elite capitalist class are driven by the sole motive of profit. However, the system of capitalism has been criticized since its inception due to the exploitation of working class under horrible working conditions and low wages and for the very fact that it divides societies into classes of ‘haves’ and ‘have-nots’. Its proponents have pointed towards ills of other economic systems and freedom of choice to encourage a laissez faire system. However, in light of the growing global economic inequality and poor standards of living even among sections of citizens in first world countries that have been following capitalism in spirit and law for centuries, certainly does raise a question on capitalism’s flaws and its ability to deliver inclusive growth.

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The concept of inclusive growth focuses on equitable growth for all sections of society. This involves ensuring that fruits of growth and development reach the poor and marginalized sections as well. Capitalism, with profit as sole motive, at times fails to reach areas that require prioritization of social welfare i.e., working on a non-profit basis. For e.g., running of schools and hospitals in rural and underdeveloped areas, building of public infrastructure like roads, rails etc. in rural areas etc. This leads to concentration of development works and industrialization led growth only in urban areas and hence creates regional inequality. Such regional inequality slowly turns into socio-economic inequality as well due to lack of meaningful employment opportunities in areas left out of the Capitalist development model and strikes at the very root of inclusive growth. Moreover, this increases urban migration leading to overcrowding and straining of public resources which in turn results in people living in miserable conditions.

In a race for delivering higher profits to owners, capitalist producers of goods and services compromise on payment of adequate wages and proper working conditions. For e.g., news reports of lack of payment of even minimum wages to laborers in certain sectors of economy like construction, textile etc. is not uncommon in India. Private firms loyal only to the shareholders don’t feel inclined to share wealth with their employees. Resentment even among middle class employees regarding their long working hours and inadequate compensation in also quite prevalent. For e.g., in view of the sixth and seventh pay commissions’ reports many educated youth are contemplating switching to government jobs even if they may be deemed overqualified for such jobs and even if it entails forgoing the corporate sector perks. Such tendency of the corporate capitalist class to squeeze out the proverbial last dollar leads only to enrichment of the already rich sections of society at the cost of the poor and middle class whose labor is undervalued.

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Capitalism also attaches great importance to the idea of free and efficient markets to achieve growth and development. But, time and again, it has been seen that markets fail to allocate resources and fruits of growth efficiently and are rather skewed due to monopolistic or anti-competition practices and their short-sighted views on growth. For e.g., the Bombay Stock Exchange lost a number of points the day the Indian government announced its scheme for public food security. The markets hence failed to take a long-term view on growth by not recognizing that only a well-fed population can lead to holistic and sustainable growth for all. Instead, the free-market proponents chose to pressurize government to take back its social-welfare program. The markets, moreover, driven with the sole aim of profit have frequently led the world into economic crisis accompanied by fall in employment rates and growth rates affecting the marginalized sections of developing and least developed economies the worst due to their greater vulnerability. This further serves only to widen the global inequality and the gap between the ‘haves’ and ‘have-nots’. For e.g., the 2007-08 subprime crisis, though originated in USA due to uninhibited greed and unethical practices of investment banks, soon engulfed the entire world economy leading to fall in growth rates across the globe. But the bailout package of developed world economies ensured that the capitalist class largely remained unaffected even though the middle class and marginalized sections suffered due to economic slowdown.

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