Thursday, November 19, 2009

Capitalism – The Rogue of Society?

We have learnt that wealth creates more wealth and when unequally distributed, will sow seeds of hatred and discontentment among people. Dear readers, capitalism is when the wealth of a nation is in the hands of the fortunate few. Do not get me wrong, I am not opposing capitalism in totality. Rightly so, people who work hard should be rewarded for their labour. But I feel it is kinder and fairer that the wealth of the country should be shared by all and not confined to the lucky few.

Basically capitalism is created based on scarcity and demand. Due to scarcity of a commodity, demand will increase, prices will hike. In a layman’s term, it will lead to higher value for a particular resource or product. Eventually, our paper money will become worthless. 1000 Won does not equate to 0.85 USD (as of October 2, 2009) forever. Actual value fluctuates.

Recently, we are exposed to the destructive nature of capitalism. A case worth mentioning is the collapse of the Lehman Brothers. It was not because of company mismanagement but rather greed and unsupervised market trading. Overnight, it transforms a millionaire to a pauper.

With capitalism, anyone can participate with or without money. People borrow money to participate in the system and when the person loses the money and is unable to settle its loan, it creates a Domino’s Effect. One by one, each and every sector will be affected, private lenders, banks, companies, governments and right at the bottom, the man in the street.

Since the last recession, United States (US) has now been so heavily indebted to the Chinese and Japanese Government, and to a lesser extent, the Korean Government as well. These countries bought the US Treasury Bills. When US literally runs out of money, it keeps printing the notes. When money lacks demand due to oversupply, this will depreciate the value of the currency. With currency depreciation, inflation sets in due to the high cost of buying products especially imported ones.

Some might argue that democracy and capitalism complement each other like butter and bread. However, in ancient Greece, the birthplace of democracy, there is no presence of betting on the value of resources or goods which allow prices to go up or down. Usually, countries that benefited from natural resource like oil have higher corruption or are alleged to be sponsoring terrorism.

On the other hand, in this millennium, socialism is no longer applicable though it has existed until now. There are no socialist countries that subscribe 100 percent to socialism because socialism basically cannot support a State. What I am suggesting is Creative Capitalism similar to the idea initiated by Bill Gates. In my opinion, creative capitalism is really about innovation as the prime mover.

Human population is projected to grow from approximately 6 billion in 1999 to 9 billion people by 2043 (Source: US Census Bureau). If this is true, why do capitalists worry about not profiting? Innovation will be the only way out in this saturated market. I believe trading of foodstuffs that are a necessity for human survival should be prohibited in international market. By adopting such policy, prices of essential food will be maintained.

If food prices are to remain constant, how can agriculture companies profit from it? With research especially through biotechnology, food production can be hastened. Professional jobs too are created along the way while profits will now be based on how productive the farms are and not be determined by international market. Hunger will then be eradicated.

For certain resources that can be traded, hedge funds should be discouraged. Hedge funds are collection of funds from investors that invest in stocks and will eventually disrupt market value. The funds will be withdrawn once it finds that it can make a tidy profit but it comes at the cost of small investors. Stocks that are invested should not be allowed to be sold immediately. This is because stock movements are often not based on rational thoughts. Usually many investors get very emotional when they see the prices moving up and down.

People are easily swayed by greed when they see their stocks rise substantially but continue to wait for better yield. This is how stock “bubbles” form. When the “bubble” bursts, panic takes over and everyone will start selling the stocks. This is what makes stock trading market volatile. In capitalism, not everyone will benefit from it. The poor will continue to be poor while the rich will become richer. Wealth disparity gaps widen.

In the advent of a brand new technological age, we need a system that will allow everyone to benefit. Creative capitalism, I believe may provide the answer. With creative capitalism, innovation will be the main driver in our ever expanding thirst for natural resources and wealth. With innovation, we can seek the unexplored, explore the unknown for the benefit of mankind. The final question is whether we will have the courage and political willpower to adapt to a newer type of capitalism. The benefits will be long term for all of us.

“Capitalism has improved the lives of billions of people — something that's easy to forget at a time of great economic uncertainty. But it has left out billions more. They have great needs, but they can't express those needs in ways that matter to markets. So they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives…” Bill Gates

Kyle Tan Jin Soon

P.S. Will update sometime in the future (not that long lah), this is one of my I-Have-Too-Much-Free-Time to write post, so why not post it? When I'm young, I wanted to be a doctor, an entrepreneur, a scientist, this and that. Eventhough I'm a science student, I think, I'm much more inclined to business. I like writing too. My right brain is better that my left, i guess...

1 comment:

Bil said...

what is your major ure going to choose again?
I think you are inclined to study economy..
ehhh. write more la.since ure good in writing..

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