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You are here:Home>>Strategic Research & Analysis>>Emerging economies must reject handouts and bailouts capitalism
Sunday, 27 June 2010 21:13

Emerging economies must reject handouts and bailouts capitalism

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Adam Smith's Wealth of Nations, the classic and the enduring book in which the characterization consolidated the fundamental mechanisms of capitalism, cautioned marketers and capitalists to invest where they have comparative advantages. The risk will be minimal and potential for success more viable. But capitalist and capitalism in the Western world is charting a new course; they invest in just anything without in depth feasibility studies and when they burst, they turn to the government to bail them out with a hand-out. This bastardized paradigm of capitalism, where irresponsibility and mismanagement are rewarded with taxpayers' money is not the basis for capitalism. In the free enterprise, free people invest in businesses and take reasonable risk with a well- grounded preparation. When they succeed they reap the dividend and at failure, pay the price.

The utmost danger is the encroachment of government into the economic landscape via bailouts and handouts. Subsequently government might proceed to have control over the means of production and central planning becomes imminent. A state with an economic model rooted in central planning is doomed to become a totalitarian state. Where tyranny of the people becomes the order of the day, human decency is destroyed and human creativity is supplanted and stifled.

Transnational and big corporations that are going bankrupt are being spoon fed by the western government: AIG, Fannie Mae and Freddie Mac and others are being bail out to stem their financial crisis. Even the farmers of the West are furnished with subsidies for their agricultural products with taxpayers' money. This is a big blow on accountability, transparency and probity. Apart from the fact that such an act is not fair to competitors in the emerging and third world countries, it does discourage creativity, hard work and ingenuity which are the qualities that are inherent in capitalism and free market. The continuation of this practice poses a great danger for it will encourage and promote cronyism, economic nationalism and corruption. In the long run everybody will lose because there is no basis for industry, wealth creation and risk-taking which are needed to make a free enterprise thrive.

The juxtaposition of business and government in this ill act is negating free enterprise and risk-taking which are the bloodline of capitalism. The liberty and the courage to venture in creating wealth through formation of business is what make capitalism very attractive. As the rest of world have come to embrace the truest form of capitalism which is about competition, taking risk and being responsible for actions taken to grow businesses, the West is gradually recoiling from this responsibility embedded in free enterprise. They are turning to government for bail out.

The laissez faire of the economy is being violated by the tinkering of the visible hands of the government. The classical economist Von Hayek, who authoredOn the road to serfdom, warned about such interference by government in the economic order which can culminate the unbridle manipulation and pollution of the economic system. When government is given the green light by the business community to bail them out and give them subsidies during cyclical economic depression they are opening themselves for greater control by the government and bureaucrats.

The emerging and third world economies must not emulate this act of cronyism and must absolutely shun this because it will stifle their freedom, creativity and industry. The key function of government in capitalistic economy is providing a reasonable regulation to the market and at the same time protecting lives and property. Beyond this function, the future of capitalism is threaten by bourgeon power of an assertive and interventionist government.

 

Last modified on Sunday, 18 July 2010 20:39

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