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Asking tough questions about capitalism

Jul 02, 2011

Interviewed by Benjamin A Shobert, Asia Times

 

Benjamin A Shobert: Readers of your book will encounter three key themes: first, the limitations of Western capitalism in general, second a more specific critique of the inability for market-based solutions to address network externalities (costs covered by society but not born by corporations), and the sustainability of demographic and consumption trends in emerging economies. With these in mind, would you expand on what you see as the limitations to Western capitalism?

Chandran Nair: As I point out in the book, Western capitalism has served the West and parts of the world very well over the last 60 to 70 years. But, it has exhausted itself now.

Extreme capitalism, as I define it, is rooted in the belief that countries and corporations have the right to externalize the true cost of economic activity; how the resource base fulfills the aspirations of consumers has not been fully priced into the market. My analysis is not a rant against capitalism - it is an attempt to advocate for the true pricing of resources and therefore for its more equitable use.

I believe capitalism in general needs to make three major adjustments: first we need to accept resource limitations and constraints, second resources need to be re-priced to reflect their true total cost, and third, shared resources need to be at the center of policy making, not at the periphery as they currently are. The economy needs to be subservient to maintaining the vitality of the resource base, and not the other way round.

BAS: While reading your book, it struck me that colonialism could be seen as the original externality. Would you agree with that?

CN: It would be accurate to say that the first and most extreme form of under-pricing resources to produce goods and services was slavery. Much of capitalism's practices and institutions arose from a world in the 19th century dominated by Western powers. At the recent OECD [Organization for Economic Cooperation and Development] 50th Anniversary Forum in Paris where the focus was on green solutions based on conventional economics, I pointed out that I wasn't sure why economists still refer so extensively to Adam Smith.

He's been dead for centuries; didn't live in China or India; and he had a colonial view of the world; and when the world's population was well under 1 billion. In this sense, colonialism was the first expression of society's under-pricing of assets. Then, in a world of one billion people with so much abundance, you could get away with it. But you can't do that in today's world, and that's a problem we need to be having a serious conversation about. In Asia today the problem is completely the reverse - too many people and too few resources.

I want to make this point again: I am not against capitalism. I have been a successful businessman and continue to support business activity. I understand that capitalism gets people to be entrepreneurs, and that can be a very good thing but it cannot be left on its own and hijacked by vested interests in a crowded planet. And I am not advocating some utopian ideal that would result in immediate solutions to rid the world of its worst problems.

What I want is to ask tough (more honest) questions and urge governments to find answers and not let them abdicate those responsibilities to companies or future generations. That may be the really tricky bit of the book - that in my opinion we need strong states in order to serve the needs of the majority and in that way save capitalism. At various forums in Europe and Asia I have pointed out that liberal Western democracies have morphed into political systems that have resulted in an inability to make meaningful long-term decisions. Science is getting dumped in the waste bin and rational conversation is impossible. Sustainability decisions need long-term perspectives and good science, of which there is lot about.

Frankly, my concern is less about talking to those in the West. I see myself as an internationalist, but what the West does may not matter as much as the international media and most people around the world think. The population differences ironically make it Asia's responsibility or even burden; it will be 5 billion in the East versus maybe 750 million in the West. Ultimately, Asia's leaders will need to find answers to these questions as it will shape the 21st Century - for good or bad.

BAS: Some people may read your book as a neo-Malthusian argument. You write on page 48 that "Malthus was not wrong when he said that if things continued as they were, limits would be reached ... if these longer-term depletion issues, such as where the water will be found to raise crops for the next generation, [are not addressed] Malthusian concerns have only been deferred, not solved." How do you distinguish your arguments from those Malthus made, especially in light of the belief many have that technology will ultimately provide the necessary answers?

CN: It is important to note that Malthus was not wrong, he only got the timing wrong. There has been work done to show this but it rarely gets any air time. After all talking about restraining consumption puts one in the pariah bin by the deniers and thus out-dated and cliched arguments are used to dismiss the facts - despite the science.

What is important is to understand is that Malthus lived in a very different world - the 17th century. So those who suggest that this is all a Malthusian rehash need instead to be challenged. In the 21st century we have much better information and tools to analyze the impact of our current trajectory of consumption-led economic growth on the planet and on our societies. It is those who are in denial and who believe there are no limits who should be the odd ones out, not those who are willing to use the scientific facts to argue for restraint in the way we use resources in a constrained planet.

BAS: As you mentioned earlier, your book is an advocate for a strong state. That is a very unpopular political idea in the West at the moment. How is this part of the book being received by those in the West?

CN: The book has received a very strong response in Europe. I was recently speaking to a large European company in the global automotive industry and made the point that we really do not need another couple of billion cars in Asia which is the likely scenario if Asia adopts Western car ownership levels.

This is hard for companies to hear, and even harder for them to incorporate into what they call their sustainability practices. But there is no denying the truth and I rarely find anyone arguing against these facts and the implications. The smart companies and non-deniers know and are willing to have that debate. Sadly many simply do not want to go there. Needless to say there are always the "technology will solve all the problems" group but they too, when pushed, back off.

Sustainability is ultimately about doing less and companies inherently fight this as they do not "do less"; they fight regulations, which means that only government can be the one to stand up and say "this isn't good and therefore here is the framework you can operate within". So, for a company in the automobile business, a globally sustainable strategy isn't one that seeks to minimize the number of cars on the road; they are going to find a way to sell more cars but use the usual buzz words around green and zero emissions to respond to the hard questions.

That means that society has two choices: either governments can act through tough intervention to prevent the resource drain of another billion cars hitting the road, or remain hostage to the narrow interests of some companies and thereby in effect not do what is their responsibility to prevent the catastrophic impacts that will arise from such a scenario. I believe a strong government can - and should - stand up and prevent the inevitable collapse of shared resources. In Europe, there is great interest in this idea but wariness about strong governments.

In the US, what has been very interesting has been the great discomfort displayed by those who won't accept even the most basic idea in the book, that there are limits. This is not to say all Americans think this way, but in the business and financial world, denial is rampant.

Some influential people have read the book and are trying to get the book's ideas listened to in some policy making circles; but there is a strong ideological bias against any ideas for a strong government intervening in the individuals' right to consume. Consequently, I find myself writing for and speaking primarily to those in Asia, because the West if it is unable to come to terms with this dilemma, is going to ultimately have to adapt to the changes that those in Asia need to make for their own reasons.

I want Asian leaders to accept that they have been intellectually subservient for too long. Many Asians, given the colonial past, inherited the belief that the Western model is somehow better and this attitude sadly pervades much of Asia's policy, business and political circles.

BAS: It seems to me that the West is feeling its own insecurity over what the 2008 financial crisis has to say about its own policy weaknesses.

CN: Yes. I think this is something worth noticing about shifting attitudes in Asia. Policy makers in Asia are essentially saying "we thought our teachers knew, and now we know they don't". There is a bit of a vacuum left which I think is part of the intellectual subservience I mentioned earlier.

In some ways, the book is talking about things many of us felt we couldn't say for some time. Many in the West have talked about the limits to growth, but those conversations tend to be in technical and scientific terms and rarely about how to impose constraints. I want to talk about this idea in the context of politics and the role of the state, which hasn't been done before in Asia.

BAS: You seem to take issue with the idea that human ingenuity is the solution to these problems?

CN: Well, I don't believe human ingenuity in general should be discounted. We can hope that some genius will come up with solutions, but as I say "hope is not a plan". Yes, we have to be hopeful and aspirational, but at the same time realize the size and scope of the impending problems cannot be left to chance or human ingenuity.

For example, China and India are full of cities with well over 1 million people in each of them. How many of these are in Europe or the US? We need to be pursuing policies that can address their challenges right now and not coaxing them to join the consumption-led growth model. Now that hundreds of millions of Asians have been told they too can join the world of unrestrained consumption, the whole game changes. I fear the scale is not really understood in the West. Now they all want what is taken for granted in the West - what they see on TV and Hollywood, and what they read on the Internet. This is sadly not possible.

BAS: What happens if this disconnect - between the haves and the have-not's - isn't bridged?

CN: The consequences will make the Arab Spring look like a walk in the park. I think many - if not most - have misunderstood the source of the Arab revolts. People need access to the basics, and they couldn't get those, which is what precipitated the pushback.

They want clean water, and they don't want to have to bring water back in a bucket from a community well; they want reliable electricity and they know their country should be able to provide these basics. And because their governments have sadly been negligent in providing those things, the revolts happened. Of course there are political reasons too.

The disenfranchised in Asia have very similar needs: in Asia there are now more people with mobile phones than sanitary toilets. In these cities there are a huge amount of people whose aspirations are not being met. The opportunity and risk for Asian governments is huge. The population in Asia is three billion going on five billion over the next 30 years. There are more poor people in India alone than in all of Africa.

Their future is going to depend on whether they can get access to the basics: food, water (for agriculture, subsistence, and sanitation), education, public health and housing. If China and India understand this and adopt policies to provide these to their populations they will be successful. It is arguable if the current model will ever achieve this. In fact the evidence suggests the reverse is true.

Extreme capitalism was borne out of circumstances of abundance and of entitlement. It all looked possible in the West as it had access to vast resources via its colonies and the only challenge was how to export it. Much of our concepts of productivity were built on under-pricing resources, simply because there was so much and so few people to use it.

In Asia, there is a very different problem now, and those Western ideas borne out of a different age won't work. Asia needs to redefine the idea of productivity: we need as many people working, engaged in using as few resources as possible to address the basic needs of human existence. It is not fast, but it is patient work.

Urbanization also should be carefully considered as is the notion that jobs through manufacturing and urbanization will meet the political objective of creating employment for all. Different approaches are needed. For example we will need more food in the next 40 years than we needed in the last 8,000. This will be the work of our lives.

BAS: Are there inherent time scale problems to getting governments to move on these issues?

CN: I wrote this book to get an idea discussed in Asia, and to move it into the mainstream to start a conversation, not to say "these are the solutions". I have no details on whether governments in China and India can navigate these waters, but they need to have the conversation.

In my mind, the debate is really about two countries: China and India. China has one advantage - a strong state - that India does not have. Most Chinese I know are quick to acknowledge resource restraints and to say they need to get control of this or they will go back to living in very tough times. Their main focus is on how to improve the lives of 500 million Chinese who still live on less than $2 a day.

If they can't fix this, then chaos will ensue. If Asia can do this, it will reshape the world by showing the need for a strong state and then, ultimately the West will have to change too.

Benjamin A Shobert is the managing director of Teleos Inc (www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses bring innovative technologies into the North American market.

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