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Review by Asia Times: Asia rolling headlong to disaster

By Benjamin A Shobert for Asia Times


In the aftermath of the 2008 financial crisis, it has been easy to point out the many flaws of capitalism. The idea of homo economicus - the rational man upon which the most basic predicates of classical economics was built - was shown to be an incomplete capture of how we approach markets.

From the ashes of this crisis, schools of thought have been given new life, not least of which has been behavioral economics, which has brought into focus the psychological dimensions to how we make purchasing decisions as opposed to the purely rational calculus classic economics assumed.

In the United States, the events of 2008 have thrown into disarray both the role of the state in dealing with structural shocks to the national economy as well as the extent to which the state has the responsibility of managing certain programs that act as social stabilizers in moments of crisis and the aftermath which follows. But the biggest pushback has undoubtedly been the backlash against free-market fundamentalism, the idea that markets govern themselves purely through the self-interests of the actors within the market.

This idea has been shown to be woefully inadequate in the face of bankers who lent money they should not have to consumers who had little chance of repayment. The perverse system of incentives that drove bankers forward had its sights set on purely short term gain which, while ultimately realized, also nearly brought the entire system down. If this was not a manifest illustration of the short-comings to the particular insight markets claim to offer - the preservation of self interests above all - then one shudders to think what would be.

And yet, much as with Winston Churchill's comment about democracy - it being the "worst possible form of government, except all others" - capitalism and free markets have proven more capable and competent than any other economic system in advancing the globe's standard of living. It remains a set of ideas that are inherently human: conceived of by human minds, implemented through human actions, and as such, prone to the errors, short-sightedness and fallacies that any other system built by human hands must be. But within its humanity also lies its hope - the aptitude to admit error, adjust, and move forward.

To the extent we all believe in capitalism's great goods - that economic freedom has rarely been effectively decoupled from political liberty, that it encourages innovation and has inspired the entrepreneurial passions of millions, and that it has offered practical solutions where politics left only festering questions - if we hold all these insights as powerful and worth preserving, then we must equally be willing to acknowledge capitalism's flaws.

To say that capitalism does not incorporate all that we now know about human psychology, or that it can be inefficient when dealing with social problems that span generations, or that it can prove unresponsive when confronting costs born by everyone, is not to disembowel capitalism of the good it has done us all.

It is with this in mind - a desire to build upon and not see torn down - those insights capitalism brings the world, that Chandran Nair has written Consumptionomics: Asia's Role in Reshaping Capitalism and Saving the Planet. Nair's analysis is ostensibly written for an Asian audience, and yet its implications are undeniably global in scope. Unlike what some reactionaries may take away from Nair's book, Consumptionomics does not desire to tear down capitalism; rather, it asks us to think of certain shared social resources as a type of capital stock, albeit one more precious than any shown on a company or central bank balance sheet.

To their detriment, some reading Nair's book may struggle to get beyond his criticism of the almost religious emphasis Western policymakers have put on their particular form of capitalism. Nair is particularly critical of what he sees as the unbalanced perspective taught in many business schools.

For Nair, the tragedy here is not only the short-sightedness this encourages overall, but that it leaves these leaders woefully unprepared and largely unaware of what he believes will be the defining challenges facing their businesses and societies. When writing about his own experiences here he says:

It seemed to me that these young minds - some of the brightest in the region - were going to these schools not to be taught practical skills that would make them better, more responsible citizens, able to help the problems of their home countries, but rather to be schooled in an ideology.

Learning how to manage and innovate within the limits and constrains imposed by our planet featured nowhere in their teaching. Instead they were told how, via its reliance on free markets, capitalism had emerged as the best means of creating prosperity. Governments had a role in all this, but principally to remove obstacles such as unnecessary regulations. Throw in democracy as icing on the cake, and not only had the West succeeded in advancing civilization to new heights of well-being and scientific achievement, but it had also, as Francis Fukuyama observed, arrived at the end of history. (pg 13)

These are strong words and for some who read Consumptionomics, they will prove too acerbic to learn from. Yet this would be a mistake for, as Nair writes later on, "Freeing up markets can be an effective way of ensuring economic growth."

To understand Consumptionomics requires a willingness to confront doctrinal purity, the sort of fundamentalism that all ideologies are prone to, and to admit that an idea can offer piercing insight in one way, and yet suffer from anemia in another. For Nair, capitalism's deficiency remains its inability (or perhaps, as some might suggest, its contemporary unwillingness) to acknowledge the natural resource limitations that confront most of the developing world.

This message may fall on deaf ears in the West, and in America especially. The US may be insensitive to Nair's concern over natural resource limitations simply because for so much of its history, the country has rarely had to confront any itself. America's relative lack of population density, its enormous arable land holdings, and its vast natural resources have all combined to make Americans less aware of the reality faced by most of those in Asia.

In many ways, Asia remains the mirror image to America's bounty: where America has vast arable land holdings, Asia faces a chronic inability to grow enough food to feed itself. Where America has - absent pockets in the West - large sources of natural water, Asia confronts a chronic water shortage that has the potential to dislocate tens of millions of people.

Nair is right that Asia may lead the way simply because it has to - but that to do so, Asia must develop a coherent ideology that incorporates these natural resource limitations into policies and practices. As Nair writes, "Growth on the scale envisaged by Asia's development over the next few decades will lead to a loss of natural capital that will dwarf the losses seen in the West during the 20th century, let alone what the world managed in the centuries before that." (pg 90)

Perversely, if Nair is right, it may well be that American business loses out as a consequence of not understanding the enormity of these needs. Asian entrepreneurs see more directly and feel more acutely these problems, and they are likely to advance the solutions more indigenously and rapidly than their Western counterparts.

In his emphasis on society's collective needs over the absolute freedom of the individual, Nair's solution to these problems will deeply trouble many in the West. He asserts three primary realizations that need to be incorporated into traditional capitalism: first, "resources are constrained; economic activity must be subservient to maintaining the vitality of resources", second "resource use must be equitable for current and future generations; collective welfare must take priority over individual rights" and third, "resources must be repriced; productivity efforts should be focused on resources, not people." (pgs 91-92)

Nair's solution to the third point is worth expanding on. As he writes, "... resources must be repriced. Wherever possible, market capitalism has deliberately downplayed or ignored negative external factors that would increase costs. This must be reversed."

When seen through the lens of capitalism's formation in population scarce countries who enjoyed a wealth of seemingly inexhaustible natural resources, this luxury was understandable and possibly even a necessary factor in much of the Industrial Age. But it simply will not work for Asia, a fact Nair expands on when he writes further, "Emissions must have costs attached to them. Other resources - especially land and water - must have prices that compel people to use them in a sustainable fashion. Where necessary, outright bans must be placed on the use of particular resources." (pg 92)

It is impossible for Western eyes to read this book and not be provoked by Nair's assertion that a form of capitalism can exist which brings forward the idea of a strong state (something essential for implementing and enforcing the self-imposed constraints Consumptionomics advocates), while also enabling a sufficiently free market that can equally encourage innovation and risk taking.

But it is perhaps equally impossible for those same set of jaded Western eyes to read Nair's book and not realize how, if the West does not respond, it may end up lagging behind Asia's economy, technology, and perhaps even mode of governance. The restraint Nair advocates for may well prove to be the discipline which Western economies have proven to be so lacking in recently.

Consumptionomics makes many legitimate criticisms of capitalism, and thankfully provides many solutions. Yet one finishes the book wondering whether any mode of human governance has the ability to respond to these challenges in time.
The longer-term issues Nair raises are ones that will ultimately be weighed against the very real short-term political needs in Asia's emerging economies and our most human of tendencies to push off for tomorrow that which seems less pressing today: the need for jobs, improved standards of living, and distribution of food and water to people with very present memories of neither.

Nair's acknowledgement of this reality is haunting: "... humans procrastinate; their concerns are about the present, not some hypothetical tomorrow. This is almost certainly an evolutionary trait. But it is one that must be consciously repressed and replaced with a careful consideration of the range of different futures that lie ahead."

Nair is not the first thought leader to raise the question about whether our economic system is compatible with the resource limitations imposed by the explosive growth from Asia's emerging economies. But he may be the first to suggest that capitalism can be adapted to address these problems, that it can be compatible with a more assertive state, and that it can still harness the entrepreneurial passions that drive economic and political innovations forward.

In a world that has seen in the last century two ideologies advance - one disastrously advocating the role of the state alone, and another successfully advocating a more balanced relationship between the state and the economy - Nair's suggestion that the latter can be further adapted to the realities of the next century seems wise. It would be a shame if capitalism's most strident advocates make it impossible for such and evolution to occur.


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.