Is Capitalism Good Or Bad?

Is capitalism good or bad?

How about the globalization movement, which is a child and catalyst of global capitalism?

Is capitalism actually a modern manifestation of colonialism?

What other alternatives do we have? What would an absence of capitalism do to the world, especially the less-developed countries (LDC)?



These questions arose after reading "Confessions of an Economic Hitman" by John Perkins. It surely is not an easy question. Strong arguments have been offered in support of capitalism, and strong arguments have been offered in support of its alternatives, such as socialism, communism, etc. Although I have been working in the business world, effectively supporting capitalism whether I like it or not --or realize it or not--, I have not really seriously thought of the benefits and consequences of global capitalism. So, I'm going to jot down some thoughts on this issue...

Supporters of capitalism claim that it is a powerful tool to develop the world's economies and uphold freedom. There are many truths to this assertion. Capitalism enables resources around the world to move around to where it's needed, and consequently enables development. For example, Indonesia has many natural resources but lacks technology and money. So western techonology and money pours into Indonesia through corporations, NGOs and governmental entities. The resulting development benefits everybody: the country, as well as the investors.

In a way, Capitalism is a manifestation of individual freedom, because Capitalism is egalitarian, much more so than colonialism. This means that anybody can make it in the business world, as long as one works hard, works smart, and possessing luck / favorable circumstances wouldn't hurt. In contrast, the benefit of colonialism mainly goes to the colonialists, which are members of a particular nation. Discrimination is a natural part of colonialism. In addition, property ownership is a major part of individual freedom. Capitalism respects one's right to own properties, while the opposite is true with colonialism, socialism and communism where properties either belong to the colonialists, the community, or the government.

People who opposes capitalism argues that it is a new form of colonialism and slavery. Capitalism provides legitimacy for a group of people with superior resources -namely, money and technology- to "rule over" other people with inferior means. I would say that this is really relative. Let's say a sweatshop in Indonesia pays its labors $0.50/hour or $1,000/year. An American may think that's a very low wage. But Indonesians may think that it's much better than farming or working as a domestic maid.

Some people also think that disproportionate benefits of capitalism go to a small group of people, namely the capital owners. Many LDC citizens believe that foreign corporations get most the benefits from exploiting their country's natural resources. I think this is where government of LDC's holds an important role: they need to negotiate favorable and fair terms with investors (where everybody wins), while at the same time wisely distributing and allocating capitals in a way that maximizes the country's economic development. The most difficult hurdle in this case is that corruption in LDC governments is rampant.

Capitalism not perfect, but I would argue that it is better compared to the least favorable alternatives. Take it into perspectives, the world we live in is not perfect; it's full of greed and selfishness. And these values are inherent in capitalism. The homo economicus which is really a fancy term for greed and selfishness is really the basic premise on which capitalism operates. Here's another gentle reminder that in this imperfect world, we just have to live with imperfect means.

Lessons from "Conspiracy of Fools"

Recently I just completed "reading" this book about Enron, titled Conspiracy of Fools. I wrote "reading" because I didn't actually "read" it, instead I listened to the audio version of the book during my long commutes.

Besides bringing back memories of my previous job (where our firm was hired to represent one of Enron's investment banks and I did some serious studies on the company), this book does a good job personifying the people involved in the whole debacle and teaching me some valuable lessons.

Ken Lay and Jeff Skilling:
Ken Lay was the charismatic CEO, who in the later years of his Enron career, was not heavily involved in daily operations. Instead, he was functioning almost exclusively as the company's public face, the goodwill ambassador, if you will. Delegating the operations to underlings, he plainly believed what subordinates reported and he relentlessly always believed that the company was stronger than ever and never had any problem. That is really his biggest mistake.

Jeff Skilling was the brainiac, creative inventor of energy trading, the genius that transformed the company and the industry. While Lou Gerstner transformed IBM from a products-oriented (hardwares) into a service-oriented (IT consulting) company, Skilling transformed Enron from a traditional pipeline company into a energy merchant/trading giant. However, he was no leader. It's interesting to see how a former McKinsey director --supposedly a very strong leader-- managed and led, and eventually failed.

Lessons:
1. Be engaged. Even if you are a top manager or CEO, do not be completely disengaged from operations. Delegation is a must. However, you still need to do some due dilligence on how the company operates. You still need to look at the details, albeit not every detail.
s a former consultant, Skilling was understandably focused himself in the big picture, grand strategy of the company. This is good and I accept that it is his forte. However, the devils are in the details. As a leader, you still need to look, or at least peek, at the details. Not micromanaging, just quality control and due diligence. This takes hard work, and sometimes it can be time consuming and usually not the most fun thing to do. But it's necessary and your survival -and the company's- may depend on it.

2. Create accountability. Related to #1, do not depend on a single source of information. If you are Lay, don't exclusively depend on Skilling the COO as your sole source. If you are Skilling, when Fastow tells you something, cross-check with other sources. Cross check your source against other sources; make him accountable for his reports. Disagreement means further investigation is warranted.
At the same time be cognizant of the political reality; accountability does not mean distrust. To mitigate this, accountability or check and balance process should be 'institutionalized'. In other words, instead of applying on case-by-case basis, it should be widespread. Then it will be viewed as nothing personal; it is just part of the company culture.

3. Face the reality. If it smells rotten, looks rotten, sounds rotten, then it must be rotten and something needs to be fixed. And fix it early.

4. Integrity is supreme. When you try to be aggressive on the accounting end, when your conscience -and people- says 'enough', it is probably 'enough'. Do not bargain with your conscience, and do not cross its limit. When a leader neglects integrity, he invites others to do the same.

The Crooks

While the general public thinks that Ken Lay and Jeff Skilling are the two evils, I genuinely believe that the real crooks are Andy Fastow (CFO, a Kellogg grad!) and his associate, Michael Kopper. They were the drivers of Enron's demise, the very people who committed the criminal actions, people with the dirty hands, by definition, the crooks. They should have received the longest sentence, and the heaviest condemnation among others.

But the world, as always, is full of hypocrisy and compromise. To satisfy the public (and maybe prosecutors' ambitions), the CEOs were regarded as the utmost target. The big game to hunt. Through plea bargain, Fastow and Kopper escaped with relatively light sentences. Not fair, but reality is rarely fair.

This is an illustration of a society that centers on personalities. Good guys are worshipped as heroes, and for every bad thing there must be guys to blame, and they are usually -conveniently and attractively- the guys on top. Attractive proposition to the public, and the media, and the consultants and lawyers involved in the litigation, and maybe the government. The truth doesn't matter as much as perception, as long as everybody is served!

The Survivors

Jeff MacMahon, Vince Kaminski , ... survived and became future leaders, because they refused to sacrifice their integrity. Sometime preserving your integrity means taking a step back in your career... and sometimes that can take several years. But integrity is the safest path and it will serve you well in the long run.


Last but not least, the book's title couldn't have been more appropriate. The people involved in the debacle are fools not because they were intellectually incapable; but because they did not act in wisdom. They were acting in greed, pride, and ignorance. The fear of God is the beginning of wisdom!