SEVEN CARDINAL SINS OF FREE MARKET CAPITALISM

SHAMSUL GHANI
(feedback@pgeconomist.com)

June 27 - July 3, 2011

In sharp contrast to the four cardinal virtues - justice, prudence, temperance and fortitude - the free market economy openly demonstrates its dependence on seven cardinal sins - lust, gluttony, greed, sloth, wrath, envy, pride. The free market economists continue to defend the system unashamedly telling the critics to keep the moral aspect aside while debating on the efficacy of different economic systems. The ruthlessness of a system is what they seem to advocate promoting the ideology of 'survival of the fittest'. They think the more ruthless a system, the more efficient the markets are going to be. The economic and financial catastrophes brought about by the systems that are totally insensitive to human aspect are often explained by them as cyclical changes. Their bust and boom theories keep on changing with every upheaval brought about by their denial to correct the basic faults of the system. From Adam Smith to Lord Maynard Keynes and then to Milton Friedman and then back to Keynes, the process of transition continues ad infinitum with the results that the actual faults of the system remain hidden and unaddressed.

LUST: The lust for absolute economic power kept the Western capitalism at loggerheads with the centrally planned economies after the World War II. It was the collective military and economic power of the West that got the better of the then leading centrally planned economy, USSR. The reasons for the downfall of USSR were varying and various, but the impression created by the free market bloc was that of a systemic failure. This impression picked strength to start with but later came under serious scrutiny as China, another leading centrally planned economy rose to economic heights. Although the economic rise of China is attributed by the West to the former's opening up to the world markets, the fact, however, remains that China has picked up only those things from the Western capitalistic system that suit her purpose. China has set an example of making use of cardinal virtues, prudence, temperance and fortitude. The dominance of a prudently managed, state-controlled economy over the much-feared but in fact hollow economy of US belies all claims about the invincibility of free market capitalism. The lust for domestic and regional economic dominance has led the capitalist corporate world to develop such instruments of economic coercion as mergers, acquisitions and hostile takeovers.

GLUTTONY: Gluttony ensues from the lust to have more. The lust for domestic and regional economic power has led the capitalist corporate world to develop such instruments of economic coercion as mergers, acquisitions and hostile takeovers. Use of persecution and coercion to increase economic power through forced buy outs and hostile takeovers of smaller entities is the standard practice in the Western corporate world. Mergers and acquisitions kill competition and generate income inequalities through concentration of productive assets in the hands of few. Corporate profitability generally increases as a result of mergers and acquisitions but a major portion of it is devoured by the top corporate executives. This results in further widening of the gulf between the executive and worker pay.

GREED: Greed is the basic fuel of free market economy - the greed to expand, the greed to earn more and the greed to own more. The world finance heavily relies on monetary expansion that may come through governments' fiscal deficit management, banks' credit money creation, and high government development expenditure in surplus economies. There is nothing like status quo or looking back in the free market economic system. Try to control your deficits and monetary expansion and you will soon find yourself into the vortex of recession. Constant expansion of world economies has created an ocean of financial wealth. Innumerable financial tools, techniques, instruments, derivates, bonds, mortgages and securities abound this ocean like the underwater creatures of real world oceans. These underwater financial monsters, like the real ocean creatures, feed on one another in strict compliance of the survival-of-the-fittest law.

Greed is the logical by-product of modern financial systems. David Faber, the CNBC reporter, writes in his book And Then The Roof Caved In: "Greed is the fuel that makes our capitalist system run. It is a powerful emotion. When I asked Alan Greenspan about it, he agreed and then gave me a sideways look from the famous 82-year-old face and said "And you are going to outlaw that? Go ahead and try it."

True that greed cannot be outlawed, but frauds and foul-plays could certainly be. Nothing better explains free market greed than the recent US subprime fiasco. The US sub-prime story is not about greed alone; it is about unleashing the blood hounds of capitalism on the hoards of defenseless U.S citizens who were made to believe that it was time for them to fulfill the dream of owning a house. The US government, gloating over the prospects of a property-owning democracy, witnessed from the sidelines the inhuman financial decimation of its people. Greed may be institutional or personal. When large corporations swallow smaller ones under the lawful acts of merger and acquisition, it is most of the times a manifestation of institutional greed. When corporate executives use their organization to advance their personal agenda of wealth maximization, it is a case of personal greed.

SLOTH AND WRATH: Sloth finds place, in the fast-moving free market system, in the behavior of regulators, auditors and rating agencies who are often found looking to the other side when they must come with a heavy hand on those misusing the covenants of corporate and state law. The leading rating agencies including the world renowned Standard and Poor awarded triple-A rating to the spurious CDSs - Collateralized Debt Securities. Sloth was committed by the free market watchdogs and the wrath of a failed financial system was incurred by the poor US citizenry and global investors.

ENVY AND PRIDE: The free market economists take an undue pride in the invincibility and infallibility of their economic model. The corporate pride manifests itself in growing revenues, higher profitability and asset growth. Corporate executives are often caught saying that their company is too big to fail or fall. But then corporate giants are seen falling like nine pins when the system starts malfunctioning. Giant investment banks like Lehman Brothers are wiped out within no time. Citigroup, AIG Insurance and General Motors are shaken at the bottom. Envy spurs the corporate giants to go for unplanned growth and pride leads them to the inevitable fall. Jim Collins identifies, in his book How The Mighty Fall, the following five stages of decline leading to the ultimate demise of a company in the free market system: hubris born of success; undisciplined pursuit of more; denial of risk; grasping for salvation; capitulation to irrelevance or death.