Monday, January 12, 2009

Maoists (ridiculous) definition of capitalism

So the left-wing Finance Minister Bhattarai of Nepal has his own distorted definition of capitalism:

Industrial capitalism or productive national capitalism caters to the market within the country and utilises the labour and resources of the country. We are in favour of that sort of capitalism. Bureaucratic capitalism involves very unproductive capital and is parasitic. It takes advantage of state power and tries to make an easy, quick profit. But it doesn't produce goods and it doesn't provide employment. Comprador capitalism involves trading in goods and producing a profit in between. It doesn't produce goods or create jobs within the country. Historically in Nepal, we've had comprador and bureaucratic capitalism. We may also call it crony capitalism. Instead of that we want to have national or industrial capitalism which has roots within the country, will produce goods required by the people, and provide employment in the country.

The capitalism the Maoists favor is inward-looking and is distant from the usual model of capitalism through which developed countries became developed. Essentially, he thinks that FDI is a form of bureaucratic capitalism, which are “very unproductive capital and parasitic” because all they care about is profits. But, he also wants investors (especially foreign ones) to be confident and invest in the country. Isn’t this a contradiction??

Investors, regardless of their origin, invest when they see prospect for profitable investment. It is not the government’s business to regulate profits. It can regulate the way of doing business but not profits. This creates an environment where there is lack of appropriability on returns on investment, leading to shortfall of required investment. This is precisely what is happening right now in the Nepali economy. Industrial sector is going downhill. Domestic investors are losing large retail customers abroad. See this article and this blog post.

Fyi, this is capitalism in econ literature:

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than publicly or state-owned and controlled.In capitalism, the land, labor, capital and all other resources, are owned, operated and traded by private individuals or corporations for the purpose of profit,and where investments, distribution, income, production, pricing and supply of goods, commodities and services are primarily determined by private decision in a market economy largely free of government intervention. A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers. In capitalism, private rights and property relations are protected by the rule of law of a limited regulatory framework. In the modern capitalist state, legislative action is confined to defining and enforcing the basic rules of the market, though the state may provide some public goods and infrastructure.

Btw, currently the finance minister is reading Confessions of an Economic Hit Man, by John Perkins. I hope he understands how crucial it is for the country to not borrow excessively to fund politically motivated projects and resuscitate sick, moribund industries! The government is expecting foreign assistance of Rs 65 billion 793.8 million for this fiscal year. This is composed of grants and loans, which comes with multiple strings (often unpleasant ones) as bonus attachment. I hope Bhattarai comprehends the core thesis of the book!! It is a good book.