Capitalism with its emphasis on growth and prosperity has tended to increase inequality and poverty which are detrimental to social stability and harmony. Justifying the acquisition of wealth through its model of competition and efficiency, the operation of capitalism has seen the rich becoming richer to the point of dominating and hegemonising markets and then driving people out-of-work and business specially those not able to compete.
The World Economic Forum (WEF) is a rich man’s club which meets annually in order to discuss the world economy. It was founded by a young business school Professor, Klaus Schwab (who at present is the Executive Chairman of WEF) in 1971, and was initially named as the European Management Forum. The mission of the WEF is inhered in its motto: ‘committed to improving the state of the world.’ The recently concluded annual meeting held in the last week of January in Davos, Switzerland brought forth another round of sessions and debates on issues afflicting the global economy. This year’s meeting was, however, plagued by the absence of eminent personalities and celebrities and largely touted as dull compared to earlier meetings.
The economic crisis which afflicts the world today manifested itself in 2007 after the bursting of the US housing bubble leading to the collapse of financial institutions such as banks and insurance companies and denting investor confidence. The economists refer to the present crisis of capitalism as ‘The Great Recession’ which they believe to be the worst economic crisis since the Great Depression of the 1930s. What caused the Great Recession of 2007 and slowed down economic growth in the developed, capitalist part of the world? The Recession had its origins in subprime lending (in the United States) relating to intense competition between mortgage lenders for revenue and market share, and the limited supply of creditworthy borrowers, which caused mortgage lenders to relax underwriting standards and originate riskier mortgages to less creditworthy borrowers. In simple words, the Recession was caused by banks lending money to potential home owners without appropriating relevant security checks including credit payments history coupled with the fact that rising interest rates caused a drastic devaluation of the property with housing prices declining resulting in what is called as foreclosure. The defaults on the loans served to cause a major dent to banks and once the US economy started to slide, defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy.
The crisis of capitalism and its future was a serious debating point amongst the 2600 of the world’s richest and most powerful people who came to the Swiss mountain village of Davos. Included in the agenda at Davos were the crisis in the eurozone, the financial sector, poverty, inequality, corporate responsibility and the rise of China. As far as the eurozone crisis is concerned, the business elites expressed confidence and optimism that the crisis would be resolved soon. On the issue of inequality, senior economists expressed a worrying concern about the need to tackle excessive pay, poverty and unemployment. The figures from Europe, as were discussed during the meeting, were startling with one data showing that almost half of young Spaniards are out of work.
This year’s meeting kicked off with a debate on capitalism. Capitalism with its emphasis on growth and prosperity has tended to increase inequality and poverty which are detrimental to social stability and harmony. Justifying the acquisition of wealth through its model of competition and efficiency, the operation of capitalism has seen the rich becoming richer to the point of dominating and hegemonising markets and then driving people out-of-work and business specially those not able to compete. Although the Keynesian economic model famously referred to as ’embedded liberalism’ purported to provide a social welfare net and security to those reeling from the ill-effects of the market, the neoliberal/ neo-conservative agenda in vogue since the 1980s seeks to abandon social welfare measures in favour of the market as the basic driving force of modern-day capitalism. No doubt then, that capitalism has created growth and prosperity but at an immense cost of poverty and inequality witnessed not only domestically in the advanced capitalist states of the world but also globally in the form of the division between the First and Third World states. Just take into regard this one blatant statistic: the three richest people in the world have assets that exceed the combined Gross Domestic Product (GDP) of the 48 least developed countries.
At Davos, the future of capitalism was discussed in light of such social and economic concerns. Bill Gates, the Microsoft founder, hailed capitalism as a ‘phenomenal system’ and said that ‘there is no other system that has improved humanity.’ Such a perspective on the part of Bill Gates is understandable considering the huge amount of innovation and wealth that he and his company generated as a result of Microsoft. One could say the same for the now deceased Steve Jobs. Other voices at WEF were, however, more circumspect with Klaus Schwab stating that, ‘capitalism in its present form no longer fits the world around us.’
Another interesting feature of the WEF meetings was the protestors. This year, like the previous ones, saw the Occupy protestors campaigning against the rich and the powerful. Their agenda ranged from protecting the environment to promoting democracy in making major global economic decisions to reducing poverty and inequality to putting curbs on financial transactions which have caused the present Great Recession. Furthermore, during this year’s meeting the social agenda was very thinly driven as compared to previous years with questions over finance and business dominating the agenda. The one exception was Bill Gates who rallied a call to fight malaria, Aids and tuberculosis and announced that his foundation would donate $750 million to the Global Fund to help in this campaign.
The Davos meeting this year also included marginalized voices and the forum invited a new range of young