World Economic Forum Davos 2012: Need for a Better Capitalism Model

Goodpal By Goodpal, 17th Feb 2012 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Money>Economics

The World Economic Forum of 2012 in Davos saw people worried about the future of the popular capitalism brand as practiced in much of the Western world, particularly in US/UK. Is this the end of shareholder capitalism, as some experts announced? Or is it really a new world that needs a newer economic model that is more just and more inclusive?

“Shareholder Capitalism” in Trouble?

The 2012 World Economic Forum at Davos found prominent business and political world leaders debating an issue that almost puts question mark on the ultra-libertarian lifestyle of the Western world – they wondered whether it is already the end of the road for the current model of capitalism. The ongoing stagnant or growth-less Western economies, rising debt burdens, Eurozone crisis and the Occupy Wall Street movement have all prompted a closer investigation of the current form of capitalism.

The four year long turmoil in the US and European economies, that has seen unprecedented governmental interventions and yet no clear end in sight, is putting constant pressure on politicians and business leaders to rethink the existing business model and come up with a better model that is more reliable, more sustainable, and more inclusive.

This came amidst the growing acceptance of the reality that economic power is slowly shifting from the west to the east. While the economies of the US and the European Union have managed to withstand the rather bumpy ride moving from one crisis to another in last few years, major economies in the east and Latin America have been growing at a much faster pace. In the 90’s the Western economic community was worried about toxicity of an “Asian Crisis.” Now emerging Asian economies – China and India – are worried about the troubled Western economies – what a diametric shift in world economic vision!

Is Time Really Running Out?

The sense of urgency was highlighted by David Rubenstein of Carlyle Investment Fund who said: “I think we have three to four years in the West to improve the economic model that we have, and if we don't do that soon I think we've lost the game. ... the game will be over for the type of capitalism that many of us have lived through and thought was the best type of capitalism.”

Professor Raghuram Rajan of the University of Chicago also echoed similar sentiments and warned, "As consumer demand moves to emerging markets, finance, marketing and innovation will move there as well. The West has about ten years to build new models or else high-skill service jobs will also migrate away." The general secretary of the International Trade Union Confederation, Sharan Burrow, warned of backlash and urged corporations and governments to work with workers to develop a new economic model.

Rubenstein suggested that the alternate models such as the one practiced in China, needs careful consideration. Unlike the US or European capitalism model, the “Chinese capitalism” is state driven – though it steers clear of democratic reforms. Latin America, too, has seen success in the development of "state capitalism" in certain segments. According to Colombia's mining and energy minister, Mauricio Cardenas, "You combine elements of private enterprise with public responsibility.”

However, as it turned out, the galaxy of leaders from public and private companies, academia, and labor displayed more insight on identifying the problem than proposing effective solutions. Most suggestions only proposed steps to fix the flaws of current western capitalism, rather than proposing novel or revolutionary approaches.

New Economic Model for the New World!

Despite the lack of agreement on a universally accepted future global model, there is a general agreement on the issues it must address. This must pave the way for the final convergence of ideas in the future:

  • The new model must mitigate the booms and busts that separate the phases of economic prosperity in the current capitalism.

  • Technology and other factors have decoupled productivity and labor; thus, there is need to think of ways to maintain and sustain job creation.

  • Wealth distribution in current capitalism format is highly lop-sided and a tiny fraction of ultra-rich wields highly disproportionate power to the detriment of the society at large. This distortion needs effective correction.

  • The new model must promote long term sustainable eco-friendly growth through market reforms that encourage long term value creation in place of short term profits. It must also necessarily discourage wasteful consumption of natural resources and conserve and replenish them where possible.

In summary: all the diverse views appear to suggest a need to rekindle the shareholder capitalism” vs stakeholder capitalisms debate immediately and consider the positive side of “state capitalism”, such as in China, too.


Capitalism, Capitalism In Trouble, Capitalist System, Capitalistic Society, Chinese Capitalism, Davos Meeting, Davos Summit, State Capitalism, World Economic Forum, World Order

Meet the author

author avatar Goodpal
I am a keen practitioner of mindfulness meditation for past several years. I firmly believe in "goodness" of people, society and world. I regularly write on personal growth and social topics.

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author avatar Sivaramakrishnan A
6th Apr 2012 (#)

Thanks Goodpal, for a clear, concise write up on what ails our liberal democracies and the corrective steps needed. We take capitalism and democratic systems for granted, as the be all and end all of perfect systems. But we forget that majority is losing hope of justice within those systems as they fail to rein in the excesses. Also the Gini coefficient is increasing, denoting widening disparity in incomes. The tab for the excesses is also picked up finally by the common citizens while short term spoils rest with those who did the damage. The rest of the world look upto western liberal democracies and it is time fine-tuning is made in everyone's interests - siva

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author avatar Goodpal
6th Apr 2012 (#)

Thanks for sharing.

It is the imperfections in the capitalism, particularly the "share holder" model practiced in the US/UK and few other countries, which is the problem. Gini coefficient is merely an indicator of the symptom of rich-poor divide. When the rich start exploiting the system (buy politicians, law makers, and bureaucrats) it weakens the democracy and undermines the voice of the poor majority. Neglect of the society at large and environment are two major flaws of this model. The only remedy is allow grass-root democracy to function in all countries and redesign growth parameters that consider well being of all sections of the society.

Currently, China is showcasing its state-run capitalism (devoid of democracy) as opposed to the western model where the ultra rich are undermining democratic functioning. A balance can found in between the two models with in-built respect for society and environment. If not, the world has no bright future beyond 2025 - 2030. That is my understanding

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author avatar Ptrikha
30th Jul 2012 (#)

The Indian and Chinese style of mixed economy are the best bets, though even here, we have ultra rich with too much wealth concentration. Also, more financial transparency and accounting for black money is very essential.

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