Ruchir sharma articles of faith

Why another book on capitalism? There are a couple of reasons. One is that I’ve lived in America now for over 20 years. It’s been very friendly to capitalism, to immigrants such as me who have come here. And yet I’m astounded by a couple of things in today’s America. If you look at the surveys, most young people, particularly if they’re Democrats, say that they would rather have socialism rather than capitalism. Now this is a country that you would consider to be the Mecca of capitalism. So that’s what sort of got me thinking about what’s gone wrong.

Second, even though at the surface the American economy is doing relatively well, most Americans feel that the economy is moving in the wrong direction.

I grew up in India of the 1980s and ’90s so I’ve seen what socialism is like. I grew up with this sort of notion that capitalism is about giving people more economic freedom. India started to do that. And here you are in America, where you have got this big disaffection taking place with capitalism, a system, that I grew up admiring and loving. Therefore, I said I will write a book and try to answer what went wrong with capitalism.

Capitalism’s role as a value creator, perhaps in the future is unquestioned. But would you agree that there is an anxiety today that value creation in the future would not need billions of workers?

Yes. But I think what I argue in the book today is the fact that the system we currently have in place in America is not really capitalism as it was meant to be. It is a very distorted form of capitalism. It is what Bernie Sanders and all called socialism for the rich. What I try and say is that it is not just socialism for the rich but socialization of risk. When risk has been socialized, the role of government has also increased. Whether it’s regulation, or the way the US Federal Reserve manages the business cycle, all that has changed so dramatically now that this is no longer anything close to the capitalist system that the founders once had in mind.

In your book, you talk about how almost every major economy in the world is a democracy. Do you think politicians have any incentive to think beyond their own election cycle? Is it a reason for the problem with capitalism?

In America, right up until the 1970s, capitalism was working. And America has had a democracy for over two centuries. This disaffection with capitalism that’s taken place in America is really something which is a phenomenon of the last two or three decades.

This is a cynicism that has come only in the recent past. But this is not how America used to be.

Talking about America, one thing which a lot of a lot of people rightfully say is that, we should never go back on trade liberalisation. But it is also a fact that a lot of jobs in the US have been lost to outsourcing of manufacturing. Does capital have any incentive to think about anything other than its own interest?

I think that you’re right that there is a problem in the world today, which is inequality. It has increased within countries but decreased between countries. Countries like India and China and all have grown much faster and benefited from globalisation. But globalisation and free trade are just one aspect of capitalism.

What I show in the book is that there are so many other things which have gone wrong, which cannot be attributed to globalisation. Within America itself, a lot of job losses have happened in many states where the policies have been less market friendly or small business friendly. Today in America there is lot of bad regulation and this proclivity to keep bailing out companies at the slightest hint of trouble. That’s not what capitalism was meant to be. The share of government in the economy in places like America has gone up over the last 100 years from 3% to 36%. In many European countries it has surpassed even 50%.

What about the perverse outcomes that these policies are causing? We are focused on one aspect of capitalism, which is globalisation and the problems that it has led to. But just look at what else has happened. Why are so many companies, big companies, just getting bigger and getting more entrenched? Why is there corporate inequality between the big companies and the smaller companies? Why is economic and social mobility in America today close to record lows?

Both the Democrats and the Republicans are batting for less of trade liberalisation, more of regulation, more of subsidies in the US. How do you see this unfolding, say, a decade or two down the line? What is the future of the current global economic order led by the US in your view?

The US has still many strengths. It is still the tech powerhouse of the world. It’s a leader in new technologies such as AI. It is still the land that most immigrants would rather go to. Right. The problem in America today, I feel is twofold. One, a lot of people in America today are disaffected with the economic system. The unsustainable part in America today is its debt and deficit situation. Today America is running a budget deficit of 6% of GDP. This is twice the average of what it was running for the last 20 years, and far higher than any developed country. Similarly, the government debt as a share of GDP in America today has crossed 100% and, at least among the developed world, is behind that only Japan and Italy. And if it keeps going down this path, it will overtake even Italy. So, America’s strengths are being undermined by two factors. One, that the government spending and debt is so huge and secondly the increased expansion of government and distortion of capitalism. You have seen a big decline take place in productivity in America over the last 30 to 40 years. I feel that these trends are not sustainable.

How should countries such as India prepare themselves for the changing global economic order? India is also trying to put in place an industrial policy and interventions like Production Linked Incentive (PLI)?I’

I’m not a big fan of the government dictating what business should do. I’m not a fan of any of that stuff because at the end of the day, it’s very difficult for the government. I know people speak about industrial policy in East Asian countries, even China, but I’m not a fan of any of these policies. I feel that what we need to do is to give people the freedom to allocate capital the way they should. I think we need to learn that we have tried all of this and we don’t need to go back to policies that did not work.

Let us sidetrack for a moment from the book. India seems to have more from a Jagdish Bhagwati versus Amartya Sen debate in 2014 to a manufacturing services debate now. What are your thoughts on it?

I don’t have a very strong opinion on this because these debates get done on a local basis and then you move on. The fact of the matter is that India, like as I’ve always said, is the country that consistently disappoints the optimist and the pessimists. We will keep following our own model. Even the Modi government slowed down some of the welfarist policies and subsidies but it did not reverse anything.

So even between manufacturing services, we’ll keep trying for both. I don’t feel that there is going to be a priority for one or the other in terms of what’s happening and so therefore. But what we need to keep in mind that the scope of what that digitisation can do for services is did not exist in the past. And this will work to India’s advantage.

You were somebody who started weighing in on the world at a very young age. Your ideals were very clear and you knew what was right. Would you agree that choices are more complicated for the young people today? What is your message to them?

History is better remembered than it’s lived because whenever we look back at the past, we think it was all clear. But at the end of the day, it’s about what your conviction is. All I tell people is, and this is me wearing my investor hat, is that you can’t be too ideological either. I believe in free market capitalism. And yet I also believe that there is a role for government. It matters who’s in power. What sort of policies are being made? So, I would say that, especially as an investor, one thing I keep in mind very strongly in my head is never be too ideological, because that can always get you in terms of trouble. And so you have to be very open minded about the way the world is shaping up.