02.02.2012 0

Reports Of Capitalism’s Death Are Greatly Exaggerated

NRD Editor’s Note: This column originally appeared at Investor’s Business Daily.

Klaus Schwab

Photo Credit: World Economic Forum/Flickr

By Howard Rich — Klaus Schwab, a German academic and founder of the World Economic Forum, recently proclaimed the death of capitalism as we know it — a curious critique coming from the head of an organization whose motto finds “entrepreneurship is in the global public interest.”

“Capitalism, in its current form, no longer fits the world around us,” Schwab declared at the most recent installment of his globalist gathering in Davois, Switzerland, adding that the world’s business and political leaders “have failed to learn the lessons from the financial crisis.”

The latter half of this observation is indisputable. The doctrine of chasing good money after bad has reached dangerous dimensions on both sides of the Atlantic — yet leaders continue to plow ahead with new deficit spending and fresh bailouts regardless.

But is refusing to acknowledge the increasingly-costly failure of this ever-escalating interventionism really an indictment of capitalism? It would be easy to condemn Schwab for conducting a botched autopsy on the capitalist economic model, but what he’s really done is more intellectually dishonest — he has misidentified the “victim.”

Capitalism is far from dead. As proof we need only examine the ongoing rise of the global black market — which employed 1.8 billion people (half of the world’s work force) and did $10 trillion worth of business in 2009.  Within a decade, this “shadow economy” will employ two-thirds of the global work force and represent the largest economy on the planet.

More conventionally we ought to consider China — which has embraced free market reforms and seen its economy expand 16-fold over the last 30 years. In the last two decades this rising tide has lifted an estimated 440 million Chinese out of poverty.

Meanwhile in India — another country which has abandoned central planning — an estimated 230 million people have been lifted out of poverty over the last five years alone.

Not only is capitalism very much alive, as long as there is supply, demand and self-interest in the world it cannot be killed. But it can be severely constrained — as we are witnessing.

The fact that the European economy is unable to perpetually prop up an overextended banking system responsible for underwriting the unsustainable expansion of the continent’s sovereign governments is not an indictment of capitalism.

Instead it is an indictment of botched command economic planning and the unchecked expansion of the welfare state — which are conspiring to undermine the ability of the free market to create wealth.

Therein lies Schwab’s fundamental error — the economic system he’s attempting to pen an obituary for isn’t capitalism, its pseudo-socialism.

Rather than permitting the invisible hand of the marketplace to optimally apportion resources — thereby creating a naturally-ascending cycle of innovation, expansion, creative destruction and reinvention — sovereign leaders have chosen to put the doctrine of Keynesian intervention on steroids.

Rather than permitting the free flow of ideas, goods and services within the economy, these leaders create new taxes, new mandates and new activist bureaucracies — all while manipulating currencies and making speculative investments with public money.

On a more fundamental level these leaders have completely shredded the notion of equal opportunity — one of the basic building blocks of the capitalist system — and replaced it with a presumption of entitlement.

The promise of a “fair shake” has been replaced by the expectation of receiving one’s “fair share,” which of course is predicated on government’s desire to redistribute wealth evenly among the masses while simultaneously preserving a well-connected government-financial oligarchy.

So on the one hand we have corrupt politicians, bureaucrats and labor leaders manipulating the welfare state’s purse strings in an effort to expand the reach of the dependence economy.

On the other we have select corporations and global financial institutions eliminating their own risk through a variety of taxpayer-funded guarantees and bailout mechanisms — pocketing the winnings from good investments while passing the debt from bad investments onto the shoulders of already-overburdened taxpayers.

Again, that’s not capitalism, but pseudo-socialism — a system the world has already conclusively discredited.

If Schwab’s organization truly intends to foster entrepreneurship around the globe, then it must first correctly identify the forces that are working against it. Beyond that it must advance policies that seek to reinvigorate the free market as opposed to repressing it further.

Howard Rich is chairman of Americans for Limited Government.

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