In this note, we will talk about the third major reason that triggers a downward spiral of capitalism and socialism - manipulated and immaturely introduced policies. It will be anyone's guess that this post will be an unabashed criticism of the policies advocated by World Bank and IMF. No other organization or institution across the globe other than World Bank/IMF possibly can lead to such devastation in established structures so easily.
In letter and spirit these institutions strive to propagate wealth creation and upliftment of the poor, improvement of Global economy etc. However in reality, many of the policies pushed by the IMF in particular has resulted in deep devastation and increased the rich-poor divide in countries. So why do then these institutions claim credibility? It is because of 2 reasons. One, is that the policies pushed by IMF do result in short term success - increased GDP growth. Two, is that these institutions are front face of developed nations and are promoted heavily and control the cash flow to support developing and poor countries.
What the IMF and World Bank fail to understand is that by loaning money with lot of conditionality to open up at a feverish pace, they are not just undermining the democracy in the nation that is struggling to survive, they are also creating unhealthy growth. This is like giving the highest dose of anti-biotic to someone with regular fever. He/She will immediately respond, only to fail in the longer term. These countries suddenly see enhanced GDP growth for a maximum of 10 years, after which they fail dramatically, because of the rapid privatization and opening up of economy, which has failed to create real wealth inside the country. Adding to this, the rich poor divide increases as well... Russia is a beautiful example of such a disaster. Policies should always be tied to comparative advantage of the nation, the willingness of developed countries with absolute advantage to truly support the developing/poor nation which is under brink of collapse, history, labor power, democratic structure, geographic advantages, social structures, primary expertise and other important factors.
And of course, IMF and World Bank need to realize that helping a developing/poor nation doesn't mean just ensuring that the creditors for the country are protected. The goal should be truly to ensure elimination of poverty and prevention of collapse of social structures in the nation.
In letter and spirit these institutions strive to propagate wealth creation and upliftment of the poor, improvement of Global economy etc. However in reality, many of the policies pushed by the IMF in particular has resulted in deep devastation and increased the rich-poor divide in countries. So why do then these institutions claim credibility? It is because of 2 reasons. One, is that the policies pushed by IMF do result in short term success - increased GDP growth. Two, is that these institutions are front face of developed nations and are promoted heavily and control the cash flow to support developing and poor countries.
What the IMF and World Bank fail to understand is that by loaning money with lot of conditionality to open up at a feverish pace, they are not just undermining the democracy in the nation that is struggling to survive, they are also creating unhealthy growth. This is like giving the highest dose of anti-biotic to someone with regular fever. He/She will immediately respond, only to fail in the longer term. These countries suddenly see enhanced GDP growth for a maximum of 10 years, after which they fail dramatically, because of the rapid privatization and opening up of economy, which has failed to create real wealth inside the country. Adding to this, the rich poor divide increases as well... Russia is a beautiful example of such a disaster. Policies should always be tied to comparative advantage of the nation, the willingness of developed countries with absolute advantage to truly support the developing/poor nation which is under brink of collapse, history, labor power, democratic structure, geographic advantages, social structures, primary expertise and other important factors.
And of course, IMF and World Bank need to realize that helping a developing/poor nation doesn't mean just ensuring that the creditors for the country are protected. The goal should be truly to ensure elimination of poverty and prevention of collapse of social structures in the nation.
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1 comment:
Siva,
A nice commentary !
I think we start setting ourselves up for failure, the moment our goal is to bridge the rich-poor divide.
The fundamental need for a marketplace to exist stems from the fact that people need to trade -goods for services, vice versa and in the modern day economy, money as a substitute for goods/services.
Socialism banks on poor riding off of the wealth creation by rich, which works by preying on the greed of the rich in making more money, and the greed of poor in getting money while not offering services of commiserate value in return. (something you address in a slightly different way)
Capitalism banks on individual/institution's capability to create wealth with a supposedly better understanding of how to 'work' the market place to ensure best value for goods/services they sell.
Just because humans have gotten around to hypothesizing what will work better for other humans, it does not necessarily mean that we forget the fundamentals of the need for a market place - i.e. - a way to trade goods for services.
If we revert our operating principles to that, then the whole goal of bridging gap between 'rich' and 'poor' go away - with the important caveat that we shed the human race of ego, greed - the need to be better than others.
this as you know will never happen, which implies the 'gap' will continue to exist, and irrespective of how many theories that get proposed, the 'gap' will remain.
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