Most of us have a fair idea what property means and what the concept of owning property means. However, the concept of property is a rather new phenomenon in the history of humanity if one considers the evolution of humankind from time immemorial to the present times.

To put it into perspective, it was only during the time of the Renaissance and the Enlightenment that prominent thinkers came up with the concept of property as a means of ownership and the role of the state in regulating the uses of property.

For instance, in many countries before this era, the concept of property was vaguely defined wherein the Kings and the Princes used to regulate who owns how much and where.

During the Renaissance, the concept of private property was codified wherein the average person could own property provided he or she paid the requisite duties and the taxes to the state.

The concept of property is closely tied with the evolution of the concept of the nation state, as each is synonymous with the other. As a matter of fact, without the umbrella protection of the state, the concept of property does not hold meaning.

The Concept of Property in Different Political Systems

Turning to how the concept of property is understood in different political systems, it is only capitalism that provides explicit means of ownership of property and rights over the land in exchange for taxes and duties.

In the erstwhile USSR, which was a communist country, there was no concept of private property and all that was owned by the state. This was the case in China until recently as well wherein the liberalization of the Chinese economy with the advent of “Red Capitalism” made it possible for individuals to own property and at the same time for the state to regulate the ownership.

The key aspect here is that the concept of property and the clear titles to the land are the keys to the mystery of capital as without clear directions on who owns what and how much, it is not possible for the capitalists to raise capital pledging the property. This theme would be explored in detail in subsequent articles.

It would suffice to state here that unless there is a regulatory mechanism that oversees the proper administration of property, the capitalist system would be unable to function smoothly.

Final Thoughts

Finally, it has become the norm these days to regulate the use of the commons or what is the nature’s gift to humanity.

In other words, the air we breathe, the water we drink, the land that is available, and the rivers and seas on which we depend all are known as the commons and hence, there has been a concerted move to ensure that they are properly distributed and accounted for. This is another theme that we would be exploring in subsequent articles.

In conclusion, as pointed out earlier, the concept of property is one of the pillars that underpin the capitalist system and hence, it is in the interest of the state to regulate its usage in an effective manner.

In recent years, there has been much talk about Capitalism evolving into a model of economy wherein corporations ensure that communitarian and people oriented business models are embraced so that profit is not the only criterion or reason why they are in business.

In other words, many prominent business leaders and experts are calling for Capitalism to move beyond the “Profit at all costs” paradigm and into a kinder and gentler variety that can place communities and people above the mindless pursuit of profit.

Indeed, this form of capitalism which is sometimes called Compassionate Capitalism or Capitalism with a human face is finding many takers both in the developed Western world and in the developing and emerging world in Asia and Latin America.

The Nuts and Bolts of Compassionate Capitalism

Compassionate Capitalism means that corporations have to account for the costs that they impose on the environment, the communities that lie in the vicinity of their factories and plants as well as offices, their employees whom they have to treat with more kindness, and the consumers and other stakeholders to whom they must be accountable.

In other words, corporations must practice a variety of capitalism that is more humane, compassionate, and just and fair. This not only entails a mindset change but also a movement away from the dominant philosophy of polluting the environment and refusing to pay for the cleanup, increasing pay for those at the top of the organizational hierarchy and letting those down the ladder high and dry, not compromising on quality and safety of their products and goods and services, and to be transparent in their dealings with regulators and the governmental agencies.

A Case for a Rethink and Retooling of Capitalism

Thus, Compassionate Capitalism not only needs a complete rethink of the existing paradigm of profit before people but also needs a retooling of the principles underpinning it to place people before profit.

The proponents of Compassionate Capitalism make a case for not externalizing the environmental and ecological damages that corporations which mean that such damages should no longer be treated as “external” to the costs of doing business and hence, not needing to be included in the costs of doing business.

Moreover, they also call for lesser gaps between the executive pay and the pay for the rank and file employees so that there is a sense of justice and fairness to everybody.

Utopia for Realists

While this might seem idealistic and Utopian, it needs to be mentioned that in these times of planetary crisis where the Climate Change is threatening the very existence of civilization, where gross income inequalities and the obscene wealth gap is leading to social unrest, and where the ever accelerating technological change threatens the social contract on which our relations with the world are based, Compassionate Capitalism is no longer an abstract and remote concept, but something that we need on an urgent basis.

Indeed, without sounding Apocalyptic, it needs to be mentioned, that unless we change direction and re-engineer our modes of doing business, we might not survive as a species which means that unless we change, the very survivability of humankind is in danger.

The Argument against Compassionate Capitalism

Having said that, there are those and who are in the majority at the moment, who dismiss all this talk of Compassionate Capitalism as Hot Air or Bombastic and Ideological nonsense that does not take into account the ground realities of how capitalism and business work.

Indeed, the late Chicago School Economics expert, Milton Friedman, laid the basis for such criticisms when he flatly proclaimed that the “Business of business is business” and hence, the “Responsibility of business is business” and nothing else.

Thus, in one stroke, the debate is dead in the water as the dominant view is that markets take care of all the problems that arise from capitalistic tendencies, and the self-correcting nature of markets is such that sooner or later, business finds a way out of the crisis.

A Need for a New Narrative

When one compares and contrasts the arguments for and against Compassionate Capitalism, we find that there is much Hubris among those who oppose this form of capitalism, and much Naivete, among those who support it.

In other words, there has to be a meeting point somewhere between the highest aspirations of humanity and the gritty ground realities that we all face.

The point to be noted is that we are now at a stage where a New Narrative has to emerge that can hopefully reconcile the differences between the dominant model and the minority view that espouses Compassionate Capitalism.

This means that we need the case for Compassionate Capitalism to arise from within the ranks of those who practice capitalism and not from those who are well meaning but not in a position to change the Status Quo.

The Surfers of the Waves of Change

Already, this is happening to a certain extent in the West and East as well with prominent Technology Sector business leaders such as Bill Gates, N R Narayana Murthy, Elon Musk, and Mark Zuckerberg, espousing some or more of the strands of Compassionate Capitalism ideology and coming in support of Basic Income for All, Protecting the Environment, Reducing Inequality, and batting for more Gender Inclusivity.

This needs to pick up steam and include as many business leaders and rank and file employees as possible so that a consensus builds up that can lead us to a more sustainable future.

To conclude, the present Planetary Crisis is such that we owe it to the future generations to create a just and sustainable world for them to thrive as the saying that “We have not inherited the World but have merely borrowed it from our Children” sounds correct.

In this article, we will question this premise. It is an irrefutable fact that the modern economic system is facing economic crises.

However, whether the system we are following can be called 100% capitalistic is debatable. In fact, we are going to assert that it is the socialistic elements, in our current economic system, that are responsible for the mayhem and the capitalism as an economic philosophy is still sturdy.

The following elements of socialistic societies are present in our economic system:

Central Banking

Central banking was one of the ten fundamental tenets of communism recommended by Karl Marx. Before Karl Marx’s time, a capitalist economy had a free market in all goods and services and money was no exception.

True, that there were monopolies and near monopolies that were formed in the market for standardized gold coins as well. However, such monopolies could not last if they started debasing the currency.

As soon as debasement began, the monopoly would become impossible to run because of increasing competition that was keen to point out the extent of debasement and offer better alternatives.

It is only when central banks became privately owned monopolies protected by the government that systematic debasement became a reality. Government control over anything is not recommended by capitalism.

Therefore, to call the modern monetary system capitalist is probably the most inaccurate description. Yet somehow all countries in the world seem to have a central bank and claim to be capitalist at the same time.

Having a central bank is like giving the remote control of the entire economy to the government and central bankers. True that the government cannot interfere in markets and raise or decrease prices in a so called “capitalist state”.

However, the government can simply raise or drop the total money supply creating price rises or price declines in all commodities at will.

The modern system is therefore not controlled by the free market. Rather it is controlled by the government itself. In simple words, it is not capitalist.

Bailouts and Stimulus

Adam Smith was very clear when he laid out the tenets of capitalism. A capitalist society was a society based on social Darwinism. Only the strong survived in such an economy. There was no room for foolish decision making. The market is supposed to reward diligence with profits and foolishness with failure and bankruptcy.

However, this is not the case in our so called “capitalist” societies. Consider for instance the case of 2008 when the state used taxpayer’s money to bail out private banks. That certainly was not a free market operation!

Also, this is not the only time bailouts have happened. In fact bailouts have become the norm. Consider the European crisis, the savings and loans crisis or any other crisis of your choice.

The government always bails out the corporations that must ideally be allowed to crash and burn as a result of their own mismanagement.

The society that we live in does the exact opposite of what the principles of capitalism dictate. Yet, for some unknown reason, we claim to be “capitalist”

Welfare State

The market mechanism supports individuals who contribute to society and disregards people that are a drain on society. However, the modern economic system calls this inhuman.

There is a rhetoric that healthcare is a basic human right and should be provided to everybody. Similar propaganda is also done for unemployment etc.

If statistics are to be considered, very few needy people actually benefit from these programs. Instead, it is the lazy and unproductive people who take advantage of the taxpayer’s money.

Such unfunded liabilities are dragging down the economies of the western world. Hence it is not capitalism which is causing economic crises!

Licenses

Capitalism is based on the principle of free entry and exit from markets. Having requirements which dictate that licenses must be obtained to conduct business is how the socialist system operates.

Licenses allow the government to decide who can do business and who cannot. This is certainly not how a free market capitalist economy ought to operate. This is not an economy where the invisible hand seems to be operating.

However, the societies that we live in require licenses for almost every business. Banking, telecom, airlines, retail and almost every business operation requires a license. Once again the government has more authority than the market forces do.

Yet for some reason, we call this society “capitalist”!

Subsidies

In a capitalist system, businesses are supposed to be self sufficient. However, in the present world the government taxes one business in order to support another. Agriculture is redundant in western economies such as US and UK. This is because of high cost of labor in these economies.

Third world countries have a cost advantage and can beat advanced economies in primitive tasks like agriculture. Yet farmers in the UK receive about 60% of their income in the form of subsidies i.e. money obtained from other taxpayers! Giving away money is certainly not capitalism.

From the above mentioned points it can be ascertained that the economic system of our times is NOT Capitalistic, not even in the most advanced nations in the world! The argument that capitalism has failed is therefore invalid and inappropriate!

Recently, the Vice Chairperson of the NITI (National Institution for Transforming India), Rajiv Kumar, lamented that too much democracy was hampering economic reforms and hindering economic growth.

He went on as far as to say that Too Much Democracy is bad for Business.

The ostensible reasons for his outburst were the ongoing protests by Farmers and the Trade Unions against the various Farm and Labour Laws passed by the Central Government.

This statement of his was supported and backed up many Right Leaning Economists and Commentators such as Gurcharan Das, who seemed to agree with the statement that what India needed now was more power and authority to the Bureaucrats and the Powers That Be to ensure that pro business laws are passed without hindrance from Pesky Agitators and Civil Rights activists.

Indeed, Kumar was just echoing a sentiment that has a long history in the Indian Economic and Political Space what with leading business and political elites from the time of the Gandhi-Nehru years arguing that what India needed was a Chinese style Authoritarian Capitalism where businesses are unfettered by the need to be answerable to society.

The Success of the West Proves that Democracy is Needed for Economic Growth

So, does too much democracy hamper growth? While it is tempting to draw inspiration from the Chinese Miracle and proclaim that we do not need democracy, the evidence is otherwise when one looks at the examples of the Western Democracies that have become superpowers precisely because they followed Free Market Capitalism with the pursuit of Equality, Liberty, and Freedom.

In other words, a cursory look at the history of the United States and European nations would immediately disprove the notion that Democracy is bad for business as in all these cases, Free Market Economics went hand in hand with Democratic notions of governance.

Indeed, the Free in the Free Market Models refers to how Egalitarian Democracy is necessary and what more, a prerequisite for Economic Growth.

The idea behind this philosophy is that Markets flourish when there is healthy competition between businesses and where the Defence of Natural Rights of the People are taken as the Cornerstone of the Political Economy.

Therefore, to claim that Too Much Democracy is Bad for Business is Facile and entirely misses the point about why Capitalism thrived in the West and why the West Left the Rest Behind and Forged Ahead after the Renaissance.

Why the History of Indian Economic Reforms Supports the Topic Statement

Having said that, there are arguments that support Rajiv Kumar and other economists who lament excessive democracy as an impediment to economic growth.

For instance, apart from China, which is the Poster Boy for such arguments, the Indian experience with Reforms has been anything but smooth wherein each step forward was followed by two steps backward as reform measures met with stiff opposition from an assorted and medley group of stakeholders representing civil society who were too eager to stymie rather than support reforms.

Indeed, the statement must be seen in this context as ever since India started liberalising in the 1990s, successive governments, irrespective of the parties that were running them found themselves hobbled by repeated agitations and protests even in Parliament and the State Legislatures from the Left and other Opposition groups.

Moreover, the reason why India continues to lag behind despite reforms is the excessive bureaucracy and the Red Tape that make life difficult for Entrepreneurs and Businesspersons.

Indeed, as each year, the Ease of Doing Business Rankings are released, it is clear that what India needs now is a Disciplinarian approach that combines the Iron Fist of Decision Making with a Human Face of Economic Reforms.

Finding the Middle Path: Iron Fist of Decision Making with a Human Face Works in India

Therefore, Rajiv Kumar’s statement does have pro and con arguments and a balanced assessment would be to follow the European or rather the French model of Political Economy where each measure passed by the government is extensively debated, both inside and outside the legislatures.

In other words, what India needs is Democracy that is consultative and deliberative rather than confrontationist.

Of course, France and other European countries do face protests whenever Economic laws that are Pro Market are passed and hence, what India must do is to Pick and Choose between the available models from all countries.

We can use the Chinese method of Thinking Longer Term with the American model of Free Markets along with the European structures of governance that emphasize efficiency.

In this way, we would be following in the footsteps of the ideals of our Freedom Movement that drew upon the Winds of All Countries and Not Being Swept away and instead, choosing from the best.

It goes without saying that Democracy with its checks and balances is essential to prevent authoritarian capitalism that leaves society worse off and the same time, not discourage businesses from profitable activities due to excessive administrative paralysis.

Moving From Noisily Argumentative to Deliberatively Consultative

Last, it is a fact that Indian Democracy is Too Noisy and hence, instead of being Argumentative, what we need is to be businesslike in our approach.

There are no rights without Democracy and at the same time, there is no growth with too many protests.

The trick is to find the Middle Ground and the Indian History is replete with instances where we have found the Middle Path and evolved through the ages.

To conclude, we do not need to follow anyone blindly and at the same time, we do not need to shut ourselves away from the world.

The amazing thing about Karl Marx was that he was able to predict the crisis that capitalism would go through. Even though Marxism and Communism are largely considered to be failed systems today, it must be noted that Karl Marx was able to predict with incredible precision the economic crisis that is faced by the world today.

He believes that just like slavery and feudalism brought about their own end, so will capitalism. This is because of the conflicting forces inherent in capitalism that are constantly at war with each other creating systemic problems. Karl Marx called these problems internal contradictions.

In this article, we will have a closer look at what is meant by internal contradictions.

Stage #1: Growth of the Western World

The first stage of capitalism is characterized by prosperity. Capitalism provides a better way to organize society. As a result, it raises the standard of living of the entire society.

Both the working class and the owners benefit during this period. During these years, the capitalists can afford to pay higher wages and still make a handsome profit. This is because the industry is relatively nascent and therefore there is considerable room to grow at the top.

This can be traced back to the era when Henry Ford used to considerably raise the wages of his workers with each passing year. Growing wages lead to more spending creating an even bigger market. This sustains the momentum for some time.

Stage #2: Offshoring of Jobs

The success of these capitalists attracts a lot of competition. As a result, it becomes difficult to stay competitive. Newer strategies have to be introduced in order to stay competitive.

The economic reality makes it inevitable that the capitalists focus on reducing the labor costs. This is done either by automation or by offshoring of jobs to other countries. Notice that the very workers who were the beneficiaries of capitalism in the previous stage are now losing their jobs thanks to it.

Capitalists find it more prudent to pay overseas workers a fraction of the cost. This allows them to stay more competitive. However, notice the fact that the high wage earned by workers was the very basis of the market!

If high wages are eliminated, the capitalists inadvertently shoot themselves in the foot. Over a period of time, fall in wages manifests in the form of a slowdown or a recession.

Stage #3: Raising Sales via Credit

This is the stage wherein capitalists are desperate to find more sales to keep the momentum going. The capitalist system believes in attaining perpetual growth which is simply not possible! However, they come up with short-term solutions that seem to correct the problem. This solution inevitably is the growth and creation of credit. The result is that the workers no longer have jobs that can enable them to buy products. However, they are highly indebted because everything is available on credit. This is exactly what has happened in the United States since the 1990’s.

The job market is rapidly shrinking whereas the indebtedness of the general population is going through the roof. The unemployed population also tries to make money via speculating in the markets. This gets them further indebted as in the case of the subprime mortgage crisis. The American housing boom and bust could have been predicted years ago if due attention was paid to Karl Marx’s theories.

Stage#4: Debt Defaults

It doesn’t take a genius to figure out that a system which relies on giving out loans to insolvent customers cannot last for very long! This is why the next stage inevitably is cascading debt defaults. This is where the subprime mortgage crisis seems like the inevitable result of the events that took place before it.

Marx had also predicted that these crashes can wipe out entire institutions and that they pose a systemic risk to the capitalist system.

At this stage, attempts will be made to save the system by frantically introducing bailout packages. However, it is like fighting a lost cause. The debt defaults are merely the last step of a system that began with the rising wages of workers.

Any kind of bailout package will not be a permanent solution. Instead, it will provide temporary relief, the effects of which will end up amplifying the problem.

The sequence of events is not at all random. Instead, the results can be easily predicted using the internal contradictions theory of Karl Marx.

Stage #5: The Geographical Spread of the Crisis

Capitalism, by nature, seeks out greener pastures. Hence, it is likely that it will spread to different nations to repeat the process. It is, therefore, possible that the United States may be at the stage of debt defaults whereas countries like China and India will be experiencing rising wages simultaneously. In the end, however, the entire system is expected to fall prey to the internal contradictions that are inbuilt into the system.

To sum it up, Karl Marx was well aware that in the long run capitalism will end up destroying itself. Proponents of capitalism are merely looking at the short-term effects and not the opposing forces which are inherent in the system.

Sovereignty is a term that is used to refer to the independence and autonomy of modern nation states. Unlike earlier eras where countries were ruled by Kings in historic times and by colonial powers in the 18th and 19th centuries, sovereignty refers to the fact of absolute independence and autonomy that nation states have with respect to the decisions taken by them in matters concerning their citizenry.

Sovereignty means that nation states are free to decide for themselves about the kind of democracy that they want, the kind of rulers that they want, and their policies internally and externally. Often, the concept of sovereignty is invoked to delineate the distinction between taking decisions on their own by nation states and resisting external pressures to sway the decision-making process. In this respect, sovereign nations are expected to be autonomous and independent when they pursue policies that are in their interest and their people’s interest and not according to the dictates of a foreign power.

Globalization and Sovereignty

In recent years, the concept of sovereignty has been debated because globalization means that nation states submit themselves to international treaties and international agreements that are not always in their best interests. This imposes some amount of coercion on the nation states especially in the developing world and hence, globalization has to come to mean imperialism in another form. Since countries like India have had the taste of imperialism by the British, they are understandably reluctant to submit to the dictates of the World Bank, the IMF or the International Monetary Fund, and other international bodies. However, it is also the case that the options are limited as resisting these bodies and the WTO or the World Trade Organization means that the countries miss lucrative trade and export opportunities.

The Emergence of the Post Colonial Powers

However, the recent economic crisis that started in 2007 has proven that sovereignty of nations being subsumed by international bodies cuts both ways as the global economy is tightly interconnected and hence, cannot be regulated by nations in isolation. On the other hand, the assertiveness of the newly emerging economies like China and India means that there is still a place for nationalistic sovereignty instead of being completely dictated by the West.

Further, the fact that sovereignty means that colonial powers and foreign powers cannot intervene or interfere in the internal affairs of countries is also another indicator that the hard fought victories by the erstwhile colonial states are bearing fruit. This is also a sign of the emergence of postcolonial powers that have come into their own right thanks to a combination of factors some of which would be discussed in subsequent articles.

Final Thoughts

Finally, the point needs to be made that sovereignty for many countries has come at the expense of countless lives and sacrifices and hence, it is incumbent upon the successive generations to uphold the sovereign principles of freedom, equality, and choice and not to squander away the good work done by the freedom fighters.

What comes to your mind when you encounter the term bureaucracy? More often than not, you would think of slow moving, obstacle filled, and tedious processes that do not get your job done but instead, make you run around from pillar to pillar for your work. Though most of us have negative connotations when we think of bureaucracy and liken it to an appendage or a necessary evil that must be tolerated. However, bureaucracy is more than this and as the famous sociologist Max Weber postulated, it is a form of administrative control over the levers of decision making within an organization.

According to Weber, the organizations can be economic, political, and social or religious organizations. Indeed, Weber did not restrict himself to a particular type of organization nor a particular form of bureaucracy. The definition supplied by Weber is accepted even to this day as and his characterization of the term as to mean the way in which power relations in organizations evolve from the non-specialized forms to the most sophisticated form is relevant even now.

The point to be noted is that bureaucracies encompass the whole gamut of organizational Processual and decision-making mechanisms where each successive stage of evolution represents the deepening of expertise and the increasing sophistication of the organizational apparatus.

Is being Bureaucratic not Modern?

The notion that modernity and bureaucracy are incompatible is widely shared by many members of society. As pointed out in the introductory lines, the bureaucracy is not received well by the public.

However, bureaucracy is a vital and integral part of the modern organizational setup and it is the case that organizations and bureaucracies cannot do without each other. This symbiotic relationship between the bureaucracy and the organizations makes for a creative tension between the two and in the modern context, they are likened to a pair of twins that complement and supplement each other. This relationship can be best explained in terms of how process and structure coexist with agility and speed.

Indeed, both are needed as in the modern world, paperwork is as important as just in time solutions and real time processes. This interplay between the processes and the structure that sustains them along with the need for speedy decision-making is what the contemporary organizations must strive for. Further, bureaucracy is the glue that binds the disparate elements of the organization together and lends it coherence and a sense of purpose.

Bureaucracy in Action

Of course, with time, the organizational arteries tend to get clogged and hence, it is the case that organizational bureaucracies become sclerotic and slow moving. Hence, creative destruction in the way organizations rejuvenate themselves is needed to ensure that bureaucracies do not become entrenched leading to gridlock and policy paralysis.

The other aspect of organizations is that even if the employees are empowered to take decisions on the spot and are enabled to act independently, they still have to go back to the office and file a report stating their actions and justifications for the same.

Indeed, as this example shows, the Processual and the procedural aspects of contemporary organizations is still relevant as legal and other regulations dictate and mandate along with necessitate the record keeping.

Of course, in recent times, one can always record the decisions on an iPad or send a message on a Blackberry. However, the key term here is that processes have to be followed and whichever mechanism one chooses for recording and communicating them, the basic framework of the bureaucracy is unalterable.

Closing Thoughts

Finally, as this article has pointed out, we cannot do without bureaucracies and they cannot do without us. Hence, it would be better if both come to terms with each other and learn to live together like a couple who have the occasional skirmishes from time to time but at the end of the day, get the work done and keep the institution running.

Vulture capitalism sounds a lot like venture capitalism. However, they are very different indeed.

Venture capital is about nursing nascent firms and building large companies out of them. On the other hand, vulture capital is about taking down other companies and profiting from their demise.

This description of vulture capitalism makes it sound like a questionable economic activity which should be illegal.

However, the reality is that vulture capitalism also serves an important economic function. In this article, we will have a look at what vulture capitalism is why it may be necessary for the economy as a whole.

What is Vulture Capitalism?

Simply put, Vulture capitalism is the process of making money off dying firms. Vulture capitalists typically buy a stake in a firm at rock bottom prices. They are able to do so because they invest in firms which other financiers typically avoid.

They provide finance to businesses which are considered to be unviable by traditional means.

For example, Toys R Us and Sears were considered to be outdated brick and mortar stores working in the age of Amazon.

Traditional lenders like banks were wary of lending money to these businesses.

Once, they have identified the target, vulture funds set aggressive financial goals for the revival of the firm. There are two possibilities, one is that the firm is able to perform.

In this case, both the firm and the vulture fund win and everyone is happy.

Alternatively, vulture funds structure the firm in such a way that they can gain even if the firm as a whole fails.

Hence, vulture funds always seem to gain money even if the underlying firm in which they have invested money goes bankrupt and ceases to exist.

Criticisms against Vulture Capitalism

• Vulture capitalists often make money because they invest against some kind of intangible brand.

  For instance, if a firm has proprietary technology, banks wouldn’t lend against it. This is because proprietary technologies are intangible assets and arriving at a valuation for them can be difficult.

  However, vulture capitalists are aware of the valuation of these intangible assets. Hence, if the firm doesn’t perform as expected, they sell such assets and recover their cash

• Vulture capitalists are known for aggressively reducing the headcount of companies that they invest in. The number of people employed by companies tends to reduce drastically when vulture capitalists take control. This increases the unemployment and other welfare payments for the areas in which these firms operate.

  However, the irony is that vulture capitalists pay a very low tax rate. Hence, they reap the profits by firing people whereas the government and taxpayer are left holding the bag in the end

• Vulture capitalists first lend money at very high-interest rates to these dying firms. Once these firms are not able to pay back the loan, they take control of an important asset such as the company’s real estate. They then lease back the same real estate to the company at very high rates. Hence, vulture capitalists firms end up milking money while the rest of the firm is driven to the ground.

Is Vulture Capitalism Necessary?

• Vulture capital firms are instrumental in reallocating resources in the economy. These firms take people and resources out of companies where they are not being optimally utilized. Then those same resources are used in other sectors of the economy where they are able to achieve a more productive outcome.

  Politicians and media seem to focus too much on the part where people lose jobs. However, not enough attention is paid to the fact that resources are freed so that they can be utilized better.

• Vulture capital firms are able to revive a lot of firms and even governments. When organizations borrow from vulture capital firms, they know that this is their last hope. This is the reason why they seem to give it their best shot which works many times.

  Consider the case of Greece as well as Argentina. Both of these countries were facing a financial crisis.

  However, Greece had the support of other Eurozone countries. Since it had the support of helpful countries, it did not take the situation seriously. Greece continued to spend borrowed money recklessly and hence has reached the verge of bankruptcy.

The same situation was faced by Argentina. Here, also finally the government ended up becoming bankrupt, and the vulture firms were blamed heavily for it.

However, thanks to the constant pressure that these funds exerted, Argentina ended up in much better financial shape, and the crisis was smaller than it would otherwise have been.

The bottom line is that vulture capital firms don’t throw good money after bad. If they realize that a firm is not going to turn around, they cut their losses and move out. Many times they end up strangling the company which is why they end up with a bad name.

No discussion on political science is complete without a study of how power is wielded, its uses and abuses in the modern nation states. Indeed, power is the glue that holds nations together and gives them a semblance of control, as without the exercise of power, it would be difficult to keep chaos at bay.

The point here is that unless power is exercised by the rulers, there are no standards to follow and no order to be enforced. Of course, this does not mean that power is the only thing that is relevant in modern nation states. On the contrary, the abuse of power is a serious issue that often leads to revolutions and social movements.

In other words, power has to be exercised with great responsibility and accountability and unless, there is a judicious application of power, there cannot be a viable and functioning modern nation state.

Hence, the implications for modern nation states are that power must be accompanied by accountability and a chance for the people to either vote in or vote out those whom they feel responsible and sagacious and those whom they feel are abusing their power.

Machiavelli, Chanakya and the Greater Good

Thinkers like Machiavelli have expounded on the theme of power and its place in the state. They have pointed to the practice of statecraft and the practice of responsible power as being the criterion with which power is exercised.

In his seminal work, The Prince, Machiavelli elaborated on these themes and the necessity of those in power to work for the greater good instead of personal gains.

In India, Chanakya, in his Arthashastra, prescribed similar strategies that would hold the states together and which would promote social welfare rather than individual and selfish interests.

The point here is that power has to be exercised in a manner that would contribute to the welfare of the people and must not be abused for personal gains. This is the message that has been passed down the ages and which is something that many modern rulers have abandoned and mistook. This is especially evident in third world countries where the elected representatives instead of serving the people are serving themselves instead.

It is a sad state of affairs when the citizenry instead of being benevolent towards their representatives begin to detest them and hate them.

Closing Thoughts

There is a saying that power corrupts and absolute power corrupts absolutely. This is a message that has to be taken seriously by those who wield power across the world and the people too have to ensure that they do not remain mute spectators to the abuses of power.

Further, the other pillars of democracy like the Judiciary, Legislature, Executive, and the Media likewise have to ensure that the constitutional checks and balances remain in place and that they are not trampled upon.

In conclusion, the study of power and its uses and abuses is fascinating and hence, we will be elaborating on these themes in detail in subsequent articles.

Any system that involves the mechanism for production, distribution, and exchange of goods apart from consumption of the goods and services within the different entities can be classified as an Economic System.

The various kinds of economic systems and their classifications broadly follow the methods by which means of ownership are established. Thus, the mode of ownership of capital leads to the different kinds of economic systems in vogue.

Types of Economic systems

The different kinds of economic systems are Market Economy, Planned Economy, Centrally Planned Economy, Socialist, and Communist Economies. All these are characterized by the ownership of the economics resources and the allocation of the same.

For instance, in a Capitalist Economy, the capital is privately owned and distributed with governmental oversight and regulation.

On the other hand, in a Communist Economy, the state itself takes on the task of allocation of resources according to the needs of the different sectors.

In a mixed economy, the state looks after some sectors whereas it frees up the other sectors for private participation.

Apart from this, the extent of governmental or state intervention determines the kinds of economic systems that are classified accordingly. In many ways, each of these systems has their own pros and cons when it comes to the welfare of the citizens.

1. Capitalist System

   This is the predominant economic system in the world today. In this system, the capital is privately owned and distributed. The distribution mechanism is left to the market to allocate the resources with the emphasis being on efficient allocation of capital.

   Going by the “Invisible Hand” of Adam Smith that guides the allocation of resources, it is deemed that the market does a good job of determining which sectors receive the capital and how much.

   Thus, perfect knowledge and perfect competition are assumed to be given and the market mechanism is taken to determine the beneficiaries and the recipients.

   In the modern context, this kind of system has come to be associated with the laissez faire mode of capitalism where the state has minimal responsibility and is seen as a “hands off” player rather than being interventionist.

   Of course, the state is expected to have regulatory mechanisms in place and ensure that the market corrections are supervised and the state steps in whenever there is a crisis of liquidity or other market failures.

   As we are currently witnessing the different kinds of state interventions arising out of the credit crunch, it becomes apparent that this kind of economic system may not be the ideal one as was being propounded over the last few decades.

   In this economic system, the four kinds of land, labor, capital, and entrepreneurship are the types of production that make up the mechanism for production and distribution of resources.

   The capitalist system of production and distribution has proved to be highly successful in western countries and it has spawned several clones in the east as well.

2. Communist System

   In this kind of economic system, the state takes upon itself the allocation and production functions as well as distribution of the goods and services.

   In this system, capital cannot be privately held and there is communal ownership or what is known as “Communism”.

   The workers are paid uniform wages and what Marx called the “participation of the workers in the collective bargaining” is a feature of the system.

   This model was pursued in the erstwhile USSR before it broke up and has been considered a failure though there is debate whether it was an ideological failure or an implementation failure.

   Like capitalism, communism also had several takers in the newly independent economies of the east. Thus, the Cold war was fought as much between two blocs as between two competing ideologies.

3. Socialist and Mixed Economic Systems

   In these forms of economic systems, the state has control over some areas which it deems to be of primary importance as regards national security and importance to the welfare of the citizens.

   Thus, the state does not allow private participation in sectors such as defense and essential goods and services whereas the entrepreneurs are provided incentives to contribute in other sectors that the state thinks fit.

   This kind of economic system was followed in countries like India till the 1990’s when the economies were liberalized and full private sector participation allowed.

   This parallels the demise of the centrally planned economy where the command and control of the economy is top down rather than bottom up. This has often led to several imbalances in the distribution and allocation of resources.

Benefits to Society and Individuals in Economic Systems

An economic system, in whatever form is necessary for the society to prosper and function as a cohesive unit.

From the primitive societies of barter and the hunter gatherers to the new technocratic ages, there always has been some form of economic systems. The economic systems make up the whole system that comprised the political system, the legal system, and the like.

Some of the benefits are self-evident in the sense that the individuals in a society get paid for their work and in return can buy and exchange goods and services.

In other ways, the material well being of the individuals is guaranteed with promise of wages and other inducements. On the other hand, the individuals contribute to the collective pool of wealth by paying taxes that in turn make up a portion of the social security nets.

As can be seen from the prosperity of the western world, the economic systems contribute in a major way towards the sense of well being and security of the citizens.

The state guarantees the rights of the citizens and in turn expects duties from them. There are instances of breakdown of economic systems in Sub-Saharan Africa that has resulted in chaos and civil war.

Need for a Social Contract

Thus, one of the pre-requisites of the economic systems is that of a “social contract” between the individual and the state along with the legal and other forms of enforceable contracts.

As can be seen, an effective economic and social system not only takes care of the constituents but also enforces the mode of behavior through a set of laws and regulations to be followed. Thus this is a kind of win-win situation for all the players concerned.

In communist societies, the state had an additional responsibility to ensure that the material well being of the citizens is taken care under the auspices of the state. Thus, one of the conditions for communal ownership was the co-ordination of the services and the goods.

The society as a whole gains from the distribution of wealth and its effects on the economy are as real as the whole structure of production and distribution of services are concerned.

Society participates by providing services and gets paid in return. On the other hand the political economy enforces the contracts of the participants and the players concerned. Overall, society stands to gain from the methods of production and distribution of goods and services.

Individuals perform duties as per the market rules for participation and are guaranteed their share of the profits according to the norms of the wages prescribed.

Current trends

With the advent of the Internet and the rise of the “dot com” companies, a new kind of Economic system based on the “virtual” exchange of goods and services is arising that leads to dramatic shifts of wealth around the world.

However, there is also a need to refine the current market economies for them to have proper regulation and oversight. Unfettered capitalism is as risky as an absence of economic system. The whole edifice of an economic system can come down if not properly regulated and enforced.

As far as the current market crises are concerned, it is imperative that some kind of “paradigm shifts” occur within the systems and these are taken care by the regulatory authorities.