Friday, April 23, 2010

Is more Government Control good or bad?

With demise of Soviet style Socialism in the 1980s most people believed that Government control of affairs of the society will become less and less and Laissez-faire Capitalism will rule the World.But it did not happen.Governments in most of the Western World is trying to control their economies more than before. Is more Government control good or bad?

Let me try to define Laissez-faire Capitalism.
Ayn Rand the Russian-American writer,a staunch supporter of Capitalism said

When I say “capitalism,” I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.

Actually no country followed Laissez-faire economic system. But most of the Western European countries and USA had a relatively free market economy though with varying degree of Government control.
But after the  economic crisis of 2008-09 the Governments are thinking about controlling their economies more and more.
 In USA, President Barack Obama's Democratic Party is trying to pass an economy regulation legislation which will increase the control of Government on the financial system.
In a speech today in New York Obama said:

I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is a family looking to buy a house, pay for an education, open a business, or save for retirement.

I have also spoken before about the need to build a new foundation for economic growth in the 21st century. And, given the importance of the financial sector, Wall Street reform is an absolutely essential part of that foundation. Without it, our house will continue to sit on shifting sands, leaving our families, businesses and the global economy vulnerable to future crises. That is why I feel so strongly that we need to enact a set of updated, common-sense rules to ensure accountability on Wall Street and to protect consumers in our financial system.

It is widely agreed that the economic recession of 2008 could have been avoided if the Government had intervened to control unbridled sub prime lending and Mortgage frauds. It is also now clear that it was the bailout by Government using tax payers money that helped to prevent bankruptcy of many Companies.

Recent revelations that Goldman Sachs duped its own customers and made big profits raises the need for more Government regulation in Banking sector.
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Let me quote Obama again:

"It is for this reason that we need a system to shut these firms down with the least amount of collateral damage to innocent people and businesses. And from the start, I've insisted that the financial industry -- and not taxpayers -- shoulder the costs in the event that a large financial company should falter. The goal is to make certain that taxpayers are never again on the hook because a firm is deemed "too big to fail.

"In the end, our system only works -- our markets are only free -- when there are basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system. And that is what these reforms are designed to achieve: no more, no less. Because that is how we will ensure that our economy works for consumers, that it works for investors, that it works for financial institutions -- that it works for all of us.

I agree with Obama here. More Government controls,safeguards and regulation will only help the economy.

As the Nobel Prize winning economist and a strong supporter of economic regulations by the State, Paul Krugman said:

For the fact is that much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors. And if we don’t lower the boom on these practices, the racket will just go on.


  1. I like what we are doing here in India minus the unavoidable bribing that any entrepreneur has to accept as a fact of life :(

    Government controls also mean controlled by some people employed by the government.

    I have also seen workers employed for eleven months and then re-employed after a month, so they can't be made permanent - why not? Because they start behaving like government employees the moment they become 'permanent employees'. If I ran a business I would like to keep the option of keeping or firing - but then it's also true that labour in most places is terribly underpaid.

    But still I agree with "In the end, our system only works -- our markets are only free -- when there are basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system"

  2. I guess as long as there is greed, there ought to be safe guards.. but then in India except for the banks those who are appointed to check the greedy are themselves even more greedy!

  3. IHM, Yes workers employed for 11 months and then re-employed after a month is for preventing them becoming permanent employees.But It is not for getting good behavior from the employees but for side stepping labor laws so that they need not be given allowances and holidays eligible for permanent employees.Just another way of increasing the profit. If you run a business you have the right to fire or keep an employee even if he is permanent,but as per the rules.

    Uncontrolled capitalism is bad and has no place in a democratic society. When we say Govt of for and by the ppl,it means ppl will pass laws to ensure some sort of equity.

  4. Happy Kitten,
    if we have multiple level of controls this problem can be overcome.

  5. How are you Doctor..Long time no see?

    I hope you are fine and in good spirits..Keep in touch..

    Good luck..

  6. Few years ago, the UPA govt tried to allow retail MNC giants like Walmart and Tesco unrestricted access to Indian markets. They had to face opposition from many quarters including from the Left and BJP. The govt then back-tracked but now they are trying to bring it back, hoping that they will face a weakened opposition this time.

    One of the arguments is that it will improve the incomes of farmers, that in India farmers get only 15% of the retail price whereas in developed countries farmers get 67%. This is a big lie being propagated, facts are otherwise. I live in the west, I like so many things here. But I feel allowing big retail will be disastrous in India.

    If you want to see the disaster of food in America, here is a great video - Food, Inc.


Comments are welcome especially if you do not think like me. But anonymous comments behind masks and those not relevant to the post are not encouraged.