Don’t blame it on capitalism

ON Jan 27, the International Labour Organisation announced that 27 million people lost their jobs in 2009. Most of the job losses took place in Europe and the United States.

President Obama, in his recent state of the union address to Congress, said that “One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. For those who had already known poverty, life has become that much harder.”

It is not difficult to imagine the extent of the suffering that is being experienced by the people affected. Lost jobs mean lost income. Since many families now have large personal debts in the form of home loans, car loans, study loans etc., the consequences of a job loss can be very devastating.

What is ironic and interesting to note is that in many cases, the main reason given for the massive job cuts is the need to save the companies involved from going under.

The most recent example is Japan Airlines (JAL). Burdened with an unpaid debt of US$25.6bil, it made history by being Japan’s largest non-financial corporate failure. But instead of allowing JAL to die its natural death, the Japanese government decided to give it a new lease of life.

However, there was a condition attached. JAL had to accept radical restructuring plans which involved the cutting of more than 15,000 jobs, or about 30% of its workforce, by the end of 2013.

The same situation applied at General Motors (GM) in 2009. Its debt burden at the end of November 2009 was a whopping US$66bil.

The reason GM is still alive was because the Obama administration decided to rescue it by injecting public funds. However, its salaried workforce was cut by 10,000 in 2009 under a restructuring plan that calls for the elimination of 31,000 of its 96,000 workforce by 2012.

It is therefore difficult not to have the impression that the focus of governments is not really to save jobs but to save companies.

Many people mistakenly think that this is the price to pay for having capitalism as the basis for running a society’s economy. This is actually not true. The most common element in all definitions of “capitalism” is that of an economic system based on the private, as opposed to public, ownership of capital.

And this system of private ownership of capital has been around since time immemorial and yet, notably, did not cause misery of the scale that we are witnessing today.

After all, many civilisations had practised economic and business systems that allowed private ownership of capital and free market. One example is the Muslim civilisation which allowed private ownership and free market for more than 1,400 years.

However, its history was never replete with stories of massive job losses and high unemployment. True, there were occasions of economic crises due to adverse weather conditions, plagues or other natural disasters. But there was no instance of financial crises where economic players ended up bankrupt with massive loans and forced job losses.

No, this is not about capitalism but rather about the growth of one particular industry – the lending-for-profit industry. With the legalisation of “interest-charging” loans in Europe circa the 15th century, European Christians who previously considered interest-charging activities as evil and associated largely with “greedy Jewish money lenders”, began to join the financial industry in earnest.

In the centuries that followed, the Western world experienced rapid economic growth. Of course, there were hosts of problems during these periods, mainly in the injustice and exploitation of workers by debt-laden industrialists who wanted to cut costs to earn higher profits and service their debts.

Those problems eventually led to the birth of communism as an ideology. But the collapse of communism in Soviet Russia and Eastern Europe in 1989 meant that the Western financial system was able to continue to thrive. However, the world is now beginning to eventually realise that there is a major flaw with it.

The increasingly serious and severe financial crises associated with the global debt problem are now spreading economic havoc and catastrophe to all corners of the world.

Unfortunately, some are wrongly pointing accusing fingers at capitalism or the private ownership of capital as the main source of the problem. In reality, if the current suffering associated with job losses is to be eliminated, the requisite thing that needs to be undertaken is a proper diagnosis of the main causes of the problem.

Sadly, many are either unwilling to be honest and truthful in their diagnosis or are simply intellectually incapable due to a lack of exposure to genuine alternative viewpoints.

By Dr Mohd Nazari Ismail who is a professor at the Faculty of Business and Accounting, University of Malaya