By Shyamal Majumdar
There are many reasons why the launch of any book authored by Ruchir Sharma becomes a celebrated event globally. The chairman of Rockefeller International and founder and chief investment officer of Breakout Capital, an investment firm focused on emerging markets, is a prolific writer as well, authoring four books apart from being a Financial Times columnist.
His last, The 10 Rules of Successful Nations, an updated and abridged adaptation of The Rise and Fall of Nations: Forces of Change in the Post-Crisis World, became a New York Times bestseller. His first book, Breakout Nations: In Pursuit of the Next Economic Miracles, debuted as the number one bestseller in India, and earned Sharma the Tata Literature Live! First Book Award. Breakout Nations also made the Wall Street Journal hardcover business bestseller list, and was chosen by Foreign Policy as one of its “21 Books to Read”.
In his latest book, provocatively titled What Went Wrong With Capitalism, Sharma doesn’t mince words. According to him, capitalism is ruined. The best example of the popular frustration with capitalism is while the stock market in 2024 continues to break new records, US consumer confidence hovers around the same levels as during the 2009 recession. Reason: America is fast displacing Europe as the society least tolerant of financial distress for anyone, up to and including the super-rich.
The original Keynesian idea was that government should save during recoveries, so that it could spend heavily to ease recessions. By the 1960s, the saving part was dead, giving way to stimulus to speed up a recovery. Soon the US government was running significant deficits in good times and bad, averaging 4% of GDP in recessions, and 3% in recoveries between 1980 and the end of 2019. This oft-criticised age of fiscal “austerity” is more aptly described as an era of constant stimulus. The omnipresent state became a bipartisan joint venture of the Treasury and the Federal Reserve.
The author argues that the government already has an outsized role in the US economy. By simultaneously serving as regulator, borrower, and spender, the government has distorted the economy and created a system of “socialised risk”, a campaign to inoculate an entire society against economic downturns. Working with central banks, particularly in the last two decades, governments created a culture of easy money and bailouts that is making the rich richer, and big companies bigger.
In the process, the 353-page book seems to have rewritten the standard histories, which trace today’s popular anger to the anti-government rebellion that began under Margaret Thatcher and Ronald Reagan. The now widely accepted narrative is that four decades of downsizing government — cutting taxes, spending, and regulations — left the financial markets free to run wild, fuelling inequality, slowing growth, and alienating much of the population.
With his background as a global investor and economic analyst, Sharma brings a nuanced perspective to the discussion, combining rigorous data analysis with engaging storytelling. His extensive use of data and empirical evidence stands out as a major strength of the book as he meticulously dissects various economic trends and policies, providing readers with a clear understanding of the forces driving inequality, stagnation, and financial instability, while making a strong case for why and how capitalism needs to adapt to the changing times. For example, sample this: During the past three decades, the US bureaucracy eliminated a total of just 20 rules, while adding new ones at an almost metronomic pace of about 3,000 a year, under all governments.
One of the reasons why capitalism has failed, according to Sharma, is direct corporate bailouts, a hint of which surfaced during the 1930s and 1940s, when the new Reconstruction Finance Corporation became a kind of back channel for relief spending of all kinds, including cheap but often inadequate emergency loans for distressed banks and businesses. Banks still failed by the hundreds. All previous rescues were of course outdone by the US government response to the financial crisis of 2008.
One of the central themes of the book is economic inequality. Indian readers can benefit from Sharma’s analysis of how other countries have tackled this issue, potentially applying similar strategies to address the significant wealth disparities in India. The book’s critical examination of capitalism’s flaws encourages a rethinking of economic models.
The book often incorporates examples and insights from India to illustrate broader economic trends and issues. Sharma opens the book with the case of his birthplace, analysing India’s economic policies and performance in the context of global capitalism. He argues that India, with its significant resources and demographic advantages, should be in a better position in the global economy than it currently is. This sets the stage for a broader critique of how different countries, including India, have navigated the challenges and opportunities presented by modern capitalism.
The author has reflected on the period of India’s economic liberalisation in the 1990s, which was a turning point for the economy, and how the country has struggled with sustaining high growth rates in recent years due to various structural issues. The point that will find a lot of resonance among readers here is the one on the persistent issue of inequality as the benefits of growth have not been evenly distributed, leading to widening economic disparities. This is seen as a microcosm of a larger global trend where capitalism has increased wealth for some while leaving others behind.
At times, however, the book can feel repetitive, with certain themes and arguments revisited multiple times. While this reinforces key points, it can also slow the pace for readers familiar with the subject matter. While Sharma excels in diagnosing the problems with modern capitalism, the solutions he proposes are sometimes less detailed and concrete. Readers looking for a comprehensive roadmap to reform may find this aspect lacking.
Also, certain questions have been left unanswered. For example, Sharma has nothing to say about the ‘stagflation’ of the 1970s — a decade, according to him, where capitalism had small government and low regulation. Finally, the packaging could have been far better to increase its acceptance among non-hardcore economic readers. The lack of visual relief makes the book look like a boringly heavy textbook.
But these are minor quibbles. Overall, the author’s brilliance shines through the pages when he argues that the experimental quest for endless growth is utopian, a counterproductive step too far. Governments need to stop stimulating during recoveries.
Book- What Went Wrong With Capitalism
Ruchir Sharma
Penguin Books
Rs 999
Pp 353
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
