Capitalism in the 21st Century

The following sections are included:

• Dedication
• About the Author
• About the Book
• Contents

Without a shadow of a doubt, capitalism is the single greatest invention in human history. The impact of capitalism on the material progress of mankind dwarfs the impact of the steam engine, electricity, combustible engine, and all other technological breakthroughs combined. Indeed it was raw capitalism, epitomized by larger-than-life titans such as Cornelius Vanderbilt, John Rockefeller, Andrew Carnegie, J.P. Morgan, and Henry Ford, that produced such game-changing breakthroughs. Yet the central role of capitalism in expanding the sheer amount and variety of goods we enjoy, and in lifting our living standards beyond all recognition, is often underappreciated, if not forgotten altogether. Perhaps this is because we take capitalism for granted, like oxygen, especially after it defeated socialism and became the dominant global economic system. Or, perhaps the lack of appreciation is due to the intangible nature of capitalism, which is not something we can see, touch and feel, unlike the mobile phone, laptop, or internet…

The superiority of capitalism over alternative economic systems is so self-evident that it requires no explanation. For starters, the collapse of the Soviet Union and socialism has left the world with no alternative system for organizing the production of goods and services. The victory of capitalism over socialism in the Cold War was, in the final analysis, the triumph of a vastly superior economic system which delivered far superior living standards to the masses. The level of material comfort enjoyed by an average middle-class family in, say, New York City in 1980 far exceeded that of their counterparts in Moscow in 1980. In fact, the difference was night and day. For sure, there were a large number of non-economic factors which played a role in the defeat of socialism. These include growing popular resentment at stifling political repression, omnipresent intrusion of the government into daily life, and lack of individual freedom. But the failure of socialism was ultimately due to its utter flaw as an economic system…

To be fair, socialism is not without its attractions. Otherwise, an economic system as inefficient, dehumanizing, and morally bankrupt as socialism could not last for decades and enslave a good share of humanity. For sure, the secret police — for example, the infamous Stasi of East Germany, which spied on the entire population, primarily through a vast network of ordinary citizens turned informants — and a general political climate of fear and intimidation — for political prisoners, being sent to Siberian gulags or forced labor camps was a relatively mild form of punishment — played a major role in stifling dissent and sustaining the system. But even so, one has to admit there were some material benefits to living in a socialist country, as paradoxical as this sounds. More specifically, a sense of economic security — the universal provision of housing, health care, education, pension, and other basic social services — was largely responsible for the puzzlingly long survival of socialism…

At the same time, it should be acknowledged that capitalism is far from perfect and saddled with major problems of its own. The single biggest flaw with capitalism is the staggering inequality that it often breeds. Even in the world’s most affluent countries, abject squalor exists side by side with luxurious abundance. Run-down and decaying inner cities, epitomized by the surreal ghost town of Detroit, once the automobile capital of the world, are ringed by leafy, affluent suburbs. Such stark contrasts between the haves and have-nots are a hallmark of urban America. The decaying slums of inner city America and pleasant middle-class American suburbia might as well be different countries. For sure, they are different worlds. Similarly, grim and grimy banlieues — low-income suburbs populated by Arab and African immigrants — are a world away from chic, elegant Champs Elysées and the scintillating splendor of central Paris…

However, there is indeed a critical contribution that the government can make to reduce income inequality on a sustainable basis, without harming economic growth but instead fostering growth. That contribution is to promote equality of opportunity. In other words, the government can help level the playing field so that anybody with talent, ingenuity and drive can become another Steve Jobs, Elon Musk or Ted Turner. Equality of opportunity is a nice ideal, but in the real world, some of us have a head start over others. Somebody born with a silver spoon in his mouth in Beverly Hills, for example, will have an incomparably higher chance of a successful life than somebody born without a spoon at all in Watts. The silver spoon will have access to better home, better education, better nutrition, better health care, and better everything. Yes, there are inspirational no-spoons who overcame the odds to succeed in life — for example, the renowned neurosurgeon Dr. Ben Carson — but these are few and far in between…

Inequality of opportunity perpetuates income inequality and passes income inequality from one generation to the next. The children of the rich become rich and the children of the poor become poor. But inequality of opportunity affects much more than just income gaps between the rich and the poor. Indeed, it weakens the very foundation of capitalism, as well as the intellectual, moral, and common-sense case for capitalism. That case is that capitalism is a fundamentally fair system. Inequality is a permanent fact of life, which means that the playing field can never be completely level. Nevertheless, some government intervention can help make the field more level, and improve the odds of a poor, single-parent black kid from inner-city Detroit becoming another Dr. Ben Carson. Such government action not only reduces inequality, it helps to promote healthy and vigorous competition, and thus strengthens the very foundation of capitalism…

It is not entirely accurate to view inequality and poverty as market failures because in some instances, the private sector does play an important role in fighting inequality and poverty. That is, while the government must stand at the forefront of the fight against inequality and poverty, capitalists and entrepreneurs often make sizable contributions. Take, for example, the Bill & Melinda Gates Foundation, or the Gates Foundation. It is led by two of the world’s most famous billionaires — Bill Gates of Microsoft fame and the legendary genius investor Warren Buffet — and is the world’s largest private charity foundation. Its sheer scale — more than US$40 billion in assets in 2014 — and its mode of operation — more like a business than a government bureaucracy — have turned it into an innovative pioneer in private philanthropy. Tellingly, the foundation seeks to help the poor catch fish with its work on health care enhancements and extreme poverty eradication globally, and making education and information technology (IT) accessible in the US…

Socialism is such a patently inferior economic system that highlighting the superiority of capitalism by comparing it with socialism may seem like a pointless, rigged exercise. But capitalism and socialism are, in fact, the two main alternative systems of producing goods and services. Moreover, communism is simply socialism plus political dictatorship, secret police and forced labor camps. There is a widespread but misguided tendency to view the rich economies of Western Europe — e.g. Germany, France, and Italy — as examples of an intermediate third way, somewhere between capitalism and socialism. The defining feature of these economies is a visibly lower level of inequality than America. Some names for this supposed alternative economic system are “mixed economy” and “social democracy”. This is utter hogwash. There is nothing mixed or socialist about European economies. What creates wealth and jobs in Europe is, as in America, a dynamic and efficient private sector — in other words, capitalism. To be sure, government control of industries, for example health care, is greater in Europe than in America, but government-owned industries are not the main creators of wealth…

In Europe as in America, capitalism is the engine of economic progress. The biggest virtue of capitalism is that it is a fundamentally fair system. As noted earlier, under capitalism, how well one does depends on one’s own ability and effort. Your income is determined by your contribution to the economy. In other words, under capitalism, you get what you deserve. What can be fairer than that? This does not contradict my earlier statement that capitalism is an inherently unequal and unfair system. The two definitions of fairness are completely different, and do not contradict each other at all. If we define fairness to mean that everybody should earn the same, regardless of their ability and effort, then capitalism is unfair, for sure. On the other hand, if we define fairness to mean that how much we earn should depend on how much we contribute, then capitalism is as fair as it gets…

The likes of Steve Jobs, Bill Gates, and Larry Page make for much better advertisements for the virtues of capitalism. These Silicon Valley titans created entirely new products and industries through their visionary entrepreneurship. They are the modern-day Andrew Carnegies, John Rockefellers, and Henry Fords, the men who built America. Both groups of audacious, big-thinking, larger-than-life dreamers and risk takers embody the very best of capitalism — the dynamic, regenerative capitalism championed by Joseph Schumpeter. In his 1942 masterpiece Capitalism, Socialism and Democracy, the great Austrian economist envisioned capitalism as a process of creative destruction whereby new firms, industries and products arise to better serve human needs. In the process, they destroy old firms, industries and products, but overall that creative, regenerative destruction improves the quality of our lives and propels mankind forward…

While Uber, Airbnb, and Netflix are very recent, IT-based examples of the process of creative destruction, that dynamic, never-ending process started long before the advent of the internet. For example, the period between the end of the US Civil War and the onset of the First World War marked a golden age of creative destruction. The five decades transformed the American economy, and firmly established America as the world’s pre-eminent power. The transformation was similar to the spectacular rise of China since 1978, except it was even more dramatic. It was driven by a group of visionary, larger-than-life capitalists, men like Cornelius Vanderbilt, John Rockefeller, Andrew Carnegie, J.P. Morgan, and Henry Ford. Each left a lasting imprint on the economy and indeed human life, and is associated with a game-changing innovation — railroads (Vanderbilt), oil (Rockefeller), steel (Carnegie), electricity (Morgan), and automobile (Ford). These men did not invent these products, but they brought them to the masses and made them a part of everyday life. They are kindred spirits and spiritual forerunners of Steve Jobs, Bill Gates, Larry Page, Jeff Bezos, and Mark Zuckerberg…

Entrepreneurial capitalism is necessarily disruptive, even destructive, since existing firms and industries are driven out of business, and thousands of workers lose their jobs. The arrival of the automobile destroyed the horse cart industry, but automobiles are an incomparably superior mode of transportation. Likewise, the invention of the airplane dealt a big blow to the railroad and ship industry, but revolutionized the long-distance transportation of both passengers and cargoes. More recently, Googling has replaced library card catalogs as sources of information, and fixed-line telephones have lost vast ground to mobile phones as communication devices. Creative destruction is not without its costs but on the whole, propels mankind forward and upward. Very few, if any, would argue for banning the internet to protect library catalogues or outlawing the automobile to preserve the horse cart industry. Better and cheaper products and technologies are the engines of mankind’s material progress…

Economic sclerosis, anemic growth, and sky-high unemployment are a surefire recipe for social and political explosion, and one such explosion — the Arab Spring — engulfed much of the Middle East and North Africa in recent years. The flames of that explosion are still burning strong and show no signs of dying out anytime soon. From its inception, the Arab Spring was a natural and predictable reaction to the bleak despair and hopelessness that confront millions of youths in the Arab world, from Baghdad to Cairo to Algiers. The self-immolation of Mohamed Bouazizi, a 26-year-old Tunisian street vendor fed up with petty harassment by petty local officials, on 17 December 2010 set off widespread nationwide protests that eventually ousted a president who had run the country for 23 years. When the only way a young man can support himself and his family is to sell fruits from a wheel barrow, and small-time bureaucrats with plenty of time on their hands prevent him from doing even that, then the unfortunate actions of Mohamed Bouazizi may be unsurprising. There is no cure for utter hopelessness, bottomless despair, and broken spirits…

The social value created by iconic heroes of capitalism such as Steve Jobs is self-evident, and most of us would agree that the millions they make are just reward for their visionary products. Even everyday capitalists — for example, the office worker who quits his job to start his own business — should be rewarded for the risks they take, and for the jobs they create if they succeed. If everybody is content to be an office worker, and nobody has the guts to start his own business, then for sure, the economy would suffer. That economy would be like a pool of stagnant water, with vastly diminished capacity for creating wealth and jobs. The risks that the entrepreneurial few take greatly increases the size and richness of the pie, so that all of us — including the vast majority of us who are content to work for a salary and never start a business — can enjoy bigger and tastier pieces of the pie. They may not be Steve Jobs, and they may be driven by personal greed, but they are heroes who benefit society all the same…

The two-sided Janusian face of capitalism can be seen everywhere. Multinational clothing and footwear companies like Gap, H&M, Old Navy, Uniqlo, Zara, Adidas, Nike, and Puma typically outsource their production to developing countries, in search of ample pool of low-wage workers and lax labor standards. From the profit perspective, such outsourcing makes perfect sense since clothing and footwear are labor-intensive. The central importance of labor costs in the industry explains how Bangladesh, one of world’s poorest — ranked 164th out of 189 countries in 2013 — and most densely populated countries, with a population of over 150 million, managed to become one of the world’s biggest apparel exporters, despite having a weak infrastructure and an otherwise embryonic manufacturing sector. In 2012, Bangladesh was home to 5,600 garment factories, and the world’s second largest garment manufacturer, behind only China. Labor costs, and labor costs alone, explain why those factories are based there…

It might seem that there is an obvious solution to the problem of corporate greed and misbehavior which, when taken to the extreme, results in human tragedies like Rana Plaza. That solution is government regulation. In both rich and poor countries, various labor laws, rules and regulations protect basic worker rights, enhance workers’ job security, and improve their terms of employment. They are designed to protect workers from exploitation by employers, and to guarantee them a minimum level of acceptable working conditions and safety standards. For example, many countries have minimum wages to help ensure a minimum living standard for workers. Minimum wages vary greatly across countries, from less than US$0.30 in India to a little more than US$2 in Brazil to US$7.25 in the US. The large gaps are not surprising in light of large international differences in living standards and living costs. Another example comes from occupational health and safety, which refers to the safety, health, and welfare of workers. Many countries have legislation which mandates employers to create a safe workplace for their workers, and government agencies which are responsible for enforcing such legislation…

Perhaps not altogether surprisingly, a number of city officials who were in charge of overseeing the construction of the Sampoong Department Store building, were found to have received bribes for looking the other way when the owners made illegal changes that eventually brought down the structure. Those officials were jailed, along with Sampoong executives and construction company officers. In an ideal world, omniscient and benevolent government bureaucrats with a deep sense of public service strictly enforce building codes that prevent Rana Plazas and Sampoong Department Stores from being built in the first place. However, in the real world, in the world in which we live, bureaucrats are often neither omniscient nor benevolent, and the only deep sense many have is an uncanny, almost canine, sixth sense for sniffing opportunities to line their pockets with bribes from those they are supposed to regulate…

The phenomenon of the government regulator being unduly influenced by the companies and industries it is supposed to regulate is known as regulatory capture. That is, instead of serving the public interest, the regulator is captured by the interest group and serves that interest group’s vested interests rather than the public interest. For example, if the government agency in charge of public health is captured by the tobacco industry, the rules and regulations against smoking in public will be weaker than warranted by the risks that secondhand smoke poses for non-smokers. There are plenty of real-world examples of regulatory capture…

While egregious, the Philippines electricity industry is far from alone in how privatization gone wrong can be as bad as, if not worse than, the government’s production of goods and services. Examples abound around the world, especially in developing countries but also in advanced countries, of privatization harming the public interest rather than promoting it. Perhaps the most notorious example of socially harmful privatization comes from post-Soviet Russia. In the early to mid-1990s, after the breakup of the Soviet Union and fall of communism, the Russian government embarked upon a massive program of transferring strategic state-owned assets in the industrial, energy, and financial sectors — e.g. oil fields, pipelines, and refineries — to the private sector. Given the impending collapse of the centrally planned socialist economy, it was desirable and even necessary to privatize as much of the economy as quickly as possible. Even so, most of the assets fell into the hands of a small group of politically well-connected oligarchs who have done little to improve their companies or serve the public interest with their new assets. The largely negative perception of privatization among Russian citizens suggests that overall it has been a failure…

More staid and mature democracies like America are not exempt from unhealthy coziness between business and politics. It is not for nothing that billions of dollars are sloshing around inside the beltway encircling Washington, D.C. Money buys political influence, and political influence helps your business. The hordes of lobbyists running around Washington, D.C. are part of a multi-billion dollar industry in which special interest groups try to buy influence from politicians and the government. For example, large oil multinationals will seek to weaken regulations that restrict their ability to drill for oil in environmentally fragile regions such as northern Alaska above the Arctic Circle. While oil exploration creates a lot of jobs in the short run and strengthens America’s energy independence in the long run, the environmental costs of drilling for oil in such regions are potentially large. At a minimum, environmental issues should be a key factor in the government’s decision…

The raw, muscular, dynamic capitalism of entrepreneurs and firms competing vigorously with each other to capture consumer dollars is, in essence, a contest. The quality of any contest depends critically on the rules of the game as well as the accuracy and impartiality with which the rules are enforced. A good game needs a good referee. Sports fans around the world vividly remember the moments when their favorite team was cheated of a victory by an incompetent or biased referee’s mistake. Like when a perfectly legitimate goal by your center forward is inexplicably ruled offside, or when the opposing team’s dive-prone striker is awarded a dubious game-deciding penalty kick in the 93rd minute, or your best defender is red-carded and thrown out of a game for a robust but 100% legal tackle. Or, like when your powerful forward is called for a charge on an obvious block late in the fourth quarter in a tight playoff game, or the ball is awarded to the other team when it went off their fingertips in the same situation. Or, like when your cornerback’s excellent pass coverage is rewarded with a bogus pass interference call…

Telecom is a classic example of an industry which was dominated for decades by government monopolies. Other public utilities such as electricity, gas, and water supply are also traditional domains of government monopolies. In country after country after country, telephony started out as a government-owned monopoly before liberalization opened up the industry to private sector competition. A more competitive market, in turn, tends to bring about lower prices and better service. To be fair, there is an underlying economic argument, of sorts, for government production of telecoms and other public utilities. The natural monopoly argument, according to which one firm can produce certain goods at lower average cost than two or more firms, implies that monopoly is natural and desirable. A natural monopoly can occur if, for example, an industry requires very large capital investments such as on telephone lines. Building a second telephone line would be duplicative and costly…

Some in the low-tax, small-government crowd believe that the less regulation, the better for private enterprise, entrepreneurship, and overall economic performance. Yet nothing could be further from the truth. What is required for a good soccer match or a good basketball game is not an absence of referee, but a good referee with a solid knowledge of the rules, along with a willingness and ability to enforce the rules fairly and decisively. There is a presumption among some right-wingers that privatization will automatically lead to improved efficiency, lower prices, and other economic gains. But in the absence of a sound regulatory framework, neither consumers nor economy at large benefits from the transfer of ownership from the government to the private sector. For example, when India privatized its airports, the result was a sharp increase in landing fees, which had a detrimental impact on air traffic. In this case, the result of privatization is simply the replacement of a bad public monopoly with an even worse private monopoly…

It is almost impossible to overstate the central role of competition in economic growth and the material progress of mankind. In particular, competition drives entrepreneurs to constantly innovate and to produce new and better products and technologies to capture the hearts and dollars of consumers. The bewildering variety of goods and services we observe in a successful capitalist economy is testament to the power of competition. Conversely, the drab uniformity and bareness of a Moscow supermarket in the Cold War days resulted from the utter lack of competition. Under capitalism, the central role of the government is to referee the competition between private sector firms, so that the best firms win and deliver the best value for consumers. Competition is basically a dynamic — over time — concept rather than a static — at a single point in time — concept. Unlike a football match, which ends after 90 minutes, or an NBA (National Basketball Association) basketball game, which ends after four quarters, the game of competition never stops…

Sound and effective regulation is absolutely indispensable for creating a level playing field for firms to compete vigorously with each other on the basis of price, quality, and technology. Yet, as is always the case, too much of a good thing can be bad thing, a very bad thing indeed. Here the anti-government crowd has a much stronger case against the government. Anybody who has ever started his own business knows fully well that overregulation and excessive red tape are major hurdles to doing business. There are so many other things one has to do to start a business besides filling out forms, applying for licenses, and handling other administrative matters. Obtaining a bank loan, finding reliable suppliers, hiring good workers, identifying a suitable store location, and the list goes on and on…

Due to lack of jobs and economic opportunities, which, in turn, is a result of an absence of a dynamic, self-sustaining, job- and wealth-creating private sector, the government becomes, in effect, the employer of last resort. Bloated public sectors bulging with redundant bureaucrats with too much time on their hands inevitably spells trouble for the private sector. Did you ever wonder why getting your passport stamped at the airport immigration counter seems to take a longer time the poorer the country? The explanation is simple: the redundant bureaucrat feels dispassionate about his job and perhaps looks for a bribe on the side. Harassing the private sector to justify their self-worth is a favorite pastime of these bureaucrats. The all too predictable outcome is a growing horde of bureaucrats and mountain of regulations squeezing the life out of a sick and declining private sector which, in turn, strengthens the role of the government as the employer of last resort. In countries blessed with natural wealth — e.g. Saudi Arabia and the other petrostates of the Middle East — government jobs are essentially a costly form of welfare benefits. In less fortunate countries, the proliferation of regulations is typically accompanied by pervasive bribe-seeking and bribe-taking…

Many foreigners express a deep sense of wonderment and admiration at the ingenuity, resourcefulness, and creativity of entrepreneurs who succeed against all odds in countries that impose prohibitive barriers against private enterprise. A classic example of such a country is Nigeria, one of the world’s top producers and exporters of crude oil. The West African country managed to squander hundreds of billions of its immense oil wealth over several decades through continuous misrule. While Nigeria is hardly alone in suffering from uninterrupted bad governance, the massive scale of incompetence and corruption — wholesale theft is the most accurate description — is mindboggling. Nigeria has to import most of its gasoline despite being a large oil exporter, due to lack of refining capacity. Most damningly, ordinary Nigerians have enjoyed almost no benefit from their country’s huge oil wealth, all of which has been captured by a small clique of top government officials and their cronies…

Even the most fervent proponents of the market or, equivalently, the most ardent opponents of government intervention in the economy, would accept that there is a legitimate economic role for the government. In particular, we have seen that the role of the government as a fair and effective referee of competition between private sector firms is critical to even the most laissez-faire market economy. A fair and effective referee helps to ensure that the best firm — in other words, the firm that delivers the best value for consumers — wins the game of competition. The level playing field drives forward the dynamic competition that propels entrepreneurs to create new and better products and technologies, and relentlessly lifts living standards and human well-being. We cannot overemphasize the critical importance of the government’s referee role, but it is by no means the government’s only role in a market economy…

One example of a smart solution to environmental problems is Singapore’s electronic road pricing (ERP) system. The system is only partly aimed at environmental protection since its primary objective is to ease traffic jams in the super-rich Asian city-state. The risk of traffic congestion in Singapore, as in other cities around the world, peaks in the morning, when workers move from the suburbs (or outer parts of the city) to their downtown offices, and in the evening when workers go home. At the same time, emissions from cars cause greater damage to air quality when they are clustered together, for example during rush hour. Singapore’s ERP system charges motorists for entering the downtown during peak hours. As its name suggests, the system relies on electronic sensors which automatically deduct a peak hour charge from a motor vehicle whenever it enters the restricted zone. The system is ingenious because it precisely targets the problem — too many cars in downtown during peak hours…

Market failure such as environmental destruction provides a clear-cut rationale for government intervention in a market economy. The market generally works, but not always, and in those cases government intervention can produce a better outcome. One shudders to think of what a satellite photo of the Amazon rainforest would look like today in the absence of the Brazilian government’s forceful and effective measures to slow down deforestation. One particular form of market failure is that the market fails to produce or produce too little of certain goods that improve society’s well-being. Such goods are called public goods, which refer to goods consumed by all members of the general public, as opposed to private goods which are consumed by individuals for their own private enjoyment. My consumption of a private good — e.g. a Big Mac [although the health conscious might view the iconic burger as a bad rather than a good] — directly reduces your consumption. On the other hand, my consumption of a public good does not reduce your consumption…

Health care is another activity in which governments around the world are involved, to varying degrees. In some countries, the government is in the business of providing health care, and in some other countries, the government does not provide health care but provides health insurance. It is not obvious why the government should be in the health care business or health insurance business. After all, when I consult a doctor, receive treatment and medicine, or undergo a heart bypass surgery, I am the one who benefits and the only one who benefits. In that sense, the health care business is no different from the automobile business or the perfume business or the laptop business. One argument for government intervention in health care is that a society where everybody is healthy benefits all members of society, for example by preventing an epidemic of contagious diseases. Therefore, the government should provide health care to all, or so the argument goes. It is a lame argument…

However, there are compelling grounds for government support for education and health care. In fact, as explained earlier, public education and health care are the best uses of tax payers’ money since they promote equality of opportunity — i.e. level the playing field for the poor. They reduce the income gap between the rich and the poor, and promote economic growth. This explains why governments around the world support and, in some cases, provide education and health care. But it is important to remember that the government too has finite resources, just like households or companies. After all, the amount of taxes paid by tax payers is finite. What this means is that the government has to make some tough choices when it comes to spending tax payers’ money, even on education and health care, the best use of tax payer’s money…

One especially potent reason for the government to limit its involvement in health care and especially education is quality. Many well-to-do parents in high- and middle-income countries have been sending their children to private schools for years. They do so despite paying the taxes that finance the public schools. The reason is simple — the often-abysmal quality of public education. Since education is such an important determinant of success in life, parents are absolutely rational in giving their children the best possible education, if they can afford it. More often than not, avoiding public schools is not merely a matter of avoiding second best; instead it is avoiding the unacceptable, abysmal worst. In some public schools, there are even legitimate concerns about the safety of their children, let alone how much they learn. Sending those children to private schools is not just a matter of giving them a better education; it can be a matter of keeping them safe and alive…

Yet the government’s production of goods and services is not limited to goods and services for which there are at least some plausible economic grounds for a government role. Governments around the world produce a bewildering variety of goods and services, many, if not most, of which leave us scratching our heads and wondering why the government, rather than the private sector, is producing them. As pointed out earlier, the case for government intervention is greatest for pure public goods such as national defense or police forces. Even here the government sometimes fails miserably — notice the initial failure of the Iraqi armed forces to protect its own citizens from the advent of the jihadist group IS (Islamic State) which took over large swathes of Iraq, including the second largest city of Mosul, before they recovered to defeat IS and reassert control over lost territory. Perhaps the best definition of a failed state is a state that fails to provide even the most basic services, such as a minimum level of protection from violence…

Going back to the issue of government production, the tentacles of government production often extend to a wide range of goods and services well beyond those for which there is any remotely plausible justification for government production. For example, until quite recently, many governments around the world, including those in rich countries, owned and ran the telecoms and airlines industries of their countries. Many still do. Yet it is not obvious, even remotely, why the government should be in the business of flying passengers and cargo or in the business of connecting people via mobile or fixed line telephone services. It is no accident that government-owned airlines, the French national flag carrier Air France to name just one, make losses year after year after year, yet they keep on flying. In September 2014, when the airline was barely emerging from almost a decade of losses, Air France pilots went on a two-week strike, forcing the cancelation of 8,500 flights and disrupting the travel plans of more than 1 million passengers, and costing the airline more than US$400 million. More recently, in May 2018, the airline’s chief executive resigned in response to the trade union’s impossible wage demands which made the airline unmanageable. What keeps unprofitable, inefficient state-owned airlines flying in the face of seemingly endless losses are government bailouts financed by tax payers…

Unlike the private sector, where hiring and firing workers ultimately depends on their productivity — i.e. how much they contribute to the company’s profits — public sector employment often depends on political considerations. More specifically, political leaders, whose top priority is to maximize votes rather than profits, are reluctant to fire workers because doing so creates a political backlash and costs votes. What is more, in many countries around the world, not only in poor countries but even in many rich countries, a job in the public sector is a prevalent form of political patronage, doled out as gifts in exchange for political support. Horror stories abound — dead people collecting government salaries or pensions, infants and children doing the same, so-called government workers — so-called because they do not do any work whatsoever — drawing salaries for two jobs while not even bothering to show up at either, and so forth. The amount of wasted, misused and stolen tax payers’ money is often staggering…

The consequences are predictably toxic, especially for students, in both advanced countries such as the US and developing countries such as Mexico. In both groups of countries, public school teachers are the single biggest obstacle to education reform. Good teachers who can effectively communicate knowledge to their students are indispensable for good schools. Top-class computer labs, science labs, gyms, and other facilities all help make learning more enjoyable, but they are simply no substitute for knowledgeable, dedicated teachers who want to teach and who are good at teaching. Online teaching, videoconferencing, and other remote teaching platforms have come a long way but they will never be the same as in-person classroom teaching. Yet ironically teachers stand in the way of better schools and a better education. In the US, for example, politically powerful public school teachers oppose education reforms tooth and nail in order to protect their narrow self-interest…

Public education matters greatly not only for equity — i.e. the income gap between the haves and have-nots, or how fairly the pie is divided up among the citizens of a country — but also for economic growth — i.e. how fast the size of the pie grows over time. The larger the pie, the more there is to be divided up between all citizens. Imagine two countries which are identical in every respect except the skill and knowledge level of their workers. For example, suppose in one country, all workers know their ABCs and 123s while only half the workers do in the other country. Needless to say, the country where all workers are literate and numerate will be far richer than the country where only half the workers are. More generally, human capital — i.e. the skills and knowledge of the workforce — matters at least as much as, and probably more, much more than, physical capital — i.e. factories, machines, and roads — in determining a country’s living standards. For example, Germany and Japan were reduced to rubble at the end of the Second World War, but were able to rebuild their economies quickly due to high levels of human capital. The biggest contribution of the government to any economy, rich or poor, is to provide high-quality public education…

Our discussion so far suggests that the private sector is inherently better at producing goods and services than the government. Common sense alone tells us that entrepreneurs motivated by the desire to make money are better at producing goods and services than bureaucrats who face no such compelling incentives. With a few exceptions such as national defense, this is generally true. While Ronald Reagan and his hawkish national defense policy are widely credited as having ended the Cold War, the West’s victory was due to its vastly superior economic system. It was the night-and-day contrast in material well-being between the two sides of the Iron Curtain, not tanks and fighter jets, which brought about the downfall of the Berlin Wall, the Soviet Union, and communism. Once the masses on the wrong side of the Iron Curtain saw how the masses on the other side lived, it was curtains for the Iron Curtain. Capitalism is such a patently superior system for producing goods and services and delivering higher living standards than socialism that it needs no repetition here…

However, industrial policy was just one component of a package of sound policies — for example, balanced government budgets, large infrastructure investments, and heavy investments in education and human capital — that the East Asian countries pursued. It is the entire package of growth-friendly policies that fostered growth rather than just industrial policy. Indeed the empirical evidence on the impact of industrial policy on East Asia’s economic performance is mixed at best, with some studies finding a beneficial effect, others a harmful effect, and yet others no effect. The lack of firm evidence in favor of industrial policy is hardly surprising. In fact, even in the absence of any sophisticated analysis by economists, it is clear that industrial policy is nonsense. Common sense alone suggests that industrial policy makes no sense. More precisely, there is a gaping hole in the basic logic of industrial policy — i.e. risk-averse government bureaucrats, rather than risk-taking, profit-seeking businessmen, determining which industries to invest in. In fact, the hole is so gaping that it would stump even the most ardent supporters of industrial policy. This fatal logical flaw casts serious doubt on whether even the very concept of industrial policy is meaningful or sensible…

A more recent example of visionary leadership teaming up with an effective civil service to transform a country comes from Turkey, where Recep Tayyip Erdoğan served as the prime minister from 2003 to 2014 and is currently serving as president since 2014. Through forceful leadership and sound economic policies, Erdoğan has fostered entrepreneurial dynamism, catalyzed rapid economic growth, and catapulted the country into the global limelight after a long period of decline. Turkey, the proud heir to the Ottoman Empire, one of the most powerful empires in human history, is finally beginning to fulfill its potential and becoming a force to be reckoned with. The Turkish renaissance is perhaps best epitomized by the emergence of Turkish Airline as Europe’s top airline. Closely related to that, Istanbul’s Ataturk airport has emerged as a global air hub, one of the best-connected airports in the world with flights to all corners of the world. It is true that a sharp slowdown of growth since the global crisis, growing authoritarianism, festering Kurdish insurgency, and a coup attempt is taking some shine off the Turkish miracle but nevertheless, in the broader scheme of themes, Erdoğan made Turkey relevant again…

To put it mildly, the double standards and hypocrisy of Western critics must be sickening to the survivors of the Rwandan genocide. This is not to say that the Kagame government must be given a free pass, especially for its increasingly authoritarian tendencies, but everything has to be put in proper perspective. Moreover, the proper perspective is that Rwanda is one of the best governed, if not the best governed, countries in Africa. There is progress and there is hope in Rwanda, which is more than can be said for large swathes of Africa. Ask the citizens of the many misgoverned African countries where the only hope for a better life for long-suffering citizens is to trek across the vast Saharan desert and, after that, risk life and limb to cross the Mediterranean in rickety, overcrowded boats to reach Europe. They would surely trade whatever corrupt, incompetent elite that is misgoverning and bankrupting their country for a Kagame-style government that gets things done and delivers visible progress…

Foreign aid can clearly help African countries, and foreign aid has done a world of good in Africa and elsewhere. It has saved millions of Africans from starvation, and saved millions from deadly tropical diseases. It has alleviated untold amount of human misery and suffering. However, as the hundreds of billions of dollars of wasted, misused, and stolen foreign aid over several decades show, it is ultimately good, honest, effective African governments that will ensure that foreign aid is used to build new roads, schools and hospitals rather than siphoned off to the Swiss bank accounts of big shot politicians and ministers. Even the most ardent advocates of foreign aid would accept that too many foreign aid dollars that are transformed into Mediterranean villas, Rolls-Royce limousines, and yachts of corrupt, greedy African officials who do absolutely nothing to improve the lives of ordinary Africans. Foreign aid works only when good governments put it to good use. Therefore, the impact of foreign aid on Africa’s development, like Africa’s development itself, ultimately depends on Africans themselves…

But Africa is certainly not alone when it comes to lousy governments that waste foreign aid. More generally, it would be completely unfair to single out Africa for incompetent, ineffective, and corrupt governments that are unable or unwilling to improve the everyday lives of their citizens. In many countries of the developing world, hope is an awfully precious commodity, especially for the 99% of the population who are not part of the kleptocratic political elite that plunder their countries for their personal gain. Just as lack of hope for a better life drives Africans to cross the Sahara and take rickety boats across the Mediterranean, the same lack of hope for a better life drives Middle Easterners to flood into Europe either via the Mediterranean or over land across Turkey and the Balkans. The fundamental cause behind the influx of Middle Easterners into Europe is not Western imperialism or neocolonialism or thirst for oil or some ominous Zionist–Israeli plot or global anti-Muslim paranoia or anything else…

More generally, it would be helpful if Westerners judged Third World governments not from the absurdly narrow and unrealistic perspective of their own countries, but based on the far different realities of the Third World. It is simply absurd to apply the perspective of the First World — where middle-class families ponder the benefits of having three cars rather than two — to the desperate on-the-ground realities of the Third World — where millions of malnourished families aspire to three meals a day rather than two. Most Westerners never set foot on a developing country and those that do often only see the poshest downtown part of the capital city, staying in a Hilton or Sheraton. Be that as it may, it would be useful if they educated themselves about the grim realities of the Third World before they start lecturing to the Third World. Most things they take for granted, such as running water or reliable electricity or schools and hospitals, are unavailable to large swathes of the population in the Third World…

The lack of visionary leadership at the top explains why many of the world’s poorest countries never make it to even first base. A never-ending succession of corrupt, ineffective, and morally bankrupt presidents and prime ministers whose sole interest is to plunder their countries and fatten their Swiss bank accounts explains why those countries, especially in Africa but also elsewhere, never leave the batter’s box. By the way, the disturbing tendency of many third-rate leaders of poor countries to hang on to power — e.g. Robert Mugabe of Zimbabwe, widely credited with turning one of Africa’s most promising countries into one of its worst basket cases — is most definitely not motivated by any noble desire to serve the citizens of their countries. Instead, it is motivated by the selfish desire to plunder their countries for as long as possible. If you ask any Zimbabwean or the citizen of any similarly wretched country about whether public service is the main motive for their leaders’ longevity in office, you will be laughed off…

It is striking how one finds hard pressed to name a single visionary leader from countries that are in seemingly endless decline — e.g. Argentina — or countries which consistently underperform — e.g. Venezuela. Evita Perón may be the heroine of a nice musical and “Don’t cry for me, Argentina” may be a nice line in a nice musical, but Argentines have absolutely no reason to cry for her or her equally underwhelming husband Juan Perón. Their legacy to the country is that and only that, a nice musical with a nice line. And, their present-day spiritual successors, ex-President Cristina Fernández and her late husband and ex-President Néstor Kirchner, have been equally underwhelming. Both the Peróns and Kirchners are simply part of a long line of uninspiring, mediocre, unimpressive, and most definitely NOT transformational or visionary Argentinian leaders. They are leaders who merely stood by and did absolutely nothing to stop the century-long stagnation and decline of their country. In fact, their misguided populist policies contributed a great deal to the decline of Argentina…

The single most significant global economic trend since the second half of the 20th century has been the phenomenal rise of China. The country has transformed itself from a stagnant, over-populated, hopeless basket case to the world’s most dynamic, fastest-growing, most exciting major economy within a generation. China overtook Japan to become the world’s second largest economy in 2010, and is on course to overtake the US to become the world’s biggest economy in the foreseeable future. Its GDP or gross domestic product, the total amount of goods and services produced by an economy in one year, exploded from US$186 billion to US$12 trillion between 1978 and 2017. The size of the Chinese economy thus grew by an astonishing 65 times in 39 years. It is as if a dwarf morphed into a giant within a generation! One would be hard pressed to think of a more powerful testament to the unparalleled superiority of capitalism as an engine of economic growth and progress than the stunning economic transformation of China. As a result, more than a billion Chinese enjoy far more productive, abundant, and humane lives…

As you might have already guessed, China’s explosive economic growth was set off by a transformational leader, Deng Xiaoping. More precisely, his momentous decision in 1978 to free the Chinese economy from the shackles of central planning — i.e. government bureaucrats deciding how much of what gets produced by which firm — and allow market forces to play a much bigger role in how resources are allocated. That unleashed the colossal entrepreneurial energy of the Chinese people which had been artificially bottled up for decades by Mao Zedong and his fellow comrades who were busy indoctrinating the masses with socialist — more accurately, Maoist or mass peasant egalitarian — ideology, wrecking the economy in the process. As noted earlier, the Chinese are by nature an exceptionally entrepreneurial lot, and this is probably the single most common denominator linking the Chinese and the Americans, another famously entrepreneurial lot. When Deng decided to endorse the profit motive and private enterprise by uttering the famous, game-changing dictum “To get rich is glorious,” the Chinese entrepreneurial genie was out of the bottle and the rest, as they say, is history, and the Chinese economy took off like a supersonic rocket…

Somewhat perversely and completely inaccurately, China’s economic success may be seized upon by anti-capitalists who advocate a larger role for the state or the government in the economy, and a correspondingly smaller role for the market or the private sector. The government continues to play a much larger role in the Chinese economy than in full-fledged market economies such as America. For example, when Beijing dismantled socialist commune farms in 1978 in one of the most important market-oriented economic reforms and gave farmers the freedom to manage their individual plots of land, it kept ownership of land and gave the farmers 30-year leases. State ownership of farm land is just one example of the state’s dominance of many parts of the economy. The visible hand of the government still remains all too obvious in China, and China has a long way to go before it becomes a market economy…

In short, China’s recipe for economic success is not a new alternative model which combines capitalism with an extensive economic role of the government — a model popularly known as state capitalism — but good old-fashioned, muscular, profit-driven, risk-taking capitalism fueled by individual greed for material gain. Common sense alone tells us that “state capitalism” is an oxymoron. Government bureaucrats may be good at lots of different things, but creating wealth and jobs is not one of them. This is true for even the most capable, honest, hardworking bureaucrats who work their tails off for the public good. The reason is that wealth creation is not, and never will be, part of the government bureaucrats’ job description. If a bureaucrat was any good at taking risks and making money, he would not be a risk-averse bureaucrat in the first place. He would be out in the real world, taking risks and making money, creating wealth and jobs in the process…

China is by no means the only successful developing country that combined a strong state and vibrant market forces to achieve rapid economic growth on a sustained basis. In fact, some might argue that the blueprint for China’s growth strategy was laid out by two other highly successful East Asian economies — South Korea and Singapore. Those two countries started industrializing much earlier than China and as a result, they are much richer than China. Singapore is one of the world’s richest countries although one may question the relevance of the Singaporean experience for China. After all, Singapore is a small city-state of 5 million people while China is a continental country of more than 1.3 billion people. Singapore would not even be one of the biggest, top-tier cities in China. South Korea, on the other hand, is a real country of 50 million, although its land area is relatively small, about the size of Iceland or Kentucky. Nevertheless, Chinese policymakers have looked at both countries as role models to follow and emulate…

South Korea also offers false hope to believers of state capitalism, but for a fundamentally different reason — industrial policy, which refers to extensive government interference in the allocation of resources. In any economy, resources such as capital and labor are scarce and finite. In a market economy, those scarce resources flow according to demand — if consumers buy more cars, more machines and workers will flow to the auto industry. Broadly speaking, industrial policy means that the state, rather than market demand, dictates the allocation of resources. That is, government bureaucrats identify promising firms and industries, and direct resources toward their favored firms and industries. Under industrial policy, the government rather than the market picks winners — which firms and industries prosper — and losers — which firms and industries shut down. South Korea, and Japan earlier, are sometimes viewed as having actively and successfully pursued industrial policy…

To sum up, the experiences of South Korea and Singapore do not, in any way, shape or form, suggest that government bureaucrats can substitute private sector entrepreneurs as the engines of economic progress, and creators of jobs and wealth. Only an extremely biased interpretation of the experiences of the two exceptionally successful countries, among the rare group of countries that went from Third World to First World, would produce that conclusion. This is not a knock against South Korean and Singapore government bureaucrats, who are among the world’s best. But taking big risks, making bold decisions, and thinking outside the box are not part of their DNA or job description…

In short, even in developing countries with the best governments, such as South Korea and Singapore, run by honest and capable government bureaucrats dedicated to improving the lives of their citizens, such as from the aforementioned countries, it is ultimately the private sector that creates jobs and wealth, and drives the economy forward. It is a pipe dream for developing countries to believe that good government alone can transform them into the next South Korea or Singapore, in the absence of a productive private sector. Where there is no private sector to speak of or only an embryonic private sector, it is the government’s job to grow and nurture a dynamic and efficient private sector, for example, by investing in physical infrastructure such as roads and electricity and social infrastructure such as schools and hospitals that benefits all firms and industries. But the government, even the best government, can only be a Steve Kerr, never a Michael Jordan, if the economy is to grow and prosper…

Silicon Valley, that globally admired paragon of American capitalism, is the ultimate testament to the superiority of the private sector and individual greed over the government and bureaucratic risk-aversion in creating wealth and jobs. Paper-pushing bureaucrats could not have created Silicon Valley if their lives depended on it. Apple, Google, Amazon, Microsoft, and eBay are all brainchildren of dynamic, innovative, creative, risk-taking, profit-seeking entrepreneurs, not some bureaucrats sitting in their cozy offices, bored out of their wits and looking for something to do. This is not to belittle the many valuable contributions of government workers, but they should not be in the business of business. In fact, they should get out and stay out. If there is a gold standard for capitalism — an ideal vision of how capitalism should work — it is Silicon Valley, where entrepreneurs compete vigorously with each other, based on new products and technologies, and deliver a great deal of joy and satisfaction to consumers…

Many countries around the world are aspiring to build their own Silicon Valleys. For example, Malaysia has its Cyberjaya, a town with a science park that was set up by the Malaysian government in May 1997 and is located 30 kilometers south of Kuala Lumpur, the capital. The explicit goal of Cyberjaya was to become the Silicon Valley of Malaysia. Even Russia, not exactly a paragon of entrepreneurship and private enterprise, envisions a Silicon Valley of its own. To this end, the Russian government has established the Skolkovo Innovation Center, just outside Moscow. The Center is a huge high-tech research campus which hosts startups and industry. Very few of these Silicon This or Silicon That, or Cyber North or Cyber South, have succeeded so far, and very few are likely to succeed in the future. The common thread running through the often quixotic efforts of countries around the world to create their own Silicon Valleys is the central role of the government…

No discussion of Silicon Valley and future Silicon Valleys would be complete without a discussion of India. The country has probably the largest number of IT experts in the world, which explains the prominence of Indians in Silicon Valley and the global IT industry. The immense concentration of IT scientists, engineers, technicians, and other IT brain power means that India is well-positioned to become the home of the next Silicon Valley. To be sure, India has already enjoyed a great deal of success in the global IT industry, in particular as the world’s most successful exporter of IT services. Furthermore, Bangalore and Hyderabad have emerged as globally important IT hubs, and some Indian IT companies — most notably TCS (Tata Consultancy Services), Infosys and Wipro — have become globally recognized names. But the much bigger question is, given its cornucopia of IT talent, why has not India yet produced its own Apple or Google or Amazon, in other words a world-class tech giant…

India may aspire to be the next China and Narendra Modi may aspire to be the next Deng Xiaoping, but the capitalist revolution is far from complete in China itself. The sooner that China and developing countries that look to China as a role model of “state capitalism”, disabuse themselves from the ludicrous notion that “state capitalism” offers a viable third way, neither capitalism nor socialism, for economic progress, the better it will be for their economic future. Again, China grew so rapidly despite the government, not because of the government. The only part of state capitalism that fueled China’s phenomenal economic ascent was the capitalism, not the state. China itself would grow faster if it further reduced the role of the state in the economy, in particular by reducing the role of state-owned firms, which deprive the more productive and dynamic private sector of scarce capital and labor. Shifting machines and workers from the state-owned firms to the private sector will create more jobs and more wealth, and help China regain its economic momentum at a time when economic growth in 2015 slowed down to its slowest pace in a quarter-century…

The essence of healthy, dynamic, wealth-and job-creating capitalism is risk-taking entrepreneurship and private enterprise. If everybody were content to be a salaried worker, the economy would be permanently stuck in first gear. Even worse, if everybody were salaried workers working for the government, there would be mile-long queues for basic necessities such as bread and toilet paper, nightmares that occurred on a regular basis in Moscow, Warsaw and elsewhere under communism. In the absence of risk-taking entrepreneurship and private enterprise, there would be no plethora of new products, services and technologies, there would be no iPhones, and there would be no material abundance. In short, a world where everybody is content to work for somebody else would be a much poorer and much less interesting world. In fact, such a world would feel like a puddle of stagnant water, listless, lifeless and hopeless…

Within the broader worldwide wave of growing disenchantment with and hostility to capitalism, one industry in particular has been singled out as the root of all evil. That industry is the global financial industry, epitomized by Wall Street in New York and The City in London. Criticism of Goldman Sachs, J.P. Morgan, Citibank, and the financial industry in general has grown louder by quite a few decibels since the Global Financial Crisis of 2008–2009. That crisis originated from the US subprime mortgage crisis and almost paralyzed the US financial system, before spreading like wildfire across the Atlantic and paralyzing the European financial system. In a nutshell, US banks and other US financial institutions were lending large amounts of money to subprime borrowers — i.e. borrowers with poor credit histories and low creditworthiness — to buy homes. To put it bluntly, the banks were giving out mortgage loans to homebuyers who should not be buying homes…

In addition, there is some truth to the argument that TARP (Troubled Asset Relief Program) paid for itself, which means that it cost the US government and the US tax payers nothing in actual money. While the precise estimates vary, there is general agreement that the US government recovered all or most of the money it lent to financial institutions, which were able to repay their loans much sooner than expected. Many banks, including J.P. Morgan Chase, Morgan Stanley, American Express, Goldman Sachs, and Wells Fargo, fully repaid TARP money. TARP effectively came to an end on 19 December 2014, when the US government sold its remaining holdings in Ally Financial. The popular, widely accepted narrative of TARP is that the US government decisively and forcefully rescued the US financial institutions at a time when they were on the brink of collapse, at almost no cost to the US tax payers…

If you think about it, Wall Street’s self-serving argument that it is too important to fail — the argument with which it extorted a multi-billion dollar bailout package out of the US government and US tax payers — reveals an unbelievable degree of arrogance, self-importance, and condescension. Following the logic of Wall Street’s self-serving argument, striking subway operators who are demanding 100% wage hikes should be granted every penny of their exorbitant wage demands. After all, public transportation is indispensable for the smooth functioning of large cities such as New York, London, or Tokyo. Those cities are thrown into utter chaos whenever public transportation workers go on strike, costing millions of dollars in economic damage. By the same token, policemen, firemen, teachers, doctors, and a whole host of other occupations are also indispensable, and their every demand should be humored by the government and the general public…

The preceding discussion should make it abundantly clear that poorly regulated, greed-crazed financial systems can cause serious damage to the economy. The Great Depression, which was initially triggered by a stock market crash and later exacerbated by a massive wave of run on banks by depositors desperate to get their money before the banks went out of business, painfully illustrated the scope for colossal damage. A frenzy of greed-driven financial speculation drove up stock prices to unsustainably high levels, and it was only a matter of time before they came crashing down to earth. The failure of the US government to decisively help the banks made things much worse. Similarly, the greed-driven wave of so-called financial innovation — the kind of innovation that tries to repackage garbage into gold — that preceded the Global Financial Crisis devastated the global financial system and severely disrupted the flow of credit to the real economy. Thankfully, the US and the rest of the world learned well the lessons of the Great Depression, and intervened boldly and forcefully to shore up the banks, averting a re-run of that apocalyptic horror show…

Nevertheless, demonizing the financial industry itself on account of financial crisis is equivalent to demonizing the automobile industry itself on account of automobile accidents. Finance delivers enormous benefits to society notwithstanding financial crisis, even catastrophic ones such as the Global Financial Crisis, just as the automobile delivers enormous benefits to society notwithstanding automobile accidents, which cause a great deal of human pain and suffering across the world. Therefore, radical solutions to financial crisis, such as wholesale nationalization of the entire financial system, are unlikely to work. Government bureaucrats are not good at, in fact they are terrible at running business, and there is no reason why banks should be an exception. Even worse, state ownership of banks and other financial institutions will channel credit toward state-owned firms or politically well-connected private firms at the expense of more efficient firms. This is exactly what we observe in China, for example. In short, private banks pose plenty of risks and problems for the economy, but replacing them with state-owned banks is most definitely not the solution…

While the aforementioned structural factors played a major role in the decline of real interest rates which, in turn, fueled investment in financial assets and the expansion of the financial industry, another key culprit was monetary policy. More precisely, monetary policy was too loose prior to the Global Financial Crisis, unleashing a flood of money into the financial markets and property markets. The crisis was, in short, the predictable result of too much money searching for profit and the consequent fabrication of profit opportunities. Where on earth, pray tell me, is there a profit in lending mortgage loans to subprime borrowers who should not be buying homes? There is perhaps a case for the government to provide low-cost social housing for those borrowers, but the only possible profit opportunity in this scenario is a fabricated, manufactured profit opportunity, the kind that ends up in asset price bubbles and crisis…

A Green Valley or a Silicon Valley for startups that specialize in products and technologies that help to protect the environment, is more than just a pipe dream. There is a widespread belief that there is a difficult tradeoff between economic growth and environmental protection. That is, a country can achieve a cleaner environment only by sacrificing some growth or, conversely, a country can grow faster only at the cost of higher environmental costs. Many businesses view environmental regulations as a burdensome additional cost, which is why they tend to oppose those regulations. But upon closer thought, the growing demand for a cleaner environment also presents opportunities for businesses. In particular, since environment-friendliness is now a key dimension of competition, entrepreneurs and firms that produce greener products will gain market shares at the expense of those that do not. Moreover, just as demand for faster and better transportation gave rise to the railway, automobile and airplane, we can expect the demand for cleaner environment will give rise to entirely new products and industries, fostering growth in the process. Green may be good for growth, after all!…

Given the growing mountain of serious problems plaguing the world economy, it is easy to be pessimistic about its future prospects. The world’s banks seem prone to catastrophic crisis, as evident in the Global Financial Crisis which almost brought the world economy to its knees and precipitated a repeat of the Great Depression. The world was perilously close to an economic and financial meltdown which would have caused untold human misery and suffering. Moreover, the income gap between the rich and the poor seems to be growing ever wider. While the top 0.01% is drowning in a sea of money, 99.99% of us are struggling just to make ends meet. Extreme poverty continues to enslave large swathes of mankind, especially in Africa but also elsewhere. The prospects for gainful unemployment are growing increasingly bleak for youths, in advanced and developing countries alike. Climate change threatens the very future of mankind. And the list goes on and on…

The following section is included:

• INDEX