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Contributing Author Marina Vasilyeva, MIB 2013

Is capitalism in crisis? – this question posed by Bhaskar Chakravorti, Senior Associate Dean of The Fletcher School hung in the air of the Grand Hyatt New York as attendees at the Tufts Financial Network event on March 7, 2012 sat, eager for the panelists’ response.

Panelists Michael W. Klein A11P, Clayton Professor of International Economic Affairs at the Fletcher School; Amar Bhidé, Thomas Schmidheiny Professor of International Business at the Fletcher School; Shumeet Banerji, CIO of Booz and Company; and Eileen Aptman J90, CIO of Belfer Management, LLC, each responded with an unwavering no and agreed that the popularity of this question arose more from its alliteration than from its relevance. Capitalism, they insisted, is well and thriving. However, the response was nuanced with the observation that the United States is suffering from internal inefficiency, causing the country’s recovery and long-term outlook to sputter.

Bhidé responded that the real economy (Main Street) functions like a true market economy, including a free-flow of capital efficiently allocated by decentralized decision makers. The financial system, on the other hand, runs through centralized decision makers such as credit agencies, resulting in a skewed misallocation of capital that could lead us to our financial doom – as evidenced by the financial crisis. The panelists were, again, unanimous in their agreement but reiterated that the principals of capitalism remain strong despite the apparent brawn of centrally planned economies like China.

Klein, who recently completed his term as Chief Economist at the U.S. Treasury, added that government continues to play a critical role in an efficient economy. The crisis has exposed self-regulated financial markets as unrealistic, and government has a responsibility to manage these systems. Klein further argued that the government has a responsibility to support homeowners through the fall-out of the crisis – at which point the panel fell out of agreement. Deep dissent rose among the panelists on the topic of housing. Should consumers wallow in their housing misfortune, or should government step in to support them? The expert opinions were irreconcilable, but all could agree on the fact that, regardless of its economic efficiency, households will not consume regardless of the interest rate or economic policy unless they feel some semblance of prosperity through a job or secure assets.

The panelists did purport that education is a critical element of long-term prosperity. Education is a key driver in on-going competitiveness and is a critical component of the United States’ long-term prosperity. Aptman focused on the pay-offs of competitiveness, highlighting it as the key investment criterion in the wake of the European crisis. The intelligent European investments are those that addressed their competitiveness deficit and are therefore, poised for long-term, sustainable recovery. As Chakravorti noted, any conversation about competitiveness must include China. However, Klein quickly countered that China is not the monolith it appears to be. Fissures in government and society are beginning to show through, and its economic indicators are less promising. China certainly has plenty of room for resource misallocation and will continue to be a massive player in the market, but it has a long way to go before it overshadows the global economy. Moreover, Klein emphasized, regardless of China’s position, competitiveness is not zero-sum.

The takeaway from this panel was that critical focus of the U.S. economic recovery must be its own competitiveness as this characteristic, above all others, will foster long-term prosperity. To achieve this objective, the country must address its root causes of economic inefficiency.

Story written by Lauren Gloede, MIB candidate F12, Rishad Sadikot, MIB candidate F12, Marina Vasilyeva, MIB candidate F13

Lauren Gloede, MIB 2012 is pursuing a Master of International Business (MIB) at The Fletcher School focusing on Global Financial Services and International Business Strategy. She most recently worked as an SME banking consultant for XacBank in Ulaanbaatar, Mongolia and as a market entry consultant for a major U.S. bank. Prior to Fletcher, Lauren was an Associate at AllianceBernstein where she conducted portfolio and wealth forecasting analysis for high net worth clients. Lauren received a Bachelor of Arts in Economics and English from St. Olaf College.

Rishad Sadikot, MIB 2012, is a second year Master of International Business (MIB) degree student at The Fletcher School, with a focus on International Economics and International Finance & Banking. He most recently worked as a summer associate in the energy project finance division of Infrastructure Development Finance Corporation (IDFC). Prior to Fletcher, Rishad worked for five years with HDFC Asset Management Company Ltd., which is one of the largest asset management firms in India. Rishad received a Bachelor of Arts in Economics and Business from Jai Hind College, Mumbai University.

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Contributing author Marina Vasilyeva, MIB 2013, is a first-year Master of International Business student at the Fletcher School, pursuing her studies in Strategic Management & International Consulting and International Political Economy. Prior to Fletcher, Marina worked for five years as a director of a Russian telecommunication company’s office in China where she was in charge of manufacturing, procurement, and logistics. Marina received a Bachelor of Arts in Chinese from St. Petersburg State University, Russia.