Is Capitalism in Crisis?
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.
View more event photos.
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.
An Integrated Approach to Addressing Current Resource Crises
Alumni, students, and professors from the Tufts community descended on The Ritz-Carleton in Boston on Wednesday, April 4 for a networking and informational event entitled Resource Crises: Food, Fuel, and Water Scarcity – The Coming Conflict and Implications for Multinational Business and Finance. Sponsored by the Tufts Financial Network and The Fletcher School’s Institute for Business in the Global Context (IBGC), the event was the last of a three-part series meant to address current global crises, their impacts, and the opportunities they present for learning and change.
Dean Bhaskar Chakravorti, head of the IBGC and its newest creation, Fletcher’s Master in International Business program, moderated a panel which included three well-known Tufts minds: Kelly Sims Gallagher F00, FG03, associate professor of energy and environmental policy at Fletcher; Richard Vogel E05P, A05P, professor of civil and environmental engineering at Tufts and director of the graduate program in Water: Systems, Science, and Society; and Peter Walker, the Irwin H. Rosenberg Professor of Nutrition and Human Security at The Friedman School and director of Tufts’ Feinstein International Center.
The integrated web that ties together food, fuel and water supplies was the recurring theme of the evening as choices in energy policy can have enormous unintended implications for water consumption. Yet, panelists focused on issues surrounding the efficient distribution of supplies that we already have, rather than the expected topic of scarcity.
“Rather than an energy crisis, we have a crisis in terms of human access to energy,” began Professor Sims Gallagher. “Over 2 billion people in the world are without access to modern energy services. Globally, there are enough sources. They are just unequally distributed.”
Food is no different, as we have problems of hunger and obesity, both of which, according to Professor Walker, represent populations which are not “well-fed.”
The same is true for water. “The issue is a common one: distribution,” said Professor Vogel.
Problems arise when you combine globally-determined prices with local markets. Ultimately the system creates a supply and demand mismatch, which has tremendous humanitarian consequences.”We have a problem of how to make a commercial system supply a right,” according to Professor Walker. “If we could figure this out we could solve a lot of problems.”
Dean Chakravorti questioned the panel about how to view the impact of emerging markets, particularly China, on these scarcities.
“I think of China as one gigantic paradox,” said Gallagher. He added,”China is the largest coal producer, the largest coal consumer, the biggest greenhouse gas emitter. But Chinese investments have helped create broad-based supply in both solar and wind, which has benefited the rest of us greatly.”
Questions from the audience were equally thought-provoking and touched on issues of corruption and governance, countries’ comparative policy approaches and negotiation strategies, and population growth. Yet, the topics were not exhaustive, nor could they be.
“We really haven’t thought through all the potential crises to the degree that we need to, because the systems are so complex,” warned Professor Vogel.
“The event only highlights why Fletcher is so useful,” said Jessica Lane F09 of Cambridge Energy Research Associates during the reception which followed.”No issue is separate. The world is integrated, and this is the way we need to think about and discuss it.”
Interesting in seeing more? Click the links below for photos and videos of this event:
Videos
- Resource Crises Introduction
- The Water Crisis, A Humanitarian Issue
- The Fuel Crisis and
Energy Poverty - The Global Food System
- China: A Global Investment Strategy
- China’s 100 Year Plan
- Food as a Commercial Product and a Sublime Right
- Full Video
Contributing author Heidi Packard, MIB 2013 is a first-year Master of International Business student at the Fletcher School, where she focuses on international finance and banking and international business and economic law. Heidi has experience in the fields of corporate governance research, financial services, and strategy consulting. She holds a Bachelor of Arts in Economics and Government from Colby College.