It’s Time to Love Capitalism Again
WHY YOU SHOULD CARE
Because philosophical objections can and might create an economic disaster.
The author is dean of the NYU Stern School of Business and author of Turnaround: Third World Lessons for First World Growth.
It’s been said that capital goes where it’s loved.
In our Match.com century, investors’ options have multiplied now that more and more once-closed countries are opening their arms to welcome foreign capital. Today, for example, Prime Minister Narendra Modi actively courts foreign multinationals to “Make it in India,” a shift from years of fury over foreign investment; Mexico has become a more welcoming place to do business with millions of manufacturing jobs and thriving innovation centers.
But neither love nor economics is ever simple. We may be on the verge of a nasty breakup with capitalism. Why? It started with understandable outrage over income inequality. Think of Occupy Wall Street or French economist Thomas Piketty’s bestselling Marxist-revivalist tome Capital in the Twenty-First Century. Think also of the ire over corporate tax inversions — if a company considers merging with a foreign corporation and moving its headquarters outside the country, it gets vilified as “unpatriotic.”
What no one is saying is this: We need more jobs — and capitalism creates them.
Although well-intentioned (after all, what good conscience does not wish for greater equality?), there’s a real economic danger posed by the anti-capitalism movement. It puts us on an extremely costly collision course with one of the most important economic trends of the next two decades: the explosion of working-age populations throughout the developing world.
What no one is saying is this: We need more jobs — and capitalism creates them. If we continue on this trend of bashing capital and open markets, our labor markets don’t stand a chance.
Between 2015 and 2030, the working-age population in the least developed countries of the world is expected to increase by 2.5 percent per year. Sub-Saharan Africa, led by regional giant Nigeria, is at the epicenter of this trend, but this isn’t purely an African phenomenon. Many economically and geopolitically important developing countries in Asia and the Middle East are already seeing significant increases in their working-age populations.
This year an astounding 1.1 million new workers per month will join the labor force in the least developed countries on Earth — that number will be an even more stunning 1.7 million in 2030. That’s the number of new jobs those countries will have to create. China, by comparison, added an average of 1.1 million workers per month in the decades following the onset of its economic reforms under Deng Xiaoping in 1978. Bluntly, in order to absorb these new workers over the coming decade and a half, developing nations will need to create jobs at almost twice the rate that China did when it delivered one of the most miraculous performances of economic growth the world has ever seen.
Want to hoard capital at home? Consider that economic fortunes of advanced and developing nations are bound together.
The ability of countries such as Egypt, India, Pakistan and Turkey to provide meaningful employment to the millions of youths entering the labor force — especially young men — will determine whether the demographic changes afoot turn out well or spell disaster.
Which is why we must learn to love capital again.
Kickstarter, or other laudable microfinance solutions that raise money for small-scale entrepreneurs in developing countries, can’t be the only answer. Those kinds of solutions, favored by many of the same liberals who decry capitalism, fill a certain need. But they won’t create 1.7 million jobs a month. The best hope lies in additional low-cost, large-scale manufacturing hubs — the kind of manufacturing investment that is the specialty of the maligned major multinationals.
But manufacturers won’t build or maintain factories abroad if they are punished, so we’d do better to revise the tax code so that decisions about whether to locate production at home or abroad are based not on evasive loopholes but on what makes the most economic sense, in broader terms.
Possessive types who want to hoard capital at home should consider that the economic fortunes of advanced and developing nations are tightly bound together. Just recall the global financial crisis, when continued growth in emerging markets buffered the free fall of advanced countries. As advanced nations face aging populations and battered banks, now more than ever the global north and global south need one another to succeed.
As for our dating game, we’d do well to stop gambling our best prospects. It’s time to settle down with capitalism once more. If we don’t, our global economy risks not only love but labor lost.
This OZY encore was originally published Feb. 2, 2015.