BY GREGORY DL MORRIS
BOOK REVIEW
What Went Wrong with Capitalism By Ruchir Sharma Simon & Shuster , 2024 368 pages , with notes and index
In What Went Wrong with Capitalism , Ruchir Sharma makes several important points , most notably that the twin policies of endless and essentially free money , and an effectively permanent bailout culture are drowning capitalism in its own excess . He makes strong arguments in support of those theses , so it is odd that he mostly does so in the second section of the book .
Sharma states his case on page six . “ Capitalism has been twisted into an unfair and inefficient form , but not mainly by rules stacked in favor of big companies and tycoons . It has been distorted above all else by governments and central banks pumping more money into the economy than the markets can possibly invest effectively .”
As a 22-year veteran of Morgan Stanley Investment Management and the founder of Breakout Capital , Sharma clearly has an authoritative perspective on that . With a sly reversal of the favorite boogeyman for most conservatives , he continues , “ More than just socialism for the very rich , the underlying issue is socialized risk for everyone — the government extending the safety net beyond the poor to the middle class and the rich , at a pace and scale that have corrupted capitalism with debt .”
Having staked his claim and established a refreshingly forthright premise , however , the very next sentence falls back into the broad generalization that “ bigger government will only magnify the distortions .” And then we don ’ t really get to the meat of the message again until section two .
The first section of the book mostly reiterates common gripes , such as the hoary assertion that over-regulation is stifling innovation . Sharma has a sterling publishing reputation , and such good ideas that he presents clearly , it is a shame he feels he must ride over so much well-trodden ground first . Even if he were just damning free-market tropes with faint praise , we don ’ t need 150 pages of that .
To be sure , there are a few gems in the first section , including “ economic growth is a simple function of how many people are working and how much each worker produces .” That would have been a great opening to a broader exploration of how the explosion of the gig economy and online retailers have distorted the nature of work .
“ Instead of raising productivity and with it economic growth , government money has flooded into financial engineering projects — buyouts , share buybacks and other strategies to boost stock prices , not build anything new ,” Sharma states emphatically . “ In the past , financial markets typically reflected and followed the economy up and down . Now they float only upward , levitating on a magic carpet of stimulus . It is a fine time for the wealthiest investors , who are often of advanced age , but a frustrating time for the working middle class and the young .”
That is a clear and compelling clarion call , and a powerful distillation of what has gone wrong with capitalism . It should be in the opening chapter of the book . But it isn ’ t . We don ’ t get to it until chapter 13 , page 211 .
Sharma opens chapter 14 with this insight : “ If you had to pick one explanation for why so many people are so unhappy with capitalism , the rise of inequality would be a popular choice .
Billionaires make for a fat target . But the fall in productivity is the more subtle and persuasive one .”
He continues , “ When each worker produces more , companies can raise wages without raising prices . The economy can grow without generating crippling inflation . The economic pie can grow steadily for everyone . If productivity is falling , as it has been for the last two decades , more and more people will be fighting for what ’ s left .”
Sharma explains that “ productivity growth is the number that reveals whether capitalism is working . Its broad decline over the last five decades — a period of technological progress — has been called the Solow Paradox , after Nobel laureate Robert Solow .”
That is great stuff , both insightful and beneficial . So why is it buried on page 231 ? Just a few pages later we find the paragraph that should be the conclusion of the entire work : “ Easy money is fueling the rise of two very different symptoms of dysfunction , powerful oligopolies and pathetic zombies [ companies and banks ], and both have a similar impact on the health of the system . They squeeze the life out of small- and medium-size companies , which were once the key drivers of productivity growth .”
Sharma stresses throughout the book that real production — actually making goods or providing essential services — is elemental to a strong economy . He is highly critical of the vast swaths of business that don ’ t actually produce anything , they just exist to move around massive volumes of money .
He is also highly critical of large technology companies . “ If money corrupts , then what Wall Street now calls the ‘ supernormal profits ’ of big tech will tend to corrupt absolutely . Sitting on cash piles in the tens of billions , the tech giants now have myriad options for stifling smaller rivals and undermining the process of creative destruction , which should be eroding their own dominant positions .”
Sharma cites several instances of big tech simply stealing innovations , “ and if the victims dared object in court , they could be easily smothered in motions launched by a large army of lawyers .”
www . MoAF . org | Fall 2024 | FINANCIAL HISTORY 45