About two weeks ago I posted a piece entitled 'Defending The Indefensible: Nkrumahism’, and most of the people who read it took me to the shed and disembowelled me for my sacrilege of having the guts to say that the patron saint of Ghanaian socialism – Nkrumah was wrong. As I noted in the article, I knew I was threading on dangerous grounds. However, the vitriolic and the shear viciousness of the comments were unexpected. I was rather looking forward to a vigorous intellectual discourse that will help carve a meaningful, but practical epistemological data bank to help shape the knowledge of the nation. It is important to emphasise that I am not an ideologue, and I believe it is healthy to disagree. After all discontent, according an English proverb, is the first step in progress. But after more than 50 years as a nation we should be able to argue intellectually without the emotional baggage that is destroying national discourse. We have to learn to agree to disagree. There is far more things we share in common than the ideas that divide us.

On the other hand, what prompted this follow up was the misconception peddled by respondents who do not understand the financial system of the global economy. One of the most recurring themes is the notion that the current world economic meltdown, which reared its ugly face in August 2007, was the fault of capitalism. This article is tailored to refute this delusion that has been the centrepiece of socialist apologist all over the world. And I will do my best to guide them through the temple of knowledge. I hereby submit that the melt down was caused by the enemies within - socialist who masquerade as capitalist.

Capitalism is like an organism with inbuilt mechanism to protect itself through corrections at the heart of its operation – the market, when it overstretches itself. One of the most important is the phenomenon of losses. Everyone is in business to make profit, but there is also the unpalatable reality of losses when a business model is wrong or the dynamics of macroeconomics changes. With that threat at the back of any businessman’s mind he operates meticulously and cautiously not to overstretch himself or do anything that will jeopardise his business. Now when the losses are removed entrepreneurs lack the incentives to be prudent in their operation and they become reckless and lousy.
Also many people erroneously believe that businessmen in capitalist economy run their enterprise to promote capitalism. Every businessman operates their business for their own selfish interest. But though hard to believe that selfish interest is what keeps capitalism to function effectively. Hypothetically, let’s assume a banker is in business to lend money to home buyers. For him to continue in business he’s got to make sure that the people he lends money to are credit worthy, and have regular stream of income to be able to pay back the loan. Anybody who is wise, and really want to maintain his business will do no other unless it is for charity.
However, in America, the citadel of global capitalism, there are two hybrid companies called Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) whose business operations promoted recklessness in the banking and financial institutions. I used the word hybrid because these companies are not completely private – they are government sponsored. In the latter part of the Clinton’s administration these companies were pursued aggressively to offer loans at lower standards to people who will normally not get loans from the traditional banks. Unfortunately, the Republicans, the guardians of capitalism, headed by George Bush came and looked the other way, and sometimes with tacit compliance, because they all wanted to increase home ownership. What Fannie Mae and Freddie Mac do is purchase mortgages from smaller banks across the country. As these banks sell the mortgages they get money for a thirty year mortgage without having to wait for that period for monthly repayments from their mortgagees to pay off their debt. With the revenue from the sales to these hybrid companies the small banks then have liquidity to create more mortgages to profit from. So the more they offer mortgages the bigger their profit. As a result, credit standards collapsed completely, and low credit ratings called ‘subprime’ mortgages became common. Then the ‘liar loans’ appeared and the most laughable ‘the ninja loans’, which meant no income no job and no assets. Ask yourself the question why would any banker give loans to a client without income, job nor assets? It’s because their losses or risk was insured by the government or socialised as someone cleverly dubbed.
With the lowering of standards for mortgage loans demand for houses increased while the supply side tanked. Then prices began to rise, and finally a bubble was created, which fed on itself. Martin Felbstein, a former chairman of the council of economic advisers in the Reagan administration, estimated that from 1997 to 2006 consumers drew more than $9 trillion from their home equity, which is about six times the total debt obligation of the whole British government. Obviously, all that equity yielded from a bubble, which meant the Americans consumed what they have not produced. In effect, they sucked in funds from all the major economies around the globe in the form of investment into the U.S. housing market with the active connivance of Wall Street based on the implicit assumption that the government will not allow Fannie Mae and Freddie Mac to fail. And of course it couldn’t go on indefinitely when you are investing into a financial system that is growing without a commensurate productivity. So when the bubble burst all these economies got their hands burnt severely, because they were investing their pension funds, individual savings etc., into a bubble. And clearly, when the banks learnt the extent of the damage they became sceptical and scared to offer loans for mundane economic activities such as loans for cars etc., and it created a gridlock leading to the meltdown.

Lastly, to pick on one of the most tired accusations of socialist defenders that capitalism is exploitative. I will joggle their memory through some historical facts. There are many but a couple will do. Capitalist don’t use slave labour. In America it is the industrial capitalist North that wiped out slavery to free black people in the agrarian feudal South. It is the same that obliterated feudalism in Europe. And it is the capitalist Allied Forces that destroyed fascism in Europe and the Far East. Though the Soviets joined them, they did because they were doubled crossed by Hitler.
At the beginning of the last century Argentina used to be the 10th largest economy in the world. But that changed when Juan Peron took over with his socialist policies. The Argentine economy deteriorated to the extent that at a point they had to resort to trade by barter when the peso was destroyed by inflation.
And now a question to those who harbour the absurd and illusionary beliefs that Cuba is a communist paradise whether they will go there for greener pasture? That is the last thought on their mind, yet they always trumpet the last straw notion about Cubans sending us doctors. This is what I will say to them. If the Ghanaian government should use a sizeable chunk of her resources to produce doctors we can also have some in excess to send a few to other parts of the world that will need their services.
The rigs that are sprouting in our own territorial waters wouldn’t have been possible without capitalism save fifty years from now, which by that time the world energy needs would have moved on. In that sense we would have kept ourselves poor needlessly for noting. It is the only system that is able to facilitate transfer of private resources over international boarders that help to spread technology, fresh management skills etc., which we desperately need.

Marx himself admitted that capitalism did improve the lot of European workers. He thought he could do better for them with communism but it has failed. So let us look into the future with capitalism and not delude ourselves that we can make socialism work when it couldn’t flower in any of the countless countries that tried it – only to fall back into the arms of capitalism.

Philip Kobina Baidoo Jnr.
London
baidoo_philip@yahoo.co.uk