Capitalism of today very different from what founders had in mind: Ruchir Sharma

In response to questions about the growing regulatory state and the culture of bailouts, Sharma argued that the balance has been lost.

Investor and noted author Ruchir Sharma said that today's capitalism is very different from what the founders had in mind.

In an exclusive interview to Network18's Zakka Jacob and Bodhisatva Ganguli, Sharma shared his insights on capitalism, which he explores in depth in his new book, 'What Went Wrong with Capitalism'.

Sharma described contemporary capitalism as "distorted," adding that the distortion is fueling disillusionment, particularly among younger generations in the West. He said that it also provides crucial lessons for emerging economies like India.

Sharma said that capitalism in its current form has strayed far from how it was originally conceived. "It’s a very distorted form of capitalism. Leaders such as Bernie Sanders, they call it now socialism for the rich," Sharma explained.

He argued that today’s capitalism involves "socialised risk," a concept that has been increasingly evident across Western systems.

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Sharma’s book, which he says is an "ode to capitalism," addresses the critical issue of why many people, particularly in America— once seen as the beacon of capitalism— are losing faith in the system. "A majority of young Americans today say they would rather have socialism than have capitalism," he said.

"We are moving towards a much more capitalist system...so what is it that we can also learn from what's happened in the West and the disillusionment that the West today is seeing with capitalism?" he added.

Sharma further elaborated that his book offers a "revisionist history of capitalism," tracing its origins in America.

He pointed out that capitalism initially thrived with minimal government intervention. "Government spending as a share of GDP was about 3% of GDP right up until the 1920s," he said. However, the Great Depression led to a significant expansion of government roles, marking a shift towards the "overprotective form of capitalism" observed today.

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In response to questions about the growing regulatory state and the culture of bailouts, Sharma argued that the balance has been lost.

He described the early 20th-century capitalism as "very raw," where there was minimal support for the unemployed. In contrast, the current system is marked by a "culture of constant bailouts" and "constant stimulus," which he believes is detrimental.

"When you have a culture of constant bailouts...you’re keeping alive a lot of deadwood," Sharma said. This environment, he argued, hinders new entrants and benefits entrenched incumbents.

He also stressed on the increasing cost of regulation, saying: "The cost today of dealing with regulation has gone up considerably...so therefore they get bigger."