The Future We Could Have
A few years ago, when I first started reading Marx and was eager to use my newfound Marxian lens to diagnose Bhutan, an older, more-well-read friend told me I would have to wait. Bhutan had very little capitalism. He described our political-economic status as a “feudal hangover.”
Not many years have passed since that. But to anyone who was observing Bhutan strictly, the last few years were more like a few decades. The business community piloted these transformational years. Not only are there more firms offering similar services, but also there are more services and products represented than before. The degree of specialization in skills, and the viability of high-retail and high-value-added products, tell us that Bhutan’s economy is advancing.
The final — and most concerning — indicator of this change is the rise of an investment class. To be sure, there have always been Bhutanese with a lot of capital. But up until a few years ago, their preferred method of generating returns was shylocking. Now, it is investment. This particular change is the result of the state passing anti-usury laws, the banks doing better to not give private lenders much room in the market, and finally, the increase in the number of investment opportunities.
Not only are there a lot of public companies to buy stocks of, but there are also many smaller businesses that take investment outside public offerings. All these opportunities are a sign that capitalism has finally come to Bhutan.
This is a crossroads moment, and the road we take from here will take us somewhere very different than the other road. The first is an unequal road.
The “capital” in “capitalism” refers to the centrality of money. Under a capitalist system, everything becomes exchangeable for money. This is how the road looks:
Investments generate returns passively. So that if you start with ten lakhs and invest it in something that generates 20% returns, you’ll have 12 lakhs at the end of the year (we’ll assume the market value of the stock stays the same). You can take the extra 2 lakhs from this venture and invest it in something else. You can keep doing that again and again in a way that maximizes returns and minimizes risk. Other than occasionally checking on the math and changing a few things here and there, investing doesn’t require a lot of extra time or effort. And done the right way, investing can get you rich exponentially.
This isn’t something you can do by running a business or working for a business. The time and energy you have are limited. And you cannot split them up into finer portions and still keep them effective as you can with money. This explains the recent viral meme that said that if you made $200,000 a day every day since the birth of Jesus, you still wouldn’t have as much money as Jeff Bezos. He didn’t make this money with just time and effort. He made the much larger portion of his wealth through capital.
In other words, the passive nature of investments is a big cause of inequality in mature capitalist economies like the US. You can make a living by starting your own business or working as a professional, but to become truly rich, you would need to have capital to invest. So, those with capital can grow richer, while those without have to spend time earning some. This is the first path Bhutan has in front of it.
The other part isn’t that different. It isn’t socialism or communism, or some other anti-capitalist “-ism.” It is capitalism with better community involvement. In this path, there is still the same number of businesses and investment opportunities. The difference is in who gets to be the investor.
We’ll start by introducing a progressive capital gains tax. No tax on any returns you make on investments less than Nu. 50,000. A small tax on the next bracket, and a large one on the one after that, and so on. So that by the time we’re talking about millions or crores in investments, the after-tax returns are marginal. The prevalent savings interest at banks will set the floor on this tax, i.e., the after-tax returns on large investments would still be larger than what they would have made if they’d just kept their money in a savings account.
Naturally, this tax would dissuade a lot of big-time investors from investing large amounts. And that is the intended effect. By keeping them from taking up all the investment opportunities, we give chances for low-volume investors. This is the second thing we’ll have to do: Educate people on financial literacy, and talk about why investing is better than saving money at a bank. Help communities form investment groups so that they’re minimizing risk.
This path would still have the fundamental problems of capitalism, but at least now, the problem of inequality is slightly mitigated. A good way to measure just how deeply problematic a capitalist system is is to ask random people if they or someone in their family own land or businesses. As an economy becomes more capitalistic, the proportion of people saying yes to that question goes down.
Bhutan is just now becoming a capitalist state, so we still have a high proportion of people who would answer yes, but if we take the first path, which I’m concerned we’re leaning towards, then that number will go down very fast. On the other hand, we have the chance to experiment with the second path. And find a way to make work the inevitable capitalist system. And honestly, what would be more Bhutanese than finding the middle path on this age-old question of economic systems?
