(Especially in the context of global pandemic and the paralyzing of global economies in 2020 and 2021)

Take an example of the country that epitomizes capitalism. In the US, >40% prefer to live in a socialist country over a capitalist one. ~53% of women while ~31% of men prefer socialism over capitalism, as per the Harris Poll via Axios (n = 2000 US adults). We observe that fewer than 15% of American CEOs of large corporates are women, influencing partly the firm’s economic progress, which tends to be more capitalist in approach. 35% of all business owners, constituting the majority of them being SMEs, are women, as per the Mastercard Index of Women Entrepreneurs (MIWE). As the size of the firm reduces, it is likely that one would find more incidence of women entrepreneurship. This is true not only of the US and but also globally, in general.

In contrast, China and Russia follow a socialist model of growth, and both are economic superpowers. The question is how progressive they are socially? Take Japan. In a research paper by Yasuo Takeuchi, published in 2014, Japan's Transition from Socialism to Capitalism, Japanese Economy, he rightly points out that, in several areas of state ownership, employment practices, social net for safety for the citizens and general approach to life is deeply ingrained in socialist oriental ethos.

One would also find that the SMEs, especially micro-entrepreneurs, adopt and exhibit more socialist approaches than capitalist ones globally, where the distribution of resources and determination of prices of goods and services are the decisions aimed at benefiting the community and not the individual businesses. Interestingly, micro-entrepreneurs are shown to have longer life spans than large corporates, where the competition is fiercer. Does that tilt the business decision making driven by more socialist approaches? The evidence may suggest such as correlation, but albeit it is a weak one and inconclusive.

The pertinent question is “Do socialist approaches lead to better survival rates, wealth, employment and happiness than capitalist ones among SMEs?”. Embedded in this question are both economic and social objectives of any individual, firm, or nation. 

Nordic countries such as Finland, Sweden, Netherlands, known as ‘social democracies’ are largely capitalist in their livelihood approaches, and they also happen to be happiest consistently. What better measure of social equilibrium than the happiness of people? The evidence of the economic progress in the American economy since 1950s favours capitalist approaches thus far. 

Is it as simple as it looks?

This may change, at least with a reasonable measure, post Pandemic in 2020 and 2021!

These two years will go in the annals of world history as the defining years of the world order since world war II between 1939 and 1945, whether it is economic, political, social, psychological and certainly physiological frames of reference. 

In the context of global adoption of these dimensions, I see the next few years witnessing amalgamations, protectionist, combative and collaborative postures of global superpowers and marginal ones alike. There would be trade wars, tariff protections, cartels of weaker sections of society's economic and social fabric, and rebalancing of the poverty and wealth divide. The skewness will increase, and mental health issues will be recognized more than ever. Amongst the several causalities of the pandemic is the mental health of entrepreneurs and SMEs. 

In times of distress such as the pandemic presented, humans behave in two contrasting ways. First is when they fight for their survival by snatching resources needed to do so from others. In this case, one survives at the cost of the other. In other cases, they help each other if the emotion of empathy, compassion and collaboration is triggered in the face of adversity. Socially engaged humans tend to survive, build and sustain communities, while socially alienated and lonely communities tend to be selfish and fight between each other to compete and win. 

There is a massive need for SMEs, which risk closures and death, to help each other by building what I call ‘group resilience’, which identifies them not as individual(istic) unit identities but as one identity. Across the globe, there is a strong case for bringing socialist principles to the value chains and ecosystems of SMEs, failing which one should be ready to have space consolidate, and that implies millions of SMEs will die. However, the key is to understand the longitudinal assumption. I think it is deceptive to be happy to see SMEs survive with equal but perhaps with unfair wealth distribution. Over a period of time, equality breeds complacency, and lack of innovation as survival anxiety goes down. Such firms may live longer but not richer and happier, both in terms of economic and social progress as Nordic countries have proved to us. 

The wisdom is in using the balance between capitalist and socialist approaches depending on the situation. At this juncture, using socialist principles to SME ecosystem makes sense but we mustn’t make it a permanent habit and change. Enabling the struggling units to stand and be fit needs social principles, beyond which they need to play the rules of a capitalist society, to grow stronger, faster and have a happier life.

Will the future decision makers of the developed and developing world care for capitalism? 

There is already a simmering evidence of millennials losing faith in capitalism, in spite of the evidence of its positive impact on wealth and happiness in the last 100 years. Edelman Trust Barometer’s 2019 study of 34000 respondents in 28 countries indicates a whopping 55% of millennials are losing faith in capitalism. Secondly, women entrepreneurship is encouraged and is on the rise. I mentioned the impact of women ownership on socialist principles of running enterprises at the start of the article. Thirdly with the distress caused by the pandemic in 2020 and 2021, one would be surprised if their faith in capitalism is further damaged. On a lighter note, come 2030, don’t be surprised if an SME lends money at zero cost to its neighbouring competitor to see it survive and declares bankruptcy! 

* Samir Sathe is Executive Vice President, Wadhwani Advantage at Wadhwani Foundation. The views expressed in this article are personal views of the author.