Capitalism without wings: why capital markets matter

Capitalism is often described as a system powered by private ownership, competitive markets, and the relentless search for profit. Beneath these familiar pillars lies a deeper engine that makes modern capitalism possible: the capital market, especially the stock market. It is where long-term savings become long-term investment, where risk is spread among thousands rather than resting on a few, and where companies gain the financial oxygen they need to expand, innovate, and compete. Without this mechanism, capitalism may continue in form, but not in function. The world we know-of technological leaps, global supply chains, industrial giants, and pension funds-would not exist.

The question then arises: can capitalism survive without a stock market? Yes-it can survive but not progress. It can exist but not modernize. It can breathe but not run.This core mechanism of capitalism is often misunderstood as merely an ideology. It is a precise operational mechanism:

CAPITALISM is an acronym describing the: Capital Accumulation Process In Transforming Actual Labour Into Surplus Monetisation.

CAPITALISM BEFORE CAPITAL MARKETS: Before stock markets, capitalism existed in a primitive form. Medieval Europe and Asia financed ventures through merchant families, wealthy patrons, and informal partnerships. Ships sailed and caravans moved, but everything was limited by the wealth of a few. There was no way to raise vast capital, mobilise savings from thousands, or spread risk widely. That early capitalism was a bicycle on a dirt road-slow, fragile, and easily broken.

HOW STOCK MARKETS CHANGED EVERYTHING: The invention of joint-stock companies and the rise of stock exchanges changed everything. The stock market solved three problems no earlier system could overcome. It allowed companies to raise enormous sums by mobilising thousands of investors. It spread risk widely, encouraging ventures that would have bankrupted any single patron. And it introduced liquidity, enabling investors to enter and exit ownership easily. Liquidity turned the stock market into a democratic engine of capitalism rather than a playground of the wealthy.

FINANCING THE MODERN WORLD: Once stock markets emerged, capitalism exploded in scale and speed. Railroads, oil empires, automobiles, pharmaceuticals, telecommunications, electronics-and today's digital behemoths such as Google, Apple, Amazon, Microsoft, and Nvidia-were born, expanded, and sustained through capital markets. The modern technological world was not merely invented; it was financed into existence.

WHY AMERICAN CAPITALISM DOMINATES: The global dominance of American technology is not merely a triumph of ingenuity; it is the product of Wall Street's unmatched depth and risk tolerance. With more than $50 trillion in market capitalisation, US equity markets provided the launch pad from which Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla raised billions-sometimes tens of billions-in single offerings. No other country has a financial engine capable of tolerating losses for a decade, backing moonshot innovation, and rewarding transformative breakthroughs. Without Wall Street, there would be no iPhone revolution, no mass cloud infrastructure, no semiconductor supremacy, and no modern AI frontier. American technology reshaped the world because American capital markets reshaped what was financially possible.

The United States (US) federal government now receives roughly $300 billion annually from taxes on capital gains and dividends-a revenue stream possible only because Wall Street sustains a $50-trillion market where assets are continuously traded, valued, and monetized. This fiscal oxygen supports everything from defence to Medicare.

Beyond taxation, the depth of American financial markets creates a gravitational pull unmatched anywhere else. More than half of the world's institutional investors-pension funds, sovereign wealth funds, insurance giants, and endowments-hold substantial positions in US equities. Global demand for these assets keeps the dollar strong and borrowing costs low, giving the United States strategic leverage no rival has matched.

Innovation is inseparable from this ecosystem. Venture capital thrives because public markets can multiply its returns. Corporate giants reinvest more than $700 billion annually in research and development because equity markets reward long-term thinking. America's technological supremacy is not only the work of brilliant engineers; it is the result of a financial system designed to fund imagination, tolerate failure, and reward breakthroughs.

WHY CHINA CANNOT SURPASS AMERICAN ECONOMIC POWER: China is often described as the world's second-largest economy, but size is not power. Its stock market appears large only until compared with the US. America's equity market exceeds $50 trillion; China's Shanghai and Shenzhen markets total roughly $10-12 trillion-barely one-fifth of America's scale. China's markets are further constrained by political intervention, capital controls, low liquidity, and limited foreign participation. Foreign investors hold only a low single-digit share of Chinese equities, while foreigners own roughly 18 per cent of US equities-an advantage that keeps Wall Street the world's default risk-capital engine.

Innovation requires tolerance for failure and decentralised risk-taking; China punishes failure and centralises capital allocation. A system that cannot freely mobilise global savings or guarantee investor protection cannot replicate America's innovation ecosystem. China has size, but not gravity. With unmatched depth, liquidity, and global reach, American capitalism operates on a scale China cannot realistically match in the foreseeable future.

The US stock market is also the global benchmark for capitalism. When the S&P 500 rises, asset prices across continents follow; when it falls, capital flees emerging markets overnight. America's stock market is not a domestic institution-it is the world's thermostat for risk and liquidity. Countries without credible stock markets face chronic capital scarcity; those with vibrant ones become magnets for global savings.

CAPITALISM WITHOUT STOCK MARKETS - GLOBAL EVIDENCE: What about countries with no functioning stock market? Afghanistan, Somalia, South Sudan, Turkmenistan, and North Korea lack functional exchanges. Bhutan, the Maldives, and Ethiopia have exchanges with almost no liquidity. These economies rely on informal markets, aid, remittances, or state ownership. None has built significant industries, diversified exports, or generated sustained innovation. Capitalism without a stock market produces survival, not development.

Countries that attempt capitalism without capital markets fall into a predictable pattern: businesses remain small, innovation slows, wealth concentrates, banks shoulder unsustainable burdens, pension systems depend on state budgets, and growth remains constrained by limited domestic savings.

Germany and Japan once relied on banks but now depend heavily on capital markets. China itself built one of the world's largest stock markets because it understood that without capital markets, rapid industrialisation is impossible.

BANGLADESH'S CONSTRAINT: Bangladesh faces the same truth. For decades, the economy has relied heavily on banks for financing, even though banks are poorly suited to long-gestation industrial projects. The outcome has been predictable: weak governance, rising non-performing loans, politically connected borrowing, and chronic pressure on the banking system.

Every successful industrialising nation expands equity markets as growth deepens. Equity is patient capital: it absorbs risk, spreads ownership, and links household wealth to industrial progress. In this sense, equity markets are silent partners in every successful economy.

Bangladesh's stock market, however, remains narrow, illiquid, and un-trusted. The pool of quality listed companies is small, investor confidence is weak, regulatory governance is inconsistent, and market manipulation discourages participation. As a result, the market has never fulfilled its national role of mobilising savings into productive investment.

This is not merely a financial-sector issue but a national development constraint. Without a strong capital market, Bangladesh will struggle to finance industrial diversification, support high-tech sectors, reduce reliance on bank credit, attract foreign investors, or improve corporate accountability.

The economy can still grow through garments, remittances, and consumption, but it cannot transform. It cannot compete in industries that demand heavy investment, long gestation periods, and technological sophistication.

END NOTE: Technically, capitalism can survive without stock markets-but only in a stunted form. Removing the stock market from modern capitalism is like removing the circulatory system from a living body. Some organs function, but vitality fades.

If Bangladesh wants to rise into the next tier-like South Korea, Malaysia, Thailand, or Vietnam-it must recognise what every advanced capitalist economy already knows: capital markets are foundational. A nation without a strong stock market cannot finance its own future; it must borrow it.

The choice before Bangladesh is not whether capitalism can survive. It is whether ambition can. A shallow stock market limits imagination; a deep one expands what is possible. Capitalism without capital markets is capitalism without wings. Bangladesh's future depends on whether it chooses to build them.

Dr Abdullah A Dewan is professor emeritus of economics at Eastern Michigan University, USA and former physicist and nuclear engineer at BAEC.

aadeone@gmail.com