As international markets continue to totter there are some in various parts of the world who, far from depressed about events, regard them with something close to glee. For the unreconstructed socialists who never got over the collapse of communism at the end of the 1980s the crisis allows an opportunity to claim that they were right all along. For them, the collapse of banks and the forced intervention of governments to prop up the global economy is proof of the fundamental immorality and bankruptcy of capitalism and of the rightness of their cherished belief that only through state control can economies operate successfully and fairly.
That message — the death of capitalism and the inevitable triumph of socialism — has been voiced loudly across the world in the past few days. It has come from expected sources like Venezuela’s Hugo Chavez (always keen to trumpet his beliefs) and from less expected, such as Australia’s Prime Minister Kevin Rudd who has blamed the crisis on “the comprehensive failure of extreme capitalism”. It has led to demands in some countries where the economy used to be firmly under state control, such as Russia and India, for a reversal of privatization. In India, for example, reinvigorated Marxists now claim that the country’s prosperity has been built on making the poor even poorer and that only a small minority has gained from the country’s embrace of the free market.
These campaigners who now busily proclaim how the great 20th century economist John Maynard Keynes has been proved right all along with his theory of governments spending their way back to prosperity (but conveniently forgetting that he was no socialist) are less than honest. They ignore the disastrous effects of socialism in the former Soviet Union, in China and Eastern Europe as well as those places such as India where the socialist system was in part replicated. State-run economies failed to deliver any benefit, let alone spread it — and it was not a monthlong failure or even a yearlong failure. It was a disaster from the start. In the case of the Soviet Union, it was a 70-year-long failure.
They are in for a great deal of disappointment. They completely misunderstand both the crisis and the point about governments’ efforts to fix it. The crisis is not about the failure of the free market, it is about the failure of an unregulated free market where the absence of controls led to an “anything goes” approach.
Governments may have been forced to buy up shares in banks but this is not old-fashioned nationalization. The objective is to boost liquidity and enable banks to start lending to one another and to business again. There are not going to be state-run banks as in the bad old days. Governments have no intention of staying in the marketplace any longer than necessary. The aim is to sell off their newly acquired holdings at a profit as soon as it is safe to do so. For their part, the banks do not see the governments’ acquisitions as a threat. They do not care who their shareholders are, be they the home government, governments abroad, pension funds, other banks or private investors.
The socialist dreamers will find out soon enough that they are again irrelevant. As to the shape of the new international market, regulations demanded by so many international politicians (and this very day the subject of talks between the EU and China), that is a different matter. But state ownership and direct state control will not be part of it.
