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Spain, Germany and France yesterday followed Britain in bailing out their banks. Russia halted stock trading. Iceland seemed to soften its opposition to EU membership. When government is the only port in the storm, what does this say about free markets? The short, and not terribly comforting, answer is that boom-and-bust is an inherent feature of free-market capitalism. The current financial crisis is only the latest in a series stretching over a century.
That will bring scant consolation to the prudent, who have seen their savings plummet as interest rates and share prices fall, and who now suffer the added insult of having their taxes used to rescue the profligate. The £37 billion that the Government is spending to recapitalise Royal Bank of Scotland, Lloyds TSB and HBOS is taxpayers' money that cannot now be spent on schools or hospitals.
In principle, taxpayers should get most of their money back when bank shares recover. But taxes may have to rise in the meantime, further punishing those people who never aspired to be super-rich, and who distrusted the super-reckless. A recession will bring them a nightmare of job insecurity and more marital breakdown, domestic violence and crime. A recession may have a statistical definition - two consecutive quarters of negative growth - but it has an emotional impact on tens of millions of lives.
The bank heads, board directors and non-executive directors who brought our financial system to the brink should stand ashamed of their failures. They need to do more to explain themselves, both their mistakes and the mistaken criticisms of them. (Blanket bans on bonuses, for example, may work as an act of public retribution against bankers, but they will not reform reckless institutional appetite for risk; bankers need to say as much.)
But their mistakes do not mean that capitalism is the wrong way to organise our economy. The pursuit of profit by privately owned businesses is still the best method yet devised to create wealth and opportunity for the many. Capitalism has lifted hundreds of millions of people out of poverty and has provided unprecedented choice, material and intellectual. It has provided the backdrop for greater tolerance and understanding.
Greater transparency and global supervision are needed. The financial markets were regulated; but their complexity left regulators staring at corners of the jigsaw when they should have been piecing together the picture on the box.
Can the State save capitalism from itself? The Government's approach is instructive. Yesterday's intervention gave the Treasury a controlling stake in RBS. In return, ministers have demanded an end to bonuses and dividends for this year. But the bank will still be run for profit, with private investment. Nationalisation is only partial, and is clearly intended to be temporary, to try to prevent recession becoming depression. Nonetheless, its behaviour in government ownership will be the ultimate test. The Prime Minister is now the ultimate paymaster of institutions that are responsible for a substantial share of British mortgages and deposits. The measure of the rescue will not just be a short-term restoration of confidence, but evidence that the banks' behaviour is not perverted or politicised in years to come.
Policymakers who thought that they had abolished boom-and-bust have had a brutal shock. But the greed of one group has not fatally compromised the entire economic system. It is the many well-run businesses remaining that will return us to prosperity. Capitalism has faltered. But it could emerge the stronger, if prudence goes from being a political slogan to a watchword in the private sector.
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Capitalism (together with all former social systems) is just a reflection of human social consciousness. So, it can't be DEAD! The problem is that modern society (or modern sicence) has a tendency to label every notion in rigid terms. In reality the deviding lines of social systems are very vague.
Armen, Yerevan, Armenia
too right,Homer, London
peter c, Devizes, Wessex
Perfect free markets are the most efficient way to create wealth for all, but the key is in striving for perfection and that requires state regulation. Obscene salaries do not indicate super-human talent, but rather an exploitation of a market imperfection that needs to be examined and rectified.
Paul Hield, Bristol,
This crisis may not kill capitalism. The next one might not, or the one after that. But eventually it will happen.
Capitalism has made wealth and poverty. Can we not share the wealth we have already made? Communism has only been tried in poor places. Marx thought the country should be rich first.
Ben, York,
The wealth has not only been created by capitalism alone, but also Imperialism. Capitalism gives a portion of profits to wealthy shareholders which should be given back to the consumer as a reduction in price. Isn't it funny how the banks are all suddenly in trouble when we try to claim charges
Reginald Perrin, reading, uk
Let me ask you this - if Capitalism was a company would you buy shares in it?
haralambos, joburg,
Capitalism has also succeeded in condemning hundreds of millions to poverty (the entire system is based on exploiting a "periphery" to enrich the core), and has reduced so many things to mere commodities. This crisis hasn't drawn attention to the fact that we now prefer to exploit the poor abroad
will haven, london,
David has a very good point above -where IS all the money that banks are still taking in and why won't they lend it? We are told it is to do with confidence but that's utter nonsense! It's because the banks still want to make super-profits, as in 2007, rather than fix a situation they created!
Neil Watkinson, Ipswich, UK
Watch the Tories sell everything back to their chums in the city for a pittance when they think our backs are turned - remember, you read it here first!
Homer, London,
Brown killed capitalism by over regulating everything and everyone. Then the Europe added their regulation to the mix. And in the meantime, as Gordon tied our hands he had free reign to spend our money. Even now is he still throwng money at everything. It is his only answer to everything.
Elaine, London, uk
Actually this is the end of global corporatism of both capitalist and socialist varieties. The death of socialism worldwide is the more likely outcome. The world will no longer accept large organisations trying to rule the roost and failing miserably.
peter, boston, uk
Greed cannot be separated from capitalism. We used to interprete history through objective processes or ideological cliches. Now we return to old religious concepts such as greed and excess. Human beings are driven by desire for money, sex and for power. These know no limits if not restricted.
Kamal Mirawdeli, Wallington, UK
We do not live in a capitalist but instead, a feudal financial world. Current practises are not free market based. A free market transaction concludes as the hammer drops. A Feudal transaction can be changed after the "deal" to provide further income downstream of the sale to the sellers advantage.
Chris Coles, Medstead, Alton, United Kingdom
It is the Fiat money system that has failed. Politicians live of it by printing money that is unrelated to any economic growth in order to fulfill their spending promises and create the illusion of economic success. The bankers took their cue from the corrupt politicians and jumped on the bandwagon.
Scott, Bangkok, Thailand
I just hope we don't see the rise of protectionist policies in the real economy, the type of which will only exacerbate the racial tensions and rise of the far-right seen in some parts of Europe. Any economic historian will tell you global protectionism and global economic downturns go hand in hand.
Tom Addison, Cheshire,
Greed has failed capitalism is alive and well but wait for the greed to return ,as every share that has been sold there is a buyer. It is also prudent to note that as the banks are not lending money out what are they doing with all the billions of cash they are taking in through mortgages
David Hughes, Redruth, UK
Everything has an end and capitalism end is nearer.People will no longer trust this unjust system .People need a mixed economy system with less growth=destruction of earth and more quality of life , life is too short to waist it.
NICHOLAS , LARNACA, CYPRUSPeople will no longer trust this system it n
When we pass the wreckage of a fatal car crash we don't conclude that driving is a bad thing, just bad driving. That's why driving tests always get harder.
David Masu, Zürich, Switzerland
The Snake has swallowed a Rat! It will take a while to digest, but democratic capitalism is the only system that consistently delivers our liberal freedoms (to the extent it can). The news of the death of Capitalism like that of the USA has been greatly exaggerated!
Paul Freeman, London, England
It's about efficient allocation of resources and that's the point that i think is being missed. with such massive (personal) rewards available in banking, this pushes some our brightest people into a sector that ulitmately makes and creates nothing in of itself. that's not a wise use of resources.
stephen, china, china