Europe, America and the Crisis of Capitalism
by Albert Gallatin
Since the financial crisis of 2008 western economies have been in a continual state of crisis. In Europe one sovereign nation after another has faced the prospect of significantly reducing government spending or defaulting on its debt. So deep is this problem that now formerly solid economies such as that of France stare into the abyss of an intractable problem of weak economic growth and unmanageable debt.
In the United States as well there continues to be the hangover from our long national cheap credit binge. America’s largest financial institutions, many of which are insolvent if their assets were marked-to-market, continue to play a disproportionately large role in the economy and the thinking of government policymakers. While the real economy continues to slowly grow it remains ever subject to the threat of being strangled by insurmountable government debt.
These then are the crises of capitalism: out of control government spending, and private sector institutions, largely financial companies, that remain on government life support. So dire is the situation that citizens of nations like China and Russia now mock the West, and question the very system that made Americans and Europeans the wealthiest people on the planet.
What is largely missing from the public discussion is an acknowledgment that this is a crisis not of capitalism but rather one created by the absence of capitalism. In response to failed industries and business models governments in the US and Europe chose to prop up broken companies, rather than suffer the political consequences of letting them fail. Rather than capitalism the West embraced crony capitalism, where the well connected were rescued by public subsidy under the guise of economic stability.
True capitalism requires winners and losers. In exchange for the creative destruction and instability of competition consumers are rewarded with more innovative products at lower prices. Although capitalism is inherently volatile it has proved time and again to be the fairest and most successful way of distributing scares goods and services in a society.
Unfortunately governments in the US and Europe have take a different route, choosing to prop-up banks and borrowers rather than letting bad bets settle as they must. The result is a long, drawn out crisis where everyone in society pays the price of bailing out the few.
The crisis of capitalism in the West, then, must be seen as a crisis of the absence of capitalism. Until policymakers are willing to withstand the volatility in their own job security by letting businesses fail, we will continue to suffer from strangled growth and diminished dreams.
What was once said of democracy (another competitive, winner-take-all system that has proved remarkably resilient) is true of free markets as well: the cure for the ails of capitalism is more capitalism. Only by unleashing competition and removing government from picking winners and losers, will we return to the path of prosperity and growth set by generations of hardworking Americans before us.