This Has Not Been a Pure Failure of Markets
by Leszek Balcerowicz
13 May 09 | FT
Only the rulers of Cuba, Venezuela, Iran and some ideologues in the west condemn capitalism. Empirically minded people know that there is no good alternative. However, capitalism takes many forms and evolves over time. The questions to ask, then, are “What capitalism?” and “Does the present crisis shed new light on this issue?”
The popular condemnations of “greed” in response to the crisis seem to me superficial. Economists are expected to explain human behaviour in terms of situational factors and not to compete with preachers and politicians. Equally unconvincing is the speculation about what John Maynard Keynes would be saying were he alive.
As a preliminary step to a more productive analysis, let us recall that not long ago Japan Inc, the Rhineland model and other statist or corporatist varieties of capitalism were praised as a better alternative to the more market-oriented Anglo-Saxon variant of this system. Since then, based on solid empirical research, there has been a wave of deregulation of the product and labour markets, and the European Union has set itself the ambitious goals of the Lisbon Agenda.
Faced with high structural unemployment, fiscal pressures and ageing societies, many western economies have started to reform their over-extended welfare states. China and India have accelerated their growth thanks to a reduction in the political control of their economies. Central and eastern European countries show that the more market reforms you accumulate, the faster is your longer-term growth. These and other initiatives have reduced the crippling statist bias and extended the role of markets and civil society. The present crisis means we must take further measures to release entrepreneurial capitalism, offsetting declines in gross domestic product caused by the financial crisis and the legacy of attempts to manage it, especially the hugely increased public debt. >>>