Don't blame capitalism!

I've got a bit fed up over the last week with reading or hearing comments about how the credit crunch is a "collapse of capitalism". It isn't anything to do with capitalism - except superficially. Capitalism is an economic principle - not a political ideology - which is founded on the belief that the means of production remains in the hands of the individual and that the producers are able to trade freely in "markets".

First of all, there has been no such thing as a free market for some considerable time. Secondly, the financial sector is nothing to do with capitalism -except, as I said earlier, superficially. Even communist states have banks which loan money to various organisations - including wholly state owned ones. I suppose because that generally means raising "capital" it is assumed that that must be "capitalism" - but it isn't in the real sense.

Also, the real cause of the problem is plain old fashioned greed - and greed is most definitely not the preserve of capitalist societies, but is prevalent in every sort of society. It is a natural human weakness and demonstrates exactly why the Utopian society which socialism strives to deliver is unachievable. If poverty can be relative - so can greed.

Nor is it due to a lack of regulation. Some of those companies that have nearly gone to the wall are the most careful to abide by stringent regulation - such as Sarbannes-Oxley. One of the features of regulation, though, is the law of unintended consequences. In other words, a regulation brought in with the best of intentions can often have dire repercussions. I'm not saying this is the case in this instance, but I have no doubt that the more you regulate, the more people will find ways to work around it.

The reason for the credit crunch is the same reason we have enjoyed a global economic boom over the last 10-12 years. Technology and globalisation. Technology that meant it was possible to move money instantly across borders and over thousands of miles at the touch of a button. Globalisation which meant that national economies were interconnected in ways that had never been seen before.

But there is a third reason as well. Corporatism.

Corporatism is the regulation of markets by unelected transnational or supranational bodies. Globalisation is the result of corporatism (aided by technology). It is the regulation imposed by these groups - the UN, World Bank, EU - which places burdens of cost and expense on companies which are trying to compete with larger, more powerful businesses. As a result of regulation, these smaller businesses either go to the wall themselves or are swallowed up wholesale by the larger companies who are much more able to absorb the cost of regulation. Regulation intended to keep markets "fair" and accountable, inevitably results in those markets less competitive and less free. Globalisation, by the way, is not capitalism either.

I'm not opposed to regulation - it is a necessary evil in my opinion - but I am opposed to "one size fits all" regulation which requires a small restaurant in Solihull to abide by the same regulations as a multinational corporation. This is why it is important for a nation to retain the ability to regulate itself. It is vital to keep the internal market as free as possible and just as important to impose restrictions on foreign markets. Some might say this is a socialist principle, but actually it is simple nationalism.

Please do not confuse political ideology with economic principle. It is worth noting that China, although it has embraced capitalism as an economic principle, remains not just politically socialist, but staunchly nationalist. It has an internal market considerably more free than anything in the western world, but places huge restrictions on foreign markets. As a result, not only is China largely insulated from the effects of the "credit crunch" it actually appears set to benefit from it at the expense of the nations which have signed up to transnational corporatism.

Capitalism has not failed. This is the usual economic cycle - which Gordon Brown foolishly boasted that he had abolished - and the downturn will, eventually, be followed by an upturn. What has failed, though, is globalisation, but more than anything it is a failure of trans-nationalism and supra-nationalism.