Let’s not beat about the bush, has capitalism failed?

We shouldn’t be squeamish about answering “yes”.

And “no”.

Capitalism has always depended on property, and by extension land, to underpin its activities. African countries that lack dependable property rights, never get off the ground economically, no matter how much foreign aid is shovelled in. Without property rights, capital can’t be raised, hence … no capitalism. And more importantly, no prosperity.

The West is suffering a similar, albeit temporary, state of affairs. Property and other asset prices are tumbling, hence … capitalism is in helter-skelter retreat.

Free markets are a natural phenomenon, like grass. If you cut grass, it grows back again. So does capitalism, at least in times of stable or rising property prices — which will return once the “baked in” floor of the slump is reached.

By contrast, government is an unnatural construct of human ingenuity. Long, hard-won experience tells us it should be limited in size and scope.

The “failure” of capitalism should be seen as part of a greater failure involving government and its duties to society. These are principally, sensitive regulation of systemic elements of the modern economy, like banks and other financial services, and ensuring monetary and fiscal balance across its operations.

It is now clear that government has failed systemically over the past decade by taking on too much debt, a condition mirrored in consumers’ personal balance sheets, and by serious mismanagement of the regulatory process. It has also poked about in areas for which it has no competence, no experience, and absolutely no business. Individual ministers are to blame for this amazingly impertinent interference.

We see before us, then, a temporary, if major, failure of capitalism arising from an almost terminal collapse of the integrity of the public sector. In that sense, it’s not really a failure of capitalism at all, but like an engine driven recklessly at high revs for too long. At some stage it’s going to need attention.

Why was the engine driven so hard? Partly for greed, which is the antithesis of intelligence and should have been factored into the government’s forecasts. But mainly to provide funds for the vast, bellifluous appetite of the public sector under Gordon Brown’s command.

The heart of the problem lies in the failure of society to secure and nurture its most potent means of creating prosperity.

The irony is that the machinery of capital markets and free enterprise is now almost wholly reliant on the sector that failed them so badly.

It is grotesquely unfair, but when the market system goes under, only the State can make up the deficit. Normal accounting practices hardly apply to government. It’s as if they still use single-entry bookkeeping, with no reference to profit and loss — don’t be fooled by the use of the word “investment”; it simply means spending other people’s earnings.

The State can also print money in a way the productive sector can’t. It also has powers to drain individuals and businesses of their hard-won treasure only matched by rustlers and robber barons.

What emerges in two or three years will be crucial to our prospects for the rest of the century. The balance between the voracious, inefficient State and the Prosperity Generator of non-State activity, will tell us all we need to know.

In Britain, Gordon Brown will demand his £ of flesh in any settlement between public and private, at least for the next 17 months. I recently heard a Labour MP say, “Public services are the backbone of this country”.

Into such hands will pass the power to transport Britain back to the 1970s. Life on Mars for real. We may be facing an even worse tragedy following the slump we still have to navigate.

The light on the horizon is that a general election is due soon. Our hope must be that the Conservatives, who have led in the polls for more than a year, develop a sufficiently coherent message to win the argument on the day. A mosaic of small, technical adjustments will not be enough. Labour will fight like feral cats to retain the trappings of power they believe are theirs by entitlement.

The loss of confidence at Conservative Central Office following the perceived “failure of capitalism” is palpable. It has not yet recovered from the mayhem caused by the credit crunch.

Conservatives need to look sideways at the situation by hammering home the failure of the public sector across the board and its star role in the present disaster.

Their mission must be nothing less than saving the nation’s Prosperity Generator from those who believe dependence on the State is an acceptable alternative. For without a strong capitalism, there is only the grim reality of State socialism and a return to Labour’s fraudulent “mixed economy” and benefits culture.

Socialism must never be allowed to pose as the new quid on the block.

John Evans

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