SPONSORED BY:

Writing the Rules for a New World

 

Email To A Friend

Please fill in the following information and we'll email this link.

Separate multiple addresses with commas

SPONSORED BY
 

As bad as it looks, the current financial crisis will end. I don't know when or how, but the combination of government interventions will eventually work. Why do I say this? Because governments are more powerful than markets. They can close markets down, nationalize firms and write new rules. And Washington has one other, unique power: it can print money.

Government intervention has stabilized capitalism before. No modern society could accept the downswings that were routine in the 19th century, an era of much less intervention. The average length of a recession between 1854 and 1919 was 22 months. In the past two decades, by contrast, recessions have averaged eight months. Between 1854 and 1999, the U.S. economy went into a contraction every 49 months. In the past two decades, it has been 100 months between contractions. Many factors have contributed to these changes, but the chief explanation has been Washington's monetary and fiscal policies. Of course, the financial industry—the center of the current crisis—is unusual if not unique, since it is the lifeblood of the economy. As a result, it should be monitored especially carefully. In almost all the financial crises of the past 30 years (and there have been dozens of them) the government has had to intervene to restore trust and confidence. And it's succeeded.

Does this round of intervention mark a return to socialism, or even the old mixed economy? Well, 35 years ago governments in most countries controlled the value of their national currencies. They owned steel companies, car manufacturers, the telephone company and banks. They set the price of airline tickets, phone calls, stock commissions and cement. Tariffs in the industrialized world were several times higher than they are today. Does anyone really think we're returning to this era? Does anyone believe that governments would be any better at owning and running economies than they were in the past? There will be a return of regulation. But regulation is not socialism.

Capitalism is now a global phenomenon. It is being powered by the actions of companies and governments and individuals all over the world. And in the search for growth and higher standards of living, countries will continue to use free markets and free trade to power their rise. Governments have not liberalized their markets because Treasury Secretary Henry Paulson or his predecessor Robert Rubin ordered them to; they did so because they could see the benefits of moving in that direction (and the costs of not moving). This process will continue to be halting and episodic, depending on political pressures. But I suspect that over the next 20 years, most countries will try to free up their markets (in a controlled fashion) to get more growth rather than nationalize bits of their economies. Certainly the history of past economic crises shows that in their wake countries have conducted more-aggressive economic reforms to bring greater credibility to their systems, attract new capital and jump-start growth.

As all this suggests, the current debate about government and markets is sterile. Every serious thinker understands we need both. The question is how to balance the two to achieve growth, innovation, stability and social equity. The crucial need is not for big government or small government but smart government. How can we make government work for the vast majority of people, for future generations, for the broad welfare of society?

The real problem we face today is not a crisis of capitalism. It is a crisis of globalization. The new world coming into being is not going to go away. We will not return to a system dominated by a handful of countries around the North Atlantic. The factors powering the rise of the global economy, and thus the rise of the rest, are broad structural forces that have been at work for decades. They are not ephemeral and will not vanish in the face of one financial crisis or recession. They will endure, and in the process shift power away from established centers in the West.

But will this lead to a more stable world?

Label

Newsweek Top Stories
Visions of a Decade
Visions of a Decade

From 2000-2009, one photo per month.

The Failure of Copenhagen
The Failure of Copenhagen

Why there could be a silver lining in a failed climate treaty.

Sex Scandals of the 2000s
Sex Scandals of the 2000s

From John Edwards to Mark Sanford, the decade's memorable affairs.

118 Days in Hell
118 Days in Hell

A NEWSWEEK journalist recounts his captivity in Iran.

Discuss

Sponsored by

Member Comments

  • Posted By: 82nd airborne @ 08/18/2009 6:18:05 PM

    you azz!!!!!!!!!!!!!!!!! im from fort bragg and im now deployed and here in tarin kowt and we and what i mean when i say that we the troops that are here we think that is a *** good thing that he want to do that cause that mean we now have the chance to over power them but you wouldnt know that cause you not here and we the 82nd airborn troop have to be ready to deploy with in 18hours but you wouldnt know that cause your not one of us and if you are you most have one of those jobs were you set at a disk alday and do *** but look man yes we losing troops thats what happen we know that. why? cause this is what we sign up to do man and the only reason that we at bragg deploy so much cause we train the most so we are pose to be the best at what we do but dont get me wrong yes there might be just a little to many people here but you dnot know what we go thru here man so dont *** on us like that. thank you!!!

  • Posted By: Nath @ 08/17/2009 3:16:58 AM

    New World without fixing Islam ? Zakaria .. you are getting old!

    There is a global awareness now on the need to fix Islam - but darkness prevails on the best method - a solution that is simple and sure will evolve from here.Sounds far fetched ? Just consider the peculiar case of 1 million deaths in the Iran Iraq war- this was no Jihad with Kafir and hence all those dead went to hell for no fault of theirs except that they had Saddam as "boss" - in the post Lehman world we all agree that this is very unfortunate & avoidable case of bad leadership , which brought ruin to followers!

    On a brighter note - a nuclear attack on middle east from either US or Israel canoot be ruled out at all - it appears to be very central to planners of Islamic life. As all muslims prey 5 times a day for death in jihad and seat in heaven ; this is the most practical way for a benevoilent kafir to delivery a heavenly martyrdom in jihad to all muslims on equal footing.... so that at the Allah's brothel - stock of 72 goats/ martyr can be enjoyed equally by each muslim.

  • Posted By: rsmith201 @ 06/25/2009 6:33:58 PM

    Zakaria, You did not mention of the paranoia in the United States. You forgot to mention that internal forces are stonger than exterior forces. Everyojne thought the Obama regime would end the wars but instead Obama has sent more troops to Afghanistan - more casualties for Fort Bragg. Who stands to gain if the US regime kicks the hell out of the poor Arabs and Taliban? You guessed it, Saudi Arabia. Now who stands to gain if the insurgents kick the F## out of the United States? You guessed it again Saudi Arabia.

    In the United States, who stands to gain while the US is occupied in the Middle East? You guessed it the Latin Americans headed by the Mexicans. For they will cause the United States to split into three weak regions. The Southwes, the South and the East. This happened to every empire form Greece to Rome to Mongolia and Egypt - no exceptions. Mexicans are enjogying food stamps, social security and white chicks at the expense of the American worker workging 9 to 5 whiel the proud, the brave the army of one are paving the streets red in Iraq and Afghanistan as King Abdulah smokes his cuban cigar, chats with North Korea and wires dollars to Iran to provide the IEDs needed to smash GI Joe.

Reply

Report Abuse

Enter comments if any for reporting abuse

My Take

Customize the NEWSWEEK homepage
to feature your favorite columnists.

Customize Now
 
ISSUES 2009
Writing the Rules for a New World

Today's problems ignore national boundaries. The world needs smart management that does the same.