Has capitalism failed us?

Capitalism is a social system based on the recognition of individual rights, in which all property is privately owned. Under capitalism the state is separate from economics, just as the state is separate from religion.

My roommate during my boarding school years was the great-grandson of the founder of Germany’s most famous private banking family. I vividly remember our night-long debates over communism versus capitalism. It was a popular topic during the Cold War years. He would favor communism and I would hold steadfast that the capitalistic system is the only sensible way to bring progress to the world.

In light of the recent historic events in the USA, I’m asking myself if capitalism has failed us.

After all, during the last few months an economic tsunami has hit all of us and wiped out a lot of wealth in a hurry. Furthermore, at the end of eight years of Republican government we ended up with a total collapse of our financial system and as a result of the various bailouts, “We the People” now own indirectly a part of insurance companies, banks, car makers and mortgages. To make things worse, the present government seems to be of the mind-set that big government, big government spending and government initiatives are the answer to fix the economic malaise, pushing us further into a socialistic direction that not long ago would have been unthinkable in a country that was the last bastion of free market capitalism.

I do not believe that capitalism as an idea has failed us. I am however disappointed at how much “white collar crime” has been committed and goes unpunished. It is not the idea that is flawed, it is the people holding the power to make decisions that have failed us. It amazes me how many highly educated people have gone along with all of this, many knowing that it will eventually have to end in a catastrophe. Once again the need for short-term gains (also called greed) is the culprit. It is not the principle of private ownership that is flawed, but the lack of moral fortitude in choosing what is right that pushed us to the edge of total failure.

From that perspective one could argue that “laissez-faire capitalism” (self-regulated) has proven to carry too high a risk for the greater good of the nation and that tighter oversight is needed. Laws however are only as useful as they are enforceable and while we have perfected the art of handing out parking tickets, the government has not proven to be very effective in overseeing and regulating things that really matter. Where was the SEC in any or all of this?

And if we are talking about the cost to all of us who are paying for the bailouts, we need to evaluate what the alternatives could have been. For example, we are offering to buy the toxic assets that burden banks. Should we instead buy foreclosed homes and resell them with lower mortgage rates? Would that not be a much more direct (capitalistic) approach to the problem? While government-induced infrastructure improvements will create jobs, it should be balanced out with helping private companies do the same. Could we as an additional measure not offer entrepreneurs low interest starting capital and help companies create new jobs by subsidizing the salaries for a limited time? Would that not be a much more direct way to lower unemployment? After all it is a combination of visionaries, pioneers, hardworking people and risk-taking capitalists that has built this country — not the government.

The problem as I see it, is that the government of the most capitalistic country in the world does not know what balanced capitalism means and how to take appropriate capitalistic actions. We seem to shift from one extreme to another. It was obvious that some government action was needed to keep the financial system afloat, but that does not mean that we have to embrace the idea that government should now step in as a permanent player to get done what private companies have failed to do. I’m not sure what is wrong with letting insurance companies, investment banks and automotive companies go by the wayside, as long as enough new jobs are being created by companies that are fitter to survive. After all, that is part of the capitalistic system. What is not part of the idea is to endlessly print new money and continue to put us further into debt and for one minute believe that any government agency or initiative is going to be more efficient than private initiatives.

Capitalism is the idea that private ownership is the most efficient way to build wealth. I still believe that to be true. It is time to go back to our roots and not reward people and companies that have failed, but instead subscribe to the capitalistic approach. Keep the government small and reward the people that know how to get the job done — the American capitalists.

*You can find more “Last Call” articles by Frey on the home page of hiltonheadmonthly.com.