Capitalism is alive and kicking

BBC News is running a series of commentaries this week by economists on the challenges facing the global financial system. Today, Jagdish Bhagwati considers the implications for capitalism.

Jagdish Bhagwati is University Professor at Columbia in New York

The current financial crisis poses little risk of a meltdown like the Great Crash in 1929.

Left to itself, it certainly could.

But the governments are wide awake, and a flood of interventions to kill the crisis is in evidence.

If I was a cartoonist, I would draw the crisis as Rosemary's baby in a bathtub, with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson standing at the edge, drowning the baby with four hoses, one marked monetary policy, another fiscal policy, yet another the bail-out plan, and the fourth simply: anything that is required.

Sorry, folks, but capitalism will have emerged more robust from the crisis

The crisis therefore will pass.

Will it, however, destroy "capitalism" and undermine "globalisation"? I find such claims fanciful.

The interventions are surely temporary. There is no intention, nor necessity, to keep the bailed-out banks and firms under government ownership.

The governmental capitalisation plan carries an exit strategy: the shares will be sold eventually, though it may take some time.

This may be the death knell of libertarianism; but it was alive only in textbooks. Ever since Keynes, we have known that capitalism needs periodic assistance from the visible hand. And Adam Smith emphasised that, in the absence of regulation, the invisible hand may work by strangulation instead.

Sorry, folks, but capitalism will emerge more robust from the crisis.

As for globalisation, it proceeds along diverse dimensions: trade, multinational investments, capital flows, migration, and technology.

The financial sector reminds us, once again, of fire: it turns veal into wiener schnitzel but it can also burn down our home.

Does that mean that freer trade, for instance, will also be compromised? Will we throw the trade baby out with the financial bathwater?

I am confident that the populist voices will subside, though some seem to have a megaphone these days.

Jagdish Bhagwati is University Professor at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations.

Also in the series:

Linda Yueh: China, engine of growth

Jayati Ghosh: India: boom, what boom?