When this tornado has blown over, the world will not land where it was in 2007. But it will still be recognizably a capitalist world, albeit with the pendulum having swung back a bit along the state/market arc. The harsh rhetoric about getting the state off our backs will be tempered, and some of the widening in the disparity of incomes will be reversed. The change will be much more profound in the world of banking and finance than in the rest of commerce. But the commitment to the liberal trading regime on which the whole E.U. has been founded will survive. Although the hopes of those who wish to expand the liberal trading regime of the World Trade Organization in the Doha Round may be disappointed, what is there already will largely survive.
When people claim that faith has been lost in the free market system, they fail to distinguish what is genuinely flawed and needs to be fixed from what is still valued. The imbalances in the global economy certainly need to be addressed, though regrettably the Group of 20 (G-20) has offered little or no guidance. In addition, risk management, regulation, and remuneration policies in the banking system need massive change. But have we lost faith in the value of competition? Or in the benefits of open trading markets policed by the WTO? Or in the importance of properly functioning labor markets? Or in the corporate governance of the broad mass of companies? No, we have not.
Nevertheless, it will be a chastened capitalist world, shorn of much of its swagger, in which both politicians and business leaders will have a mountain to climb to rebuild their credibility and authority.
Lord Andrew Turnbull is a senior advisor to Booz & Company in London, and the U.K.’s former secretary of the cabinet and head of the Home Civil Service. He is chairman of BH Global Ltd. and a nonexecutive director of Prudential PLC, the British Land Company PLC, and Frontier Economics.