Balancing the State and the Market

BERLIN – The financial and economic crisis that erupted in 2008 will, in retrospect, be regarded as a transformative moment, because it raised fundamental questions about the future shape of our economic systems. These questions are not so much about the end of capitalism – as some perceive or even desire – but rather about the different ways in which capitalism is understood in different countries.

What we are witnessing today is a reversal of the debates of the 1980’s. Back then, Ronald Reagan used to joke: “The nine most terrifying words in the English language are: I’m from the government and I’m here to help!” Now that governments have spent trillions of dollars, euros, yen, and pounds on stabilizing financial markets and the economy in general, those words seem far less terrifying.

In fact, faith in the market has been dented, while trust in government and regulation is increasing. After decades of consensus that the state should set the rules and otherwise leave the private sector alone, the state is now widely seen as a beneficial force that should play an active role in the economy.

This is happening despite the lack of a clear indication of the superiority of the state. On the contrary, the US government’s heavy intervention in the American housing market is probably the most pertinent example of the state’s shortcomings, one that no doubt contributed significantly to the crisis.