La Strada on Wall Street

VIENNA – Apologists for neo-liberalism assume not only that states should be run like companies, but also that, as far as possible, they should not intervene in the economy. The market, they insist, regulates itself. But, more than 50 years ago, the Nobel laureate Paul Samuelson contradicted this idealization of markets in graphic terms: absolute freedom for the market will lead to Rockefeller’s dog getting the milk that a poor child needs for healthy development, not because of market failure, but because “goods are placed in the hands of those who pay the most for them.”

This distributional quandary lies at the heart of the capitalist system, which is one of never-ending competition fueled by the drive to maximize profits. In such a world, there is no room for a social conscience.

It is the state that, to a greater extent in some societies than in others, must fill the gap. The market economy is unsurpassed as a system for creating wealth, but only social compensation ensures that this wealth is distributed in a just manner. Europe’s social-market economies, far more than the Anglo-Saxon neo-liberal model, regard mitigating the inequalities created by markets as the state’s duty.

In fact, the market economy can function only if the state does intervene. The US financial crisis demonstrates what happens when markets are given free rein. Rather than regulate themselves, market players destroy themselves, however much they might be marveled at as golden calves.