The Financial Times Editorial Board
Short of a communist revolution, it is hard to imagine how governments could have intervened in private markets — for labour, for credit, for the exchange of goods and services — as quickly and deeply as in the past two months of lockdowns. Overnight, millions of private sector employees have been getting their pay cheques from public budgets and central banks have flooded financial markets with electronic money.
One may be forgiven for worrying that the pandemic has brought socialism on its coat-tails. Yet the paradox is that today’s emergency measures are necessary to protect the long-term health of free markets and a capitalist economy. Those who, like this news organisation, value those institutions must welcome this unprecedented intervention.
Liberal democratic capitalism, with free and open markets and secure private property rights, remains the best institutional framework to meet the aspiration of freedom and prosperity for all. But liberal democratic capitalism is not self-sufficient, and needs to be protected and maintained to be resilient.
Catastrophic emergencies — wars, pandemics and natural disasters — bring risks that only governments can protect against. A purist libertarianism that denies people this protection cannot survive its first crisis.
Capitalism can also undermine itself over time, if it is not tended by smart regulatory frameworks. The global financial crisis — caused in part by opacity, self-dealing and perverse incentives — showed that markets need good rules of the road to remain free, open and efficient. The accelerating disruptions from climate change prove a similar point.
Like all social systems, free markets depend on political legitimacy. One of the greatest long-term threats to capitalism functioning well is the perception, let alone the reality, that markets which are supposed to be free are actually rigged in favour of the powerful.
A creeping suspicion this might be the case had started to erode its popular support, especially after the financial crisis. The rising wave of young self-confessed socialists in the US and UK, homelands of economic liberalism, was clear proof of that. Mismanaged economies that leave many people behind give fuel to left-wing populists, who see state intervention as a replacement for capitalism, not just a corrective. But they also empower right-wing populists, who offer business a Faustian bargain of collaboration.
Today’s situation resembles that of the 1930s. Back then, centrist liberals from US president Franklin Delano Roosevelt to British economist John Maynard Keynes saw that liberal democratic capitalism, in order to survive, had to be shown to work for everyone. The victory of their ideas set the stage for the success of western capitalism in the decades after the second world war.
Now, like then, capitalism does not need replacement even if it may need repair. Free markets work best when all have access to them, which requires the state to provide smart, transparent and proportionate ground rules and offer social insurance in the last resort. The latter is exactly what governments have done in the necessary battle against Covid-19. Their many support measures, costly as they are, constitute an investment into a safe return of freer markets and a self-sustaining capitalism when the crisis abates.
The task for friends of liberal capitalism is to determine how free-market values can be buttressed in the future. That is a task made easier, not harder, if the state does its job well today.