Is capitalism dead? If the world banking system can survive only with state support, what chance the rest of the economy?

The market economy model has triumphed in recent decades. Not just in countries such as the US where capitalism was never doubted, not only in the UK where the remnants of the mixed economy were privatised or in the many other nations that followed the example, but in the former Iron Curtain countries that tore down their walls and transferred enterprise from the state to the private sector.

If communism was an idealistic model and the mixed economy a controlled experiment to measure which system worked best, the debate seemed to have been answered categorically. Free enterprise won.

Yet now we have governments from Washington eastwards using public funds to rescue failed private businesses. The old idea that privately-owned organisations were more likely to succeed, but that they would go to the wall if they did not, no longer applies. At least not in the banking and insurance sectors – and who knows who is next for bail-out?

We have found that if one privately-owned business fails, that is the market economy at work; if most fail it is a failure of capitalism and has to be countered with nationalisation or other state support.

And the rediscovery of Keynsian will see billions of public spending to keep the private sector afloat.

Are we to argue that capitalism works in 49 years out of 50 but in the bad year, the state must pick up the pieces? And having done so, does free enterprise win the fight and rule the day, or is the market economy to be given a second chance so that it can attempt a further half-century before it again asks for state help?

Events of the past few months are a poor advert for the market system. It is as though we place bets at the bookies and keep the profits when we win but ask to be bailed out when we lose.

The global nationalisations and state capital injections of recent months deliver a serious blow to capitalisation. Free enterprise cannot be something simply for the good times. It has dented the free-market assumption greatly.

The capitalist case will be hard to argue in future years now that there is such a clear example of its failure, yet it is one that has to be put.

Communism did not work either – not so much for philosophical reasons but because it proved inefficient and corrupt.

But while the mixed economy is now back on the agenda in western economies, we should remember that if the state has on this occasion bailed out capitalism, there have been many more decades when the free-market bailed out socialism.

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