[Viewpoint]Faith in the system

They say it is the end of American capitalism. They say it is the end of 30 years of neoliberalism. These kinds of statements have been spreading as the ripples of the U.S. financial crisis grow larger and larger. Will American capitalism really come to an end with the financial crisis?

For those who resented superpower unilateralism by the United States, it might seem a fitting fallout for the Americans. They might have been pleased when the great investment banks of Wall Street, that used to arrogantly rake in huge amounts of money through complex financial engineering, collapsed one after another. Those who remember the U.S. government officials who rushed to Korea during the [late 1990s] financial crisis to force U.S.-style reforms on us may think, “You thought you were so great, but look at you now.” This is a natural reaction, since the U.S. government, which pushed U.S. capitalism down the throat of the entire world, is now busy trying to get itself out of its own financial crisis.

Nevertheless, it is not right to gleefully watch a house on fire burn to the ground. Your house isn’t safe if the house next door is burning down. First, you need to figure out whether the fire next door can be put out or if it will burn down the entire town. If it appears that the fire can’t be quickly extinguished, you should give up on that house and concentrate on saving your own. If the fire next door can be put out, however, you should do everything you can to help your neighbor. If you damage the house next door to save your own, but the fire next door ends up getting put out with relatively little fuss, you will only damage your relationship with your neighbor.

It is still unclear how far the U.S. financial crisis will spread. However, one thing for sure is that the U.S. financial market will not crumble entirely. The U.S., which prevented financial crises in other countries from ruining their markets, will not leave its own financial market to fall.

Needless to say, there will be financial companies that go bankrupt and become nationalized in the process. Yet that does not mean that the market will fall, or lead to the end of U.S. capitalism.

There have been suspicions about the U.S. capability to cope with a crisis in the past. However, the U.S. government clearly has standards and a set of procedures for handling a financial crisis. Whether the Federal Reserve provides a relief fund depends on whether a problem within a financial company will threaten the entire financial market. In accordance with this standard, AIG, Fannie Mae and Freddie Mac survived, but Lehman Brothers went bankrupt.

Companies that were not supposed to get relief funds were sold. When signs appear that the crisis could spread to the entire financial world, the United States government even decided to purchase an unlimited number of bad bonds. In short, the U.S. government is coping with the financial crisis in good order.

The view that the era of investment banks has come to an end because investment banks have collapsed is not correct, either. The derivatives that created problems this time make up only a small part of the vast functions of investment banks. Their main duty is to raise funds for companies through such activities as public offerings, increasing capital, mergers and acquisitions, and issuing bonds. Leading investment banks have gone bankrupt or been sold to others this time because they neglected their main business while indulging too much in high-risk derivatives. New financial companies will continue to fulfill the duties of investment banks in a safer way.

The neoliberal foundation of the U.S. economy will not change greatly, either. Supervision over financial companies will be strengthened, and regulations on some financial derivatives might be introduced.

But there is no chance that the entire economy will return to a regulation-centered system led by the government.

The U.S. economy might stagnate for the time being, but the competitiveness of its service industry, which is the best in the world, its cutting-edge manufacturing industry and competitive agricultural industry will not lose their competitive edge overnight.

Personally, I think that the U.S. financial industry will be born again and become stronger than ever when it overcomes this crisis.

The capitalist market economy has developed over the years, as it went through many ups and downs. Socialism collapsed as soon as it failed, but capitalism has evolved by overcoming failures. American capitalism will continue to evolve while going through this crisis.

The financial crisis is not something that should be exaggerated as if it were the end of the world, nor should we discard the merits of U.S. capitalism indiscriminately.

*The writer is an editorial writer of the JoongAng Ilbo.

by Kim Jong-soo