We failed as regulators, we failed as supervisors, we failed as corporate governance managers, we failed as risk managers, and we also failed in the allocation of roles and responsibilities for international economic organisations.

This was ignored in an atmosphere of great prosperity where everybody was making a lot of money and everybody thought that innovation was the name of the game - and by warning that something could go wrong, you would look like you were holding progress back.

According to British economist Anatole Kaletsky, “Current financial crisis has exposed modern economics as emperor with no clothes”. He believes that the reason for the disastrous economic downturn is largely because modern economics has sadly coincided with loads-a-money and greed as the new economic thinking. This has been described as Gucci capitalism by another renowned economist Noreena Hertz that was born in mid 80s as the lovechild of Ronald Reagan and Margaret Thatcher with Milton Freedman, the free market Guru, as the fairy god father.

Many people are blamed for the current economic crisis - the bankers for being too powerful and lending money to people who would not be able to repay, the investment bankers for greed, regulators for being too weak, checks and balances not in place and  public themselves for borrowing too much. However, the blame also lies in the fact that the following three basic economic assumptions that caused, encouraged and justified the Gucci type of unbridled capitalism-

1)    Human beings act rationally which helps  to create with certainty an efficient market economy,
2)    Govt should have a minimal non-interfering role if a market economy is to be successful, 
3)    Markets could self- regulate and allocate resources fairly and equitably without govt. intervention, have now been comprehensively disproved. Without  various fiscal and monetary stimulus measures quickly taken by the UK, USA and other  countries to restore confidence, the blow to the world’s affluence would have been more perpetuating.

We snigger at fortune tellers but continue to rely on people who are often deeply divided and, who, in any case, qualify all their forecasts with the phrase “ceteris paribus” (other things remaining the same). 

So, has capitalism failed? Anybody can feel that a great churning is going on in the economies of practically every country. And, in this churning every country willy-nilly will have to modify the market driven aggressive capitalism (in the name of free economy) with pronounced application of ethics and vigilance against succumbing (in their philosophical orientations as well as in the level of implementations) to the charms of excess and begin baring their seamy sides.

If life is about the lessons we learn along the way, then surely the last decades of greed and selfishness taught us that short term financial gains do not make healthy economy. It is unfortunate that economics and business has been reduced to a single minded and blinkered pursuit of Mammon; short term gain, making a fast buck, etc., have become the mantra. But these are seductive traps and in the long run lead to erosion of wealth of the nation and consequently, suffering and misery. Even though over use has made it a cliché, there is much virtue in the old adage “As you sow, so will you reap”. We have to then, rediscover professional ethics and desist from sowing wind so that we do not reap whirlwind.

There is therefore, a clear need to replace competition and greed with a new type of economics based on ethics and social justice in the governance of business and financial institutions.  Noble Laureate Amartya Sen thinks the present crisis do not call for an entirely “new capitalism” but a new understanding of older ideas  such as those of Adam Smith as expressed in his first book “The Theory of Moral Sentiments” in which he advocated values other than profit making (The Wealth of Nations ) as the goal of capitalism. This means that there should always be a clear mandate for the govt to intervene to stop the free market becoming a casino economy. Modern capitalism needs to reform itself accordingly with much infusion of ethics and strict vigilance against any departure there-from.