It has been said that Capitalism and the principles of free market are arguably the only way to economical growth.
As I understand the liberalization of economy is the corner stone of capitalism. It is my understanding that this means that governments relinquish their control of the forces or market and allow the market to function with out interference and freely according to the principles of supply and demand.
On the surface it seems to be such a wonderful idea. If there is demand for a certain good or servives, supply will come through to accomodate the price will go down as a result of excess of supply, the demand will taper off. And market achieves equilibrium and every one is happy.
there are two places that this can happen, one is in a hot tub, and second is in disney land on silver screen.
In reality this scenario almost never works. The reason is rudimentary. Economy is not and has never been an exact science. It is in the domain of "humanities" because market is made of people who make decisions. The idealized economical models work on the assumption that human beings by nature, are rational machines. They function in a manner that can maximize the profit to themselves while minimizing loss and risk.
This assumption can break down in a variety of ways. One of those ways is information. If a person doesn't know that a certain action can help him earn more, or worse believes mistakenly that a certain action will do him good, or wrongfully thinks that it does it harm, that person will act in a way which may not be to his advantage.
There are all sorts of ways that the principle will be violated. But it is a fact known that markets fail in a variety of situations.
A physical system achieves equilibrium when a large fraction of the members of the system achieve a certain equal state. In an economical system one could believe that if the market is left to its own, certain wealth distribution will take place, and at the end of the day, a large portion of the society have more or less equal income. Furthermore concentration of wealth will reduce dramatically. That sort of fairy tale almost never happens. It is a proven historical fact, that markets that are left to their own, almost invariably lead to massive failure and gigantic concentration of wealth. The experiment with free market economies has been abandoned since its carastrophic failure in 1700.
Today there is no economical system which is free of government regulation, oversight and management. Particularly, it is important to stress that NO post-WWII goverment has achieved significant economical growth without central managment of the national economy.
For example, The entire japanease economy was tightly and meticulusly managed and controlled by the Ministry of Industray and Trade. (SEE Chalmer Johnson's works)
The United States is always mentioned as an example of free market economy.
Examination of the facts, shows that this is a patent lie. No sector of american economy has experienced growth without Government intervention. Particulalry high tech.
The transition from an agricultural society to an industrial one, was done with direct managment by government planners. The first customers of new products, (e.g. computers, planes and jets, etc etc.) has always been the government. New technology has always been developed either in government funded labs or with public funds. If the technology has been developed in a private industry lab, the technical know-how and the basis has been acquired in
publicly funded institutions.
More on this later.