Sozialalmanach - Caritas Luxembourg

The so called “credit crunch” that had thus materialized reduced therefore the ability
of most economies worldwide to finance their activities. With lack of access to bank credit,
businesses were unable to purchase commodities, maintain their inventories and provide
in turn credit to their customers. This all led to cascading falls in business activity, which
in turn led to workers being laid off and joining the ranks of the unemployed.
Governments worldwide had responded vigorously to the mounting crisis by injecting
huge amounts of money into their respective financial sectors and economies. But their
actions at best have stopped the fall in economic activity and stabilized its level around
the globe. The world has indeed avoided a depression of the magnitude of the Great
Depression of the 1930’s, but the world remains in a fragile economic state in which
uncertainty predominates.
The present levels of government fiscal deficits and debt, the consequence of the struggle
against economic depression, are unsustainable. Restoring public finances will indubitably
involve more taxes and reduced public spending. At best, the world outlook is one of a
slow economic recovery in which historically high levels of unemployment will prevail for
a long time to come.
High unemployment implies much social and economic suffering. It implies increased
poverty and social and economic stress that may well test the very fabric of society.
The failure of the unfettered free-market economy paradigm
As previously noted, the financial crisis originated in the United States. The collapse in
American banking is intimately linked to the “American way of doing business”.
American culture promotes the values of individual freedom of action with limited
government or state intervention in private affairs. At the extreme, in the “perfect world”,
there would be no government, nor state interference of any kind! Such an extreme is
obviously not feasible. At the very least, government must exist to assure the rule of law,
security and the fundamental rights of its citizens.
There remains however, particularly in America, a continued conflict between individual
freedom and state intervention. Laws are required to assure some level of civil society.
Confronted with such laws, business then resorts to basic compliance with the law and its
related regulation per se on the premise that what is not forbidden is allowed, whatever
the unintended consequences are.
Milton Friedman, in his 1970 article entitled “The Social Responsibility of Business
Is to Increase Its Profits” 1 , expresses well the underpinning American philosophy of its
1 Friedman (1970).
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