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Time to face facts

The free market doesn't work. The emerging markets are crying foul. Global capital has been rampaging through their economies with dire effects. The most extreme case is Malaysia, prompting Mahathir Mohamad, that country's populist demagogue, to declare that "the free market has failed disastrously".

But that is not the right lesson to learn from Asia, Russia and, coming shortly, Latin America. It may be easier to for them to blame the markets than themselves, but the governments of these countries need to get the facts straight.

First, the benefits of free markets arise only where governments and industry are prepared for accountability. In the absence of an impartial legal system, some form of democracy, a free press and an acceptance of the concept of individual ownership, capitalism is corrupted as quickly as any other model of social organization.

Second, the governments facing the worst crises are those that habitually spend more than they collect in taxes, interfere in their country's banking systems and allow vested interest groups to prosper at the expense of the ordinary taxpayer.

These governments embraced free capital flows when it suited them: when they could be used to finance unproductive but prestigious white elephants; when those flows boosted their equity holdings or their banks; and when they needed to prop up their budgets.

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