Today, we are confronted not so much with Soviet success, but the crisis caused by excesses in the Western capitalist world. It is therefore tempting to discard the market-friendly model and our quest for economic reform and go back to renewed emphasis on state control, nationalisations and so on. That would be the wrong conclusion. No one denies that booms and slowdowns are embedded into capitalist economies. They are referred to as business cycles. But the important thing to note is that they have in them an in-built self-correcting mechanism. Markets sometimes give harsh messages. This results in mid-course corrections. In the Soviet Union, no harsh messages could be conveyed to the ruling elite for years on end until the system broke.

The recent happenings in the global economy show the pendulum’s amplitude in the business cycle getting extended. Instead of a boom, we are faced with a bubble. Bubbles are a weakness of the market system. But the system cannot be judged as bad because of this weakness. We need to see what happens over a period of time as the consequences of both the positive and negative features are wrung out. If we consider long-term secular trends, the market system comes out ahead in terms of wealth creation and poverty elimination. If stock market wealth drops by 50 per cent in six months, we get concerned. We conveniently forget that it went up by 200 per cent over the previous two years. At the end of 30 months we are still 150 per cent ahead. It has been repeatedly shown that over a person’s earning and saving lifetime, regular monthly investments in the stock market always outperform investing in so-called safe government securities even taking into account the volatility of the ups and downs of equity. The right strategy to ensure that one has a financially sound retirement is to invest regularly in the equity markets, not to get scared and stick with so-called safe returns which will lead to capital erosion in the face of inflation, not capital preservation or appreciation.

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