Many of the critics of capitalism love to point to those parts of the world where newly-freed markets have encountered major problems as "proof" that capitalism doesn't work.
Without hesitation, big-government advocates will talk about large global corporations that were deemed "too big to fail", and had to be bailed out at the expense of the taxpayers and little guys. With similar logic, they point to former Soviet bloc countries which have seen violent opposition to capitalist reforms and little benefit from them.
Like many controversies, much of the problem lies in the differing definitions of words. To a Free-Market Capitalism, free market means zero regulation. To pro-government socialists, "free market" usually means "not regulated the right way" or "not regulated enough".
The truth is that the big banks, auto manufacturers, and investment firms that received the bailouts from the U.S. government operate in the some of the most highly-regulated industries on earth.
For example, the auto industry is regulated by thousands and thousands of laws and regulations; everything from those pertaining to import/export restrictions, safety, fuel economy to labor relations, and emissions standards - not to mention the SEC regulations controlling the issuing and sales of company stocks and their financial businesses like GMAC. Each of these regulations presents a barrier of entry to new players in the market. This is how government protects the cartel, by discouraging competitors from entering and competing against their existing political contributors and allies. This stifles innovation.
Then there are those who bring up the failure of "free markets" in other countries. There is a very long list of countries which were once socialist or communist, but then either peaceably or through violent revolt gained some level of personal and/or economic freedom, only to find that the transition didn't go as smoothly as free market advocates had hoped for.
Hernando deSoto makes a great observation in his book The Mystery of Capital where he explains the foundation of all capital in being the establishment of undisputed claims to property. The thing that makes capitalism work is that the foundation of all capitalism lies in proving that a particular piece of property actually belongs to a particular person or entity.
He also argues that capitalism has been successful in the west precisely because of the establishment of records of ownership via titles. In the west, when a person purchases a piece of property, there is a record of the transfer of ownership that is recorded in a public registry which can be accessed by anyone.
Still, accusations of collusion, forgery, corruption, and conspiracy would occasionally bring challengesto this system, which would be resolved by a system of courts. In countries where distrust of government institutions, courts, and wealthy landowners is embedded in the minds of the populace (such as in former communist countries), this system is even more limited. Trust in the institutions that witness and record these transactions is absolutely necessary for the entire system to function. That trust often does not exist in other countries and cultures.
What made the limited form of capitalism that the U.S. enjoyed a success was the system of public record-keeping of property ownership that was somewhat accurate and the court system that was in place for resolving disputes. When buying a house, for example, a lawyer or title company could do a simple search through public records to find if the seller has the legitimate legal right to sell the house to the buyer and transfer that ownership and file the transfer with the local government office in order to list it in the public record.
Today, we are seeing a very strong erosion of that trust in the system which is needed in order to facilitate the peaceful exchange of goods due to the exposure of the corruption that is (and probably has been) in the system. The massive amounts of foreclosures going on with the current and on-going housing crisis is exposing the fact that many people are being defrauded out of their homes through either corrupt lawyers, banks, and title companies, environmental regulations, and/or through lazy and sloppy filings.
The failure of these centralized systems is that they require a level of trust in the system.
Enter the Blockchain
The backbone of the phenomenon that is crypto-currency, the most famous of which is Bitcoin, is the Blockchain. The Blockchain is a public record of ownership of currency which is anonymous, fully-distributed, decentralized, and publicly viewable from any computer. The computer code behind the Blockchain is open-source so anyone can view it to make sure it is on the up and up.
Bitcoin transactions work by simply updating records in this public ledger which is stored on multiple computers all over the world, and agreed upon by all of them. The entry of transactions appear in the order decided by the network itself and not by any person or group of persons. For every transaction the ownership of the coins being used as currency is traced all they way back through the Blockchain to the time the coins first went into circulation or all the way back to the Genesis Block. Best of all, the entire thing is encrypted, secure, and anonymous. While this system is what is used for the transfer of currency, the uses for the Blockchain idea are nearly endless.
The beauty of the Blockchain system is that it requires zero trust in anyone. In fact, it operates on the assumption that everyone is a crook.
Here are some of the other potential uses for blockchains:
Title transfers of real estate. The use of a blockchain for real estate is the next most-logical step. This would eliminate the need for lawyers and title companies along with their outrageous fees.
The existence of a public ledger that is free from political corruption would work miracles in places where land disputes often escalate into violent wars. This is one of the primary roles for many or perhaps most country governments, almost eliminating the need for a county government altogether.
Sales of automobiles. Imagine no more involvement of the local or state DMV in selling or buying
cars. No more standing in their lines, paying whatever fees they demand, and no more annual registration fees.
The need for license plates also goes away - which won't make law-enforcement happy, but it's your right not to be identified while traveling, and you've given up that right by putting a license plate on your car.
Ownership and Structure of Corporations. Already, the blockchain model is being to theoretically create corporations where the ownership is fully-distributed and shares are traded like currency on a Blockchain instead of on a central trading floor through
Intellectual Property Rights. While most advocates of decentralized networks are opposed to the idea of Intellectual Property in general, there is no reason that a Blockchain could not be used for this purpose. This would eliminate the central bureaucratic powers that run the U.S. Patent and Trademark Office and their foreign counterparts. Enforcement of these "rights" would be a different subject altogether, though a voluntary system could be implemented and the Blockchain could be used for the management of royalty payments and licensing fees, etc.
Registration of Internet Domain Names. Currently Domain Names are registered by a single corporation that holds a monopoly on this service (ICANN). The oversight of a world-wide distributed network like the Internet by a corporate monopoly makes little sense. Complaints against ICANN abound, and they are often slowly and poorly handled (as you would expect from a monopoly). Replacing ICANN with a group of fully-distributed networks could handle all their functions and totally replace the organization.
Namecoin is already in the process of making much of this happen.
Much of the "under the hood' stuff of the World Wide Web systems could be better managed by distributing these tasks through the network of a blockchain. A lot of the stuff most of us never see like the management of TLS/SSL certificates and that sort of thing.
The reason capitalism has failed to take hold or flourish in many 3rd world countries is taken away by the Blockchain. A trustworty, anonmymous, private, encrypted, secure, and efficient system that records ownership records is here. It will liberate the entire world by crushing cartels like the Federal Reserve, the International Monetary Fund, the World Bank, OPEC, the New York Stock Exchange, the regional energy utilities, Internet Service Providers, currency exchanges (FOREX), NASDAQ, as well as the drug cartels, not by outright destruction, but by making them irrelevant and obsolete. Bitcoin can and will liberate the world... peacefully.
This is just the beginning.