According to libertarians, we are currently experiencing a typical boom-and-bust cycle of capitalism, where downturns are only to be expected after a major bout of record productivity, profitability and growth. To them, markets will eventually adjust themselves to the present slippage and commence on a new round of enrichment propelled by technological innovations and freeing up of restrictions on goods and capital. By conceptualizing shrinkages as part and parcel of the game of capitalism's "creative destruction", they see no reason to examine the way the world economy was managed or mismanaged in the era of globalization.

The other side of the fence, led by critics of neo-liberalism, blames unregulated markets and excessive speculation for the economic mess that is impacting the rich and especially the poor in both the global North and South. To this school, the retreat of the state into a shell since the onslaught of Margaret Thatcher and Ronald Reagan's neo-liberal dogmas left open a vast hunting ground for greedy financial heists, fictions and bubbles by capitalists who mastered the art of "making a fast buck" at the expense of lay persons.

Followers of this line of thought point to the extraordinary fraud and speculation of the era of "corporate globalization" as the root causes of the present maladies. The virtual procession of blue chip banks, investment companies and industrial firms into a cul-de-sac of insolvency in recent years reveals, to this school the delusions of market fundamentalists that free competition can actually exist and that it would be enough to secure overall human welfare. The less regulated the economic sphere, it appears to them, the more the likelihood of the weak and the uninitiated falling prey to slick and unscrupulous financial manipulators.

As the sorry sight of foreclosures and disappearance of hard-earned savings of ordinary American and European homeowners and depositors unfolds, the weight of the evidence favors the anti-neo-liberal camp's theory of culpability for the crisis.

The subprime mortgage disaster, which has dragged the entire Western financial system down with it and spun nightmares of trillion-dollar meltdowns, is a case of unregulated profligacy by adventurous capitalists. The absence of state licensing and oversight of the housing finance sector enabled bolder and more complex "derivatives" to be spun out of thin air, infecting whole economies and their foreign partners.

With no Leviathan watching and correcting the accumulating imperfections, the markets entered the badlands of profiteering by bending the basic rules of accountancy, transparency and corporate social responsibility.

At the peak of neo-liberal hegemony, developing countries around the world were being offered "bailout packages" by the International Monetary Fund (IMF)to solve macroeconomic crises. Ironically now, it is not international financial institutions but the states of Western countries that are doing the fire-fighting and bailing out their own prized corporations such as Freddie Mac, Fannie Mae and Northern Rock from sinking.

Powerful states, epitomized by the phrase "Washington Consensus", had been pushing to downsize the regulatory power of states in the Global South by means of the IMF and the World Bank. It is quite a reversal of roles now for them to be forced to take on a more interventionist role in their own economies after facing flak from their publics for allowing speculators free rein to plunder.

If the first decade of the 21st century were to be generalized in terms of trends, it might well be remembered as the time when the bastions of neo-liberalism ate humble pie and intervened in their economies to prevent the social costs of robber baron capitalism from exploding.

In his 1944 magnum opus, The Great Transformation, political economist Karl Polanyi argued that the history of the modern industrialized world is to be viewed with the heuristic device of a "double movement". On one hand, market capitalism advances ruthlessly in its drive for accumulation and dispossession of the weak without being burdened by the state's handcuffs. And on the other hand, pressures build to regulate and tame the speculative beast from harming society and "social interests".

In the post-World War II era, this battle of opposites polarized the world between the Western and Eastern blocks and produced extreme reactions to uncontrolled capitalism like dirigisme. In the post-Cold War era, however, it is very unlikely that economies ridden by the global recession will opt for maximal statist solutions to ride out of the dumps. Instead, what we will witness is the return of the Leviathan as a regulator that is still within the boundaries of liberal capitalism, though not blind to violations of fair play by big businesses. This will involve a reworking of the relationships among states and capitalists in the overall interest of preserving the "system" at the national and global levels.

A corollary to the reinvention of the state's regulatory power over the economy is the growing clout of its national security dimensions in the political sphere. As many countries battle internal insurgencies and external threats in the context of a US-led "war on terror", the accretion of military and policing powers of governments over the past decade has been tremendous. States have more legal and extra-legal means of coercion today than they did 10 years ago and notions of "national security state" and "political economies of defense" enjoy wider following.

Philosopher Georg Hegel's characterization of the state as the "march of God on Earth" may have applied to a different era, but it carries a ring of familiarity as governments open their purses to save collapsing companies and shield citizens from spiraling costs of living. As the rescuer of last resort and the protector of social stability, there is no alternative to the centralized institution of the state. Deeper state interventions in the economy and in society are, for good and worse, here to stay and the repercussions of this shift away from neo-liberalism will be felt for whole generations.

Sreeram Chaulia is a researcher on international affairs at the Maxwell School of Citizenship in Syracuse, New York.

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