John Locke, the English philosopher of the second half of the seventeenth century credited with being the father of the classical liberal tradition, identified the pillars of the modern society offering individual freedom as being 1) limited, secular government, 2) the rule of law and 3) secure property rights exercised freely in markets. The government did not have a role in controlling prices and interest rates, since these would be determined by free human interaction in markets. Rather, he saw the main role of a government created by free people as being, other than to protect life and liberty, to protect private property ' so that people could trade the results of their labours and thereby increase overall prosperity. Locke was thus instrumental in linking democracy and capitalism.

This link was developed by the adoption of Locke's pillars by the builders of Britain's post'Cromwell constitutional monarchy, the French republicans (though they added the collectivist'socialist notion of fraternity) and the American revolutionaries. In recent times democracy and capitalism have become further entwined in the West ' in fact, some would argue that democracy saved capitalism by allowing it to become more inclusive and thus to dissociate ownership of capital from exclusion of the poor. Stock options granted to employees to encourage participation in ownership and the use of mortgages as a source of entrepreneurial funds are examples of incentives democracy has provided capitalism to make it more humane and more inclusive.

Political leaders have used the democracy'property nexus to advance various causes. In the early 1980s Margaret Thatcher seized upon the term "property'owning democracy" to justify her cut'price selloffs of national utilities. Robert Mugabe seized the land of the wealthy white minority in Zimbabwe in the name of a democratic redistribution of ownership. More recently George W. Bush presented his vision of the "Ownership Society" as the basis for his second term's far'reaching domestic agenda covering reform of social security, health care and the tax code. While encouraging self'reliance, individual choice and responsibility (including encouraging poorer workers to invest in equity and bond markets directly, giving them a bigger stake in the success of capitalism), the Ownership Society concept also importantly changes expectations about the role of government. Under this concept, the government's job is to create incentives for people to work harder, save more and demand better value for money from (private) providers of healthcare, education or social services. This is very much a classical economist's sentiment on the minimalist role of government.

The extension of the liberalist notion of free markets beyond the nation state is globalization, a concept desirable in two important ways. Firstly, international trade is beneficial to all parties taken together in the sense that the winners could compensate the losers and there would be a surplus left over (comparative advantage between countries, Economics 101). Secondly, international production and trade undertaken by private companies in a free market is most efficient since private enterprise is better at wealth creation than the state and controls over trade are subject to state abuse of power. And indeed the evidence suggests that globalization has been net beneficial to the interests of many developing nations, mainly those of Asia that were quick to encourage foreign investment and have correspondingly seen national income and average standards of living rise appreciably. However, globalization falls short in many ways.

Firstly, markets are designed to facilitate free exchange but not to take care of collective needs (including environmental and health protection) or ensure social justice (as evidenced by the widening gap between the wealth of the rich and poor both within and between states). Provision of such public goods requires political process, but unfortunately this is lacking. US claims that it is providing the world with the public goods of nonproliferation of weapons of mass destruction and the suppression of terrorism by means of preventative wars are unsubstantiated as, since it lacks the collective acquiescence of the global community, really it continues to act to protect its interest as a nation state rather than as global policeman. (This is of course not a very good example of the non'provision of economic public goods due to globalization but I couldn't resist the dig).

Global institutions fall well short of Locke's vision for government that facilitates free exchange. The UN lacks authority because of its anachronistic over'representation of core countries (though it original balance between capitalist and socialist countries was well weighted), and more importantly because it has not been able to transcend unilateral or group interests. The UN's economic affiliates, including the World Bank, have sought to provide capital to developing countries but often this has been ineffectual due to lack of supporting domestic institutions (including enforcement of property rights). The World Trade Organisation's global trade forums have similarly been undermined by bickering between nations and, as many countries do not participate, by lack of universality. That successful (in a workable sense) free trade agreements have been mostly negotiated on a bilateral basis underscores the unworkability of current global institutions (and of course, even the workable FTAs have been lopsided in favour of the most powerful or diplomatically skilled party ' witness Australia's recent agreement with the US). Even the internet, perhaps the most powerful capitalist tool for its encouragement of innovation and intensive exchange, is subject to property theft on a grand scale. Intellectual property and consumers are not yet protected by global standards, meaning entrepreneurs (including musicians) and consumers are reliant on jurisdictional protection by individual nations.

In the absence of appropriate global institutions it is a mistake to assume, however, that multinational corporations and international financial markets have supplanted states as global actors. They have not ' states retain their sovereignty and wield legal and enforcement authority that no individual or corporation can hope to possess (though clearly the influence of corporations on states is growing ' witness the enormous sums donated to US political parties to win political favour). However, globalisation has impacted on the capacity of states to provide public goods for their own citizens by interfering with the taxation of profits and incomes (the incorporation of major investment companies in offshore tax havens is a prime example) at the same time as customs duties have been reduced or eliminated. Not only has the burden of taxation shifted from capital (and employment) to consumption, but as a result, the Western European welfare state established after WWII is on the verge of painful reform, as acknowledged by the new German President, Horst Koehler: "We have failed above all else to adapt the welfare state to the requirements of an aging society and changing employment patterns ... What our country needs is a change in mentality, a new balance between individual responsibility and collective solidarity".

The German case is also symbolic of the unintended consequences of government interference in price setting ' European monetary union has stifled Germany to the benefit of smaller European countries. Excessive control and/or inadequate domestic institutions are also commonly cited for the concentration in peripheral countries of the fallout from the economic crises of the last twenty years.

That the economies of the US and UK (and perhaps also Australia), leaders in minimalist government, have been able to outpace growth of the Western welfare states in recent decades (not to mention the failure of the Soviet state, with its preoccupation with restricting individual property ownership, and the heralded adoption of capitalism by China), are cited by devotees as evidence of the supremacy of the free democracy'liberal capitalism partnership. But what does the rise of Islam say about the acceptance of Muslims of the social dynamics of capitalism? And what do the dwellers of the slum cities outside Mexico City, Sao Paulo, Johannesburg and Dhaka say about the economic prosperity of capitalism? The latter might well reply that their location and status makes them "free" from the regulation of the state.