Don't count capitalism out yet

— -- Q: With the government essentially nationalizing banks and bailing out private enterprise (auto companies), is investing in capitalism no longer a good idea?

A: When the Berlin Wall fell, more than concrete came crashing down. Faith in centrally planned economies came down with it.

Now, the U.S. is having a bit of a Berlin Wall moment. The near-collapse of the nation's financial system has revealed some major problems with capitalism, long heralded as the most efficient in the world. With the government bailing out banks, insurers and mortgage companies, the free market has suffered a major black eye.

Historians will debate for decades what happened to bring U.S.-style capitalism to its knees. I'll leave that discussion to others.

But you're right to worry about what the struggling nature of capitalism means for you and your portfolio. After all, capitalism drives the formation of businesses and channels money to profitable enterprises. You, as an investor, are getting paid for taking the risk of providing your money to companies. If you've lost faith in capitalism, that is a reasonable reason to give up on stocks. It's not unreasonable to say the government's greater presence in business will squeeze profit for commercial enterprises in some industries.

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With that said, though, the U.S. isn't the U.S.S.R. While the government is clearly becoming more important in business, especially in the financial and auto sectors, there's still room for free-market competition, says Mark Hebner of Index Funds Advisors.

New companies, even banks, are free to compete against the large banks the government is investing in. "The government is not trying to enforce a monopoly," Hebner says. "That's where you get into trouble."

It's similar to how FedEx and UPS sprung up and have competed vigorously and effectively against the U.S. Postal Service. Entrepreneurs will need to consider how their business intersects with government programs and be careful to provide better service or a unique product.