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The Vatican at dawn. Catholic social teaching proposes correcting the way market forces work so that they serve the public interest and the common good. Photograph: Filippo Monteforte/AFP/Getty Images

It was 25 years ago this month that communism ceased to be a threat to the west and to the free market. When sledgehammers started to dismantle the Berlin Wall in November 1989, an experiment with the command economy begun in St Petersburg more than 70 years before was in effect over, even before the Soviet Union fell apart.

The immediate cause for the collapse of communism was that Moscow could not keep pace with Washington in the arms race of the 1980s. Higher defence spending put pressure on an ossifying Soviet economy. Consumer goods were scarce. Living standards suffered.

But the problems went deeper. The Soviet Union came to grief because of a lack of trust. The economy delivered only for a small, privileged elite who had access to imported western goods. What started with the best of intentions in 1917 ended tarnished by corruption. The Soviet Union was eaten away from within.

As it turned out, the end of the cold war was not unbridled good news for the citizens of the west. For a large part of the postwar era, the Soviet Union was seen as a real threat and even in the 1980s there was little inkling that it would disappear so quickly. A powerful country with a rival ideology and a strong military acted as a restraint on the west. The fear that workers could go red meant they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high.

There was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s, but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it had previously been off limits, expanding the global workforce. That meant cheaper goods but it also put downward pressure on wages.

Whats more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If citizens did not like reform of welfare states, they just had to lump it.

And, despite some grumbles, thats pretty much what they did until the global financial crisis of 2008. This was a blow to the prevailing free-market orthodoxy for three reasons. First, it was the crash that should never have happened. Economists had constructed models that showed markets were always rational and self-correcting. It was quite a shock to find that they werent.

Second, the financial crash made countries poorer. Deep recessions have been followed by historically weak recoveries characterised by falling real wages and cuts in benefits.

Finally, the crisis and its aftermath have revealed the dark side of the post-cold war model. Instead of trickle down, there has been trickle up. Instead of the triumph of democracy, there has been the triumph of the elites.

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The cold war, Catholicism and modern capitalism