The 2008 Credit Crunch and 2009 Recession
Does the recession sound the death nell for laissez-faire capitalism
Straw man argument
Reading the Oxford University Debate Linda Yueh come very close to saying this is a strawman argument that assumes that we have been implementing laissez-faire capitalism for the past thirty years. It is true that the Conservative Governments of 1980’s and 1990’s abolished Exchange Rate Controls and deregulated the City of London and this was continued by Labor when they gave independence to the Bank of England . These liberalizations of the market enabled Britain to build one of the largest financial markets in the world that financed through tax receipts the large in increase in welfare spending in the UK in the early 2000’s But to argue that this was laissez-faire capitalism is to forget the effective oversight bodies such as Competition Commission, Office of Fair Trading and the Financial Service Authority that operate in the UK and the Security and Exchange Commission and the more rooted general legal and regulatory framework that exists in the US.
Would Governments do any better?
What is the alternative? Jonathan Michie rightly criticizes the banks for making one way bets. The banks were so large that on the upside they made all the profits and on the downside the taxpayers took all the risk. But remember when Governments took big bets such as Concorde or British Leyland. It was still the taxpayer who financed the losses. He criticizes (rightly) the ‘greed is good’ culture that promotes self-interest and speculation ahead of any real long term benefit to the economy yet he implicitly suggests that government planning would put economic planning above political interference. How many unreformed industries would still be being subsidized by the taxpayer and protected merely to help re-election? If there was an altruistic context to the government’s economic planning during the 1930’s surely no one believes that to be the case today. Where they have had the opportunity to develop long-term planning arguably they have failed. Western governments have had a generation to find a solution for the looming insolvency of pensions and social security yet it took an economic crisis before the UK to seriously tackle the problem with France and the US even further behind.
A middle way?
Linda Yueh makes the argument that you should not throw ‘the (free-market) baby out with the (credit crunch) bath water’. Governments should only get involved where the market is the wrong mechanism. Investing in public transport is one example or a ‘Tobin Tax’ levy on foreign exchange transactions could finance development in poorer nations. Or provide incentives to build new green technologies and industries; as Jonathan recommends. If anything good can come out of the global recession it is that it can provide an excuse to correct the chronic under investment in public infrastructure while letting an effective regulated market operate freely in a global economy.
