On the need for a new economic model

This article was published in the Yorkshire Post

A new model of economics must rise from the wreckage of this recession
26 February 2009
APOCALYPSE Now and Forever might be the title of the next Oscar winning film based on the state of Britain's economy. Perhaps the script is already being written as a co-production between the Bank of England and BBC News starring Robert Peston as himself and Sean Connery playing the Scottish Treasury Select Committee chairman, former teacher John McFall MP.
It seems at times as if capitalism is a monster that can periodically be guided in beneficial directions and then roars up to devour its faithful. In the 1970s, rampant inflation destroyed the savings and pension income of millions. In the 1980s, Yorkshire's steel and other industrial jobs were sacrificed on the altar of monetarist ideology. In the 1990s, businesses were shut down by the tens of thousands and house repossessions soared. Then there were specific causes and effects which could be remedied. Today, the recession, which is causing grief to individuals losing their jobs or homes, or those well-run businesses suddenly denied credit from their banks, appears to have come from nowhere. Like a tsunami rising from the sea without warning, parts of the economy are suddenly submerged. Of course, we blame the Government in Britain. Yet Gordon Brown is not in charge of the German or Japanese economy where the economy is shrinking at a far faster rate than in Britain. Most recent figures in the annual decline in industrial output show it going down 21 per cent in Japan, 19 per cent in South Korea, 12 per cent in Germany, 10 per cent in the US and nine per cent in the UK. Gordon Brown may be blamed for many things, but he is not responsible for this abrupt end to the long 30-year cycle of deregulated economics that took root after the end of the 30 year cycle of welfare state capitalism put in place after 1945. The British political class is, as always, sinking to the occasion with the yah-boo insults in the Commons unworthy of the crisis the nation faces. Not all the suggestions made by Conservatives or Lib Dems are wrong, but they are put forward in such a naked partisan manner that the Commons is reduced to the brawling uproar of an Oxford Union drinking club. Brown, as Chancellor for a decade, could not escape the generalised world view which set in from 1980 onwards that allowing capitalism to proceed without rules – which is what deregulation means – was the only way forward. Business outfits like the CBI, the British Chambers of Commerce and others campaigned against regulation rather like ship-owners before 1912 arguing that to equip liners with adequate lifeboats was a regulatory burden which should not be imposed on them. Anyone can rant against the bankers, but the Treasury Select Committee which is enjoying its moment of glory might ask where its reports are from two, five or 10 years ago castigating the Government, Bank of England and the City for its light-touch policy of allowing financial institutions to build houses made of cards? Alistair Darling attacks Swiss banking secrecy. Eh? Has he ever looked at the Cayman Islands, Bermuda, the Isle of Man or the Channel Islands tax havens all of which are under British jurisdiction? And as an EU member when will Britain campaign against banking secrecy in Luxembourg, Austria or the tax-haven of Monaco, where rich Brits who do not want to pay fair taxes in our country, go and hide? And when, but when, will the Tories come clean on Lord Ashcroft's tax status? In the end, this is not a made-in-Britain problem but a global crisis of market economics. It will not be solved by the nostrums of the Left, still less by the George Osborne's view that reducing the volume of economic activity by cutting public expenditure is the way forward. Even the arch-monetarist, Professor Tim Congdon, advocates the Government giving £100bn to banks – the biggest one-off use of taxpayers' money ever proposed in economic history. At some stage, full nationalisation of banks may be needed. Yes, we need to get mortgages going again. But we all need to build more houses and that means facing down the "nimby" refusal to allow house building that we see from councils and anyone complaining that their garden views might change to allow fellow citizens the right to live in a house. Savings have to be revalued and a new approach to pensions agreed. The view that privately-funded pension pots will be adequate is nonsense, as Ros Altman demonstrated in the Yorkshire Post this week. In fact, the sooner Labour puts Dr Altman in the Lords and makes her pensions minister, the safer all who worry about retirement will feel. Above all, we need European and international co-operation. It is no accident that Gordon Brown is the first European leader that President Obama has agreed to meet, and still less that Britain's Prime Minister has been asked to address the joint houses of the US Congress. While petty point-scoring continues unabated in the rank cockpit of the Commons and the media, there is recognition in America, China and in Europe that Britain is seeking to find a way out of the crisis which has no national solutions. Out of this disaster, a better way for managing our economy here in Britain, in Europe and globally needs to grow. China, Japan and Germany need to be urged to consume and import more. A culture of fair wages and pay is needed. As Gandhi observed, there is enough in the world for everyone's need but never enough for everyone's greed. Do we need a Hippocratic Oath for the banking community? We entrust our bodies to doctors who live by an ethical code. As we entrust our money to financial institutions, should we not expect them to abide by a code of ethics we can trust? In short, out of this crisis a new model of economics must grow. All can play their part in shaping the debate much as Harold Macmillan paved the way for post-war Keynesian economics with his writing in the 1930s. But, until politics rises to the challenge of economics, the hysteria will continue and wisdom will have to wait for calmer times.