A RECIPE FOR DISASTER - destroy the state

The UK Conservative Party embraces market fundamentalism just as the rest of the world recoils from its excesses

The dogmas of market fundamentalists, whose roots run deep from the Austrian School and thence to Milton Friedman and the Chicago School of economics have had a full opportunity to try their ideas in practice. The world has had a complete course of treatment over the last 25 years and the results have been terrible.
We have seen:

• Massive increases in inequality and poverty in the midst of great wealth - most marked in those countries that followed free-market thinking most avidly. For example, Britain experienced a massive increase in inequality during the Thatcher years, and her successors, who generally followed her free-market principles, have done nothing to create a more equal society. Britain and the US now have permanent sinks of deprivation, with high crime, bad health, poor education and low employment stretching down the generations. This disaster is not seen in those countries in which the state has acted in partnership with other stakeholder institutions, like the Nordic countries.
• A growing gap between poor and rich countries, exacerbated by free-market impositions on countries that needed to protect fragile local economies from the freezing blasts of global competition and had the opposite policies imposed on them by the prime advocate of market fundamentalism; the IMF.
• Massive investment banks running amok out-with the influence of any national governments, engaging in orgies of speculation, described as "creative" by admirers, causing unsustainable bubbles of lending, consumer debt and housing booms that have come crashing to earth with the terrible consequences that all with even one eye can see.
• And even now, the investment banks, rescued by the state from total meltdown, are back to their old ways - and the litany of hate from market fundamentalists about the state is regaining its old volume.

Do politicians never learn?

With so much rich evidence about the gross deficiencies of market fundamentalism and its denial of any role for the state in economic affairs, it might be thought that any politician with half a brain would be engaged in a fundamental re-think of their basic premises in order to chart a way out of the mess and a more positive path forward. One particular point of learning is that the state is of vital importance - one of the main reasons we are in the current mess is that governments were disastrously supine when faced by the ravening beast of the global banking industry and grossly failed to protect the people that voted them in. The current failure is very profoundly a failure of democracy - nobody gets a vote about the banks behaviour.

In the US, president Obama has been making the right noises about how to move forward, but seems to be prevented from decisive action by the massive interests of the finance industries, which have recruited many politicians to their crooked cause.

In Britain, premier Brown has reluctantly admitted that someone got it wrong about banks and regulation, but also fails to convince anyone that he is capable of raising the courage to set about re-structuring the banking industry. He has emphatically rejected a call from the Governor of the Bank of England to separate retail banking for ordinary people and local business from the poisonous influence of the investment banking industry; an act of supreme stupidity.

And then there is the Conservative Party, Britain's most likely contender for government after the election to come in 2010. It has been observed that many senior Conservatives have had close links with the finance industries (see Politicians and the finance industry). Most recently, Lord Strathclyde has seen fit to resign from a directorship of a hedge fund associated with Trafigura, a London-based trading organisation implicated in causing massive environmental destruction in the Ivory Coast. At one stage, it seemed that David Cameron, the Conservative leader, might have learned from the mistakes of the Thatcher era and set out on a more communitarian line. But now it seems that he and his Shadow Chancellor of the Exchequer are set on a "slash and burn" policy with regard to public spending, aiming at massive reductions in public employment and government spending, just at a time that the economy needs to maintain public spending to avoid driving recession into depression. Their strategy has been denounced by respectable economists such as Professor David Blanchflower, the only economist of the Bank of England Monetary Policy Committee to predict the crash of 2008 accurately. Professor Blanchflower wrote:

"If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million.

"If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable.

"They could be our lost generation."

At the last party conference, Cameron suddenly denounced the role of government in a way Margaret Thatcher would have applauded. To quote from his speech:

"Here is the big argument in British politics today. Labour say that to solve the country's problems we need more government. Don't they see? It is more government that got us into this mess"

This has to be one of the most flagrantly inaccurate statements made by a senior politician since Gordon Brown declared "the end of boom and bust". It was supine neglect by governments that got us into the mess; it was massive government intervention that stopped a recession becoming a total economic rout.

Neither major party has seen the light

Alas! Both political parties have their heads full of wool. It is not a matter of Big State or No State - it is not a matter of free markets or regulated markets. There is no "either/or" involved. Those countries that have managed to avoid the worst of the bust have found ways of managing collaboration between elected government and other vital stakeholders and regulated their banks tightly. The much more successful Nordic Model, also practiced to some degree in many other countries, enables the state to play a full role in partnership with local government, industry and employee representative bodies. This way, decisions of import take into account the interests of several key stakeholders, decisions are easier to implement and the degree of conflict in society is much less than in competition-obsessed Britain. The current political system, with it's either/or model of bloody conflict, is bust. The free market is bust. State totalitarianism is bust. Only collaboration and partnership in the interests of the whole of society offers hope.

And in Britain, there currently seems to be no light at the end of the tunnel.