The Fall Of The "Free Markets"

For those whose focus is on politics more than economics, this prompts two questions. The first is narrow and immediate: how will this affect Brown and his government? The second is larger and more searching: where does this leave the ideology that has governed not only Britain but the industrialised world for the past 20 years? For Brown, the prospects should be bleak. His entire pitch for leadership has been his past stewardship of the economy. A stock market crash and possible recession could shatter that record. Less personally, it is a truism that elections are won and lost - mainly lost - on this ground. When money gets tight, and jobs get scarce, incumbents can lose. Just ask George Bush's father. That, at least, is the conventional wisdom. The contrary view holds that it's precisely when times are tough that voters turn for reassurance to those leaders they already know. Margaret Thatcher was re-elected despite the recession of 1981, and John Major won amid economic gloom in 1992. This holds especially true if the alternative is seen as a shaky pair of hands, as both Michael Foot and Neil Kinnock were. Brown has to hope, then, that Britons will react to the storm by sticking with the rain-soaked helmsman already on the bridge, rather than chancing it with the untested Conservatives. To this end, as I have argued before, Labour needs to get to work fast in casting David Cameron and George Osborne as not only inexperienced, but also as cut from the very same cloth as the City bonus boys who got us in this mess in the first place. It may be unfair, it may rely on cultural prejudice, but it would be effective. There is a more profound response the government could make to the crisis, one that relates to that second question. For surely this is the moment when Labour and the centre-left can dare to question the neoliberal dogma that has prevailed since the days of Thatcher. That creed has never looked weaker. Even before the latest stock market woes, there were voices from deep inside capitalism - not confined to George Soros and Ronald Cohen - fretting for the sustainability of a model that causes such gaping inequality, with a class of super-rich "racing away" from the rest of society, to quote last week's study of the mega-wealthy by the impeccably non-ideological Institute for Fiscal Studies. How long would people be prepared to stomach a system that, to cite just one example, allows the founding family of the American store chain Wal-Mart to gain an estimated $90bn in 2005 - as much as the bottom 40% of the entire US population, some 120 million people, did in the same year? Still, it seems that plenty of today's masters of the universe could live with the charge of mere unfairness. The current convulsions are far harder to shrug off. For they suggest turbo-capitalism is not just unfair - it is dishonest and dangerous. If that sounds excessive, focus, if you will, on the banking sector at the heart of today's mess. It was the reckless gobbling up and selling on of shaky subprime loans - mortgages given to bad-risk customers - by American banks, and the threat that those debts would never be paid back, that triggered the entire loss of confidence that stopped banks lending to each other and caused the run on our own Northern Rock. Those sub-prime debts were dodgy, but they were wrapped up and sold on as if they were triple-A-rated, pukka debts, as solid as a government bond. That was dishonest - and you need only look at the cost to the taxpayer of Northern Rock, £24bn in loans and another £30bn in guarantees, to see how dangerous it has been for our economy and, given the diversion of public money that could have gone elsewhere, for our entire society. No wonder Financial Times guru Martin Wolf felt moved to warn his readers last week: "I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important - the political legitimacy of the market economy itself." http://www.guardian.co.uk/commentisfree/story/0,,2245256,00.html

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