Peter Mandelson, whose reappointment to the Cabinet has left me feverishly indifferent, is fretting over the sanctity of the free market -the fairytale in which he is really too old now to believe.
Today’s Times
reports Mandelson’s warning that the EU ‘could be hit by a surge of “economic nationalism” after European governments enacted a series of unilateral moves to shore up their financial systems at the expense of other member states.’ The examples he has in mind are the decisions by the Irish and Greek Governments to guarantee bank deposits, which have, in the case of Ireland at least, predictably meant an outflow of money from the UK to these ‘safer’ banks, thereby hurting UK banks. Opines Mandelson:
“The danger in this crisis is it may spark a new wave of economic nationalism, with each country looking for a ‘get-out-of-jail free’ card. People have to realise that selective or national approaches could lead markets to look to parts of the financial system in a distorted way.”
Well, yes, these governmental moves do distort the market because they make the banking environment more attractive in one country over an another. Financial services are a market now -they were made that way by the neo-liberal economics of which Mandelson is a champion. Banks are there to make money, which is why there were so 'innovative' during the 90s and why they are paying the price (or rather asking the rest of us to pay the price) today. That’s pretty straightforward. What’s less straightforward is why Mandelson is complaining about this but was so enthusiastic when various governments, particularly in the Far East, made their business environment so comfortable -by deregulating employment protection, slashing environmental standards and reducing or even eliminating corporate taxation – that domestic business outsourced work abroad and closed factories at home. That is also government intervention designed to make one market far more attractive to business than others. Foreign economic nationalism that causes domestic jobs to haemorrhage is apparently fair play but similar nationalism that bleeds domestic banks is caddish and unmarketly.
It’s another demonstration of the selective application of free market principles: intervention and subsidy to protect jobs -actual human beings- is wrong, yet intervention (say, $700bn) to protected capital is an economic necessity. Taxpayers cannot be asked to support each other by bailing out a manufacturing concern and protecting jobs; that is unacceptable, economically illiterate and, frankly, Socialist. But the taxpayer can be asked to spend billions buying worthless assets in order to rescue the super rich, the super greedy and, let’s remember, the really quite stupid.
Mandelson is apparently back in the Cabinet because there is a crisis and, in a crisis, one needs one’s best people. Naturally, that’s the global economic crisis and not the Labour’s Screwed At The Next Election Crisis. No, he is an excellent Minister and has an unparalleled understanding of international finance -something that his invocation of what is only superficially a double standard demonstrates quite clearly.
Update 19.50:
Mrs Merkel has
announced that the German Government will also now guarantee all private savings in German banks. The BBC's Robert Peston
expects the UK to follow within 24hrs. Meanwhile, there is also some
evidence that there hasn't yet been a major outpouring of capital to Ireland after all.
