THERE is one change, more than any other, that Britain needs to undergo if we want to fulfil our true potential. We must learn to embrace capitalism, individual liberty and the awe-inspiring wealth and job creating potential of business, and ditch our ambivalent attitude towards free markets. It is time for a cultural revolution in the UK and across the Western world, where far too many people object to far too many of the institutions and practices that have generated the astonishing wealth and prosperity we take for granted.
It ought to go without saying that I am an advocate of a genuine, competitive and open capitalism, not of the ersatz, corporatist variety. Learning to differentiate between the two would be a great first step.
In a real market, losses and gains are privatised; in a rigged market, losses of some politically well-connected players are socialised while their profits remain private (though are often taxed heavily as a quid pro quo). Subsidies are granted to favoured players; industries are bailed out, directly or indirectly through overly loose monetary policy; barriers to entry are erected left, right and centre; and small challenger businesses find themselves at a great disadvantage when pitted against entrenched incumbents. These sorts of economies can still plod along but they are inefficient, inequitable and riddled with unfortunate side-effects.
The great bailouts of 2008-09 turned out to be a disaster for the moral credibility of capitalism and helped usher in a new corporatism. They broke the link between success and reward, failure and loss. With freedom should come responsibility. People must always face the consequences, good or bad, of their actions – it is not sustainable for businesses to benefit when times are good but to come crying for protection when times are bad.
Of course, what actually happened at the height of the panic was complex and nuanced, and it was bondholders, not shareholders, who were bailed out. But the authorities had made a tragic error during the good years, for which we are all still paying the price: there was no plan B to manage rationally the failure of major financial institutions. It was a case of either bail them out or let them go bust in a completely uncontrolled manner.
We need to make sure that policy-makers are never confronted with such a choice again. The international authorities are still working on plans for a completely new bankruptcy code and system for large, systemic financial institutions; such resolution mechanisms – complete with bailinable capital, living wills and a toolkit to dismantle and unwind failed banks while protecting the rest of the economy – cannot come a moment too soon. When they are finally in place, the state’s implicit guarantees, and the accompanying hidden subsidies, will be finally removed from the system, and the risk-taking and moral hazard that they can generate will disappear.
Reinjecting the fear of bankruptcy into the system is the solution: it will mean that market mechanisms will be able to start disciplining finance again, and that we will no longer need to rely as much on heavy-handed and often flawed regulations. Real free-markets balance out greed and fear: people want to make money, but they are scared of the consequences of going bust. In the case of banks, employees and shareholders need to be kept in check by bondholders and depositors. Global regulators all agree about this; the ball is now in their court.
On that note, dear readers, I bid you farewell. This is my last column as I am stepping down as editor of City A.M. after a wonderful six and a bit years at the helm; the paper is in great shape and will continue to go from strength to strength. Thanks for all your comments, messages and tweets over the years; it has been a great pleasure writing for such a sophisticated, loyal and superbly-informed audience. Goodbye, and thanks again.