The search for a new economic order

Ever since the wheels began to come off the global economy last year, there has been a lot of chat about whether there should be a new model of economic policy, both for global trade and within individual countries. Furthermore, all this happened while, in an iconic moment, the Bush administration in the United States was replaced by that of Barack Obama. Much of the commentary focused on the assumption that we were experiencing a major crisis of confidence in capitalism, and that what would now happen was that free markets would be replaced by a highly regulated system. The recent G20 summit in London spent some time on all this, with the French President, Nicolas Sarkozy, in particular emphasising the need for regulation (and threatening to walk out if his approach was not adopted).

There are a lot of lazy assumptions in all of this. One of them is that the world economic order before last year was based on totally unfettered markets. Furthermore, the view that George W. Bush was a free market leader is also highly questionable; his administration was economically one of the most interventionist in US history, and presided over an intricate set of regulations, particularly post-Enron. In fact, it could be asked whether the experience of the past few years tends to show that regulation actually does not always work very well. After all, after the events at Enron and Worldcom, people were led off in handcuffs, and yet this appears to have had a minimal effect on the big bonus earners in parts of the financial sector.

Nobody can reasonably presume that nothing needs to change now. Clearly it does. But it must be questioned whether the Franco-German view of regulation (which may be no more than bureaucratisation) is the right way to go. Setting up new regulatory offices whose main effect will be to slow down decision-making and ensure it is increasingly risk-averse is almost certainly not the answer. On the other hand, encouragingthe  people holding the world’s financial levers to take crazy decisions, sometimes based on nothing more than their aspirations for another bonus is also not right. It seems right that we must look at ways in which the conduct of key persons in industry and in the financial sector can be guided into ways that benefit society.

But that won’t bring about recovery. Perhaps the newly unveiled strategy of the UK’s Secretary of State for Business, Enterprise and Regulatory Reform, Peter Mandelson, represents an interesting basis on which to consider a new role for governments to help steer both local and global markets. His strategic document published todayNew Industry, New Jobs – sets out a more activist agenda for government in order to identify and support growth areas that can generate employment and prosperity. There is also an interview in the London Independent newspaper in which he explains both the opportunities and risks. In short, what is being suggested here is that growth does need at least some element of strategic planning which looks at future trends and needs and identifies areas to be targeted for growth and support. That may be a more urgent exercise than coming up with even more intricate models of regulation.

Explore posts in the same categories: economy, politics

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