by Stephen Tall on July 30, 2009
The BBC’s business guru Robert Peston poses the question over at his blog, If markets don’t work, what will? He identifies three recent examples of public authorities – the treasury, the Commodities Futures Trading Commission and Ofcom – alleging that the markets they are being paid to regulate just aren’t working, and that consumers are being overcharged.
Market failure is not a new phenomenon by any means. Even in my A-level Economics I was taught that the ‘perfect market’ quite simply didn’t exist: consumers do not have omniscient knowledge and don’t always behave rationally, barriers to entry for companies do exist, there is rarely complete freedom of decision, etc. Inevitably, therefore, we have been left with a mixed market economy, in which privately-owned and state-run companies co-exist, each bound to some extent by government regulation aiming to protect the public interest in the absence of that ‘perfect market’.
From 1979 until 2008, the pendulum swung in favour of the private sector, what Peston describes as ‘the Anglo-American political consensus of the past 20 years that the markets are normally right’. And then came the collapse of Northern Rock and Lehmans. Since when, says Peston, a ‘new ideology’ has sprung up:
… participants in markets who accumulate the biggest personal fortunes are merely those most adept at predicting the irrational behaviour of the herd. Which probably shouldn’t be seen as any more noble or as a more socially useful form of wealth creation than betting on the 3.30 at Kempton Park.
Where does all this leave us? Peston’s article poses the questions, doesn’t supply the answers (why should he?):
And finally to quote Peston:
Peston’s article concludes by quoting the Tories’ plans for the ‘post-bureaucratic’ society, utilising the internet to try and create a ‘perfect market’ for households ‘with as much relevant information as possible via the internet to make informed choices about which financial services to buy or which state school to choose.’ In short, don’t worry about private sector rip-offs: Google will sort it all out for us. You don’t have to be David Davis to spot the flaw. The immenseness of Peston’s questions dwarf the smallness of the Tories’ answer.
Peston’s questions get to the heart of our dilemmas, as we try and work out what policies will be needed to lift the UK out of this recession, and prevent such asset bubbles being created in the future. How do we create a tax system that balances equity and wealth creation; how do we balance private wealth creation and public well-being protection; to what extent can private industry be trusted to deliver public goods? The seeming certainties of the last two decades have evaporated, leaving nothing but mist in their place.