The seemingly ever increasing numbers of innocent followers of Mises, Hayek and Friedman, in their devoted pursuit of the free market ideal, have overlooked the fact that markets, which typically start out as competitive, naturally tend to become monopolistic.
The announcement that Gordon Brown is to put mutualism and co-operatives, such as John Lewis Partnership, at the heart of Labour’s election manifesto is surely welcome after twelve years of the rape and pillage resulting from New Labour’s unquestioning support for free market deregulation and the maximising of shareholder wealth. But what does it mean? Is it just the sentimental swan-song of the Labour government? Or does it have substance as the foundation for real action?
Every day the media reports movements that have occurred in the stock markets and pundits and commentators explain to the people the reasons for those changes. And every day, millions of viewers, listeners and readers think to themselves “If you’re so smart, why didn’t you tell me before it happened?”
The juxtaposition of two editorials in a mainstream broadsheet makes interesting reading. The one argues that Gordon Brown’s advocacy of a tax on global financial transactions, the so called Tobin tax, suggests that the British government has, at long last, given up its slavish adherence to ‘the ideology that believes in deregulated, untaxed, ever-expanding global capital markets as an end in themselves’. The other argues that ‘China must be held to account for its political repression’. The connection between these two lies deep within the aforementioned ideology.
The theory which, over the past three decades, has become the ubiquitous orthodox free market wisdom, is widely assumed to be simply the current version of classical economics originally expounded by Adam Smith. Moreover, it might be reasonable to assume, it being the latest, it is the most insightful and effective, having been shaped by the errors and excesses of previous versions. The current free market model certainly includes Adam Smith in its provenance, but what makes it different from previous models is the fact it is also based on certain theoretical foundations which are demonstrably false and which previous versions did not share. It has become what J K Galbraith described as an institutional truth. That is, not a truth at all, but a downright lie, but one to which all associated must subscribe if their careers are to prosper.
Successive governments from Thatcher on, have been committed to free market capitalism with minimised regulation. That was the bad theory that got us into this mess. But the prescriptions for what will get us out of it, permanently, have so far been piecemeal and fragmentary. The pragmatic response of the British government may restore confidence short term and get the wheels turning again, but it does not offer a coherent long term alternative to the erstwhile orthodox wisdom propounded by the late Nobel laureate Milton Friedman and colleagues.
The announcement of around 1400 job losses at the Bombardier rail works in Derby signals the beginning of the end-of-life stage for another great British manufacturing industry, resulting more or less entirely from the incompetence and stupidity of the ‘madmen in authority’. Their latest incarnation, Transport Secretary Philip Hammond, was interviewed this morning on BBC Radio 4’s Today programme to explain why it was ‘correct’ to award the £1.4 billion Thameslink contract to the German company, Siemens, rather than to Bombardier, UK’s last rail producer. His explanation was based on his belief in ‘free trade and open markets’, although, to do him credit, he had noticed that ‘the Germans award contracts for trains to German builders’, and ‘the French routinely award contracts for trains to French train builders’. He described their approach as looking ‘more strategically at the support of the domestic supply chain’. Well what does he think the British government’s role is supposed to be? Is it to be looking after strategic British interests, or to promote an outmoded ideology that has proved time and again to be disastrous, in particular, to British manufacturing? Well, he and Vince Cable have written a letter about it to the Prime Minister! Good for them!
Continue reading The Bombardier Fiasco