129 days and still no Executive

It has been 129 days since the Northern Ireland Executive met.

Floods, recession, record unemployment, a crisis in education and fuel prices through the roof have not been enough to get Sinn Fein to agree to a meeting with fellow ministers. The Assembly is in recess again this week. Guess you can’t blame them for taking a break when they are already pretty redundant thanks to the Executive paralysis.

Meanwhile in the real world an African-American has a foot in the White House and the greatest global state intervention in financial markets is well underway. We considered this issue last week at work and one of my London colleagues drafted the piece below for our weekly newsletter, Knowledge-Shop. Any MLA wanting to debate the article can give me a call of leave a comment

After some thirty years in hiding, the state is back. As Baroness Thatcher scaled down Government involvement in the market place, capitalism began its Icarean rise until, this year, it was burnt by the sun. Now interventionist policies are being implemented around the world to stabilise the global economy. Whoever is to blame – be it avaricious bankers, or head-in-the-sand politicians – this intervention has, quite rightly, been the focus of much media scrutiny over the last few weeks.

Withcostly, dangerous and lengthy wars being waged in both Afghanistan and Iraq, you would be forgiven for assuming that the British Government’s thirst for liberal interventionism has been well and truly slaked for the time being. However, in the face of a global financial ‘meltdown’ (a word used not by a sensationalist journalist, but by Dominique Strauss-Kahn, Managing Director of the International Monetary Fund), Gordon Brown, largely backed by the opposition parties, has executed the greatest economic intervention in decades.

Criticism has been levelled at the banks themselves, for promoting and perpetuating environments with too little fear and too much greed. Half of this criticism has been neatly dealt with: in London and throughout the world few bankers remain who aren’t recovering from feelings of terror, alarm and trepidation. However, it is much easier to create fear then it is to erase greed. The Prime Minister’s intervention in the financial markets was aimed at stabilising the symptoms of the financial crisis; to deal with the causes of the crisis, regulation will follow and will ensure that increased accountability limits the promise of an easy buck.

Brownie points

If Gordon Brown harboured any fears that his sweeping plans would be met with criticism, he has largely been able to breathe a sigh of relief. In fact, as the polls have shown, after a steady slide through unpopularity into ridicule, the country seems to be more supportive of Brown now than at any time over the last year.

High profile praise has come from around the world. This year’s Economics Nobel Prize-winner, Paul Krugman, asked whether Brown’s actions had saved the world financial system, and went on to note that Brown and his Chancellor Alastair Darling’s actions had “defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up”.

Back on this side of the Atlantic, the plaudits were just as strong. Jose Manuel Barroso, the EU Commission President, praised Brown for acting “as an impetus” for the collective European bailout. The French moderate newspaper Le Monde called him a ‘magician’, claiming that he was giving lessons on interventionism to his continental counterparts.

Perhaps less sweet to Krugman’s ears than to Brown’s, Liberation, the former Communist French daily, suggested that the Prime Minister should have received this year’s Nobel Prize for Economics. In Germany, Der Spiegel gave credit to Brown for the actions which were taken in Europe; even in Anglo-Teutonic relations, imitation really is the highest form of flattery. More tongue-in-cheek was a Swedish journalist, who went so far as to ask whether the UK Prime Minister was in fact ‘Flash’ Gordon.

When did interventionism become unpopular?

Over the past thirty years, many premiers and their close advisors have turned their back on interventionism and big government. This has been particularly notable when it has come from individuals whose politics would naturally embrace a greater involvement of the state in the affairs of its citizens.

In 1993, a disastrous military campaign in Somalia forced President Clinton to turn his back on international military intervention. Three years later he demonstrated a similarly low appetite for domestic intervention: “the era of big government is over”. Peter Mandelson, recently restored to Government as Business Secretary, famously claimed in 2002 that “we are all Thatcherites now”. During Australia’s 2007 election campaign, Kevin Rudd, leader of the centre-left Australian Labour Party, and current Prime Minister embraced the fact that he is “an economic conservative”.

In the lead-up to the most important election in the world, US Presidential candidate Barack Obama praised former President Ronald Reagan for “changing the trajectory of the country” and for infusing it with dynamism and entrepreneurship. Obama went on to say: “He put us on a fundamentally different path, because the country was ready for it. I think they felt like with all the excesses of the 1960s and 1970s and Government had grown and grown, but there wasn’t much sense of accountability in terms of how it was operating.”

Here to stay?

So Gordon Brown’s £500bn bank deal does indeed represent a return to interventionism. And, judging by the reactions of many of the world’s experts in the financial arena, it was a move which will knock granting independence to the Bank of England off the number one spot in the list of Brown’s masterstrokes, even if it is a short list. But is this a one-off return to interventionism, or is the start of a policy paradigm shift towards big government?

Many feel that there is indeed a shift. Jeffrey Sachs, the eminent former Harvard economist, believes that the small government ideology popularised in the Reagan-era is defunct. So too, according to Sachs, is the modest corrective that characterised Bill Clinton’s ‘triangulation’ with the right.

Closer to home, the BBC Business Editor Robert Pestonstates that Brown’s response to the financial crisis represents the “death of Thatcherism, or at least of an important strand of the dominant ideology of the 1980s and 1990s.” Earlier this year, Matthew Parris, the journalist and former Conservative MP, broke from his previous support for free-market capitalists like Friedrich Hayek, Alfred Sherman and Keith Joseph. Parris lists challenges to which he feels anti-statism offers little or no response: the environment, nationally and globally; [presciently] the regulation of banking; fair trade; malaria and HHIV/Aids; immigration.

And despite Barack Obama’s pro-Reagan comments above, he remains the senator with the most interventionist voting record in Congress. If after the November 4th election he finds himself in the White House, Republicans will fear that hopes of small government will be thrust further into the wilderness.

But voters are important too. Acknowledging the belt-tightening straits which the under-regulated financial sector has given us to look forward to, the electorate will perhaps have more of a stomach for a firmer government hand on the tiller. Indeed, the positive reception his actions received will only serve to give Brown the confidence to continue down this road. One thing Brown certainly believes in is the capacity of Government to change people’s lives.

Or is it?

However, the financial crisis was a gift for the Prime Minister, and the fact that it was a global crisis made it all the more sweet. The Chancellor within Brown, his true political role, was able to emerge and, finding himself amongst Treasury officials, bankers and very, very big numbers, he felt once again at home.

Indeed an ICM poll in the Guardian on Monday (20th October) found that 43% of those surveyed trust Brown/Darling more on the economy, compared with 35% who favour Cameron/Osborne. But if Brown has to make interventionist decisions on non-fiscal matters, he will be less able, and he will no doubt inspire less confidence in the electorate.

Those looking for precedents to support the argument that this is the thin end of an interventionist wedge should avoid Sweden. Although the Swedes nationalised their banks in the 1990s, once the rocky financial situation had been stabilised, they sold them.

And if Brown’s move was carried out in the spirit of John Maynard Keynes then it should be noted that Keynesianism was intended to preserve free-market capitalism in difficult times by softening the economic cycle, not to replace it. Extending similar interventions across all policy areas would be unsustainable.

Neither here nor there

Whether or not we find ourselves at the dawn of a new age of interventionism, this single intervention will have repercussions.

For the banks themselves, there are concerns that the Government’s direct involvement on the bank boards could see them turned to political ends. This would be particularly possible for RBS and Lloyds/HBOS: the Government is on course to own 57% of the former and 43.5% of the latter. For instance, the Government has already demanded greater participation in the Prime Minister’s ‘shared equity’ schemes, which aim to get more first-time buyers into home ownership. Furthermore, RBS has been instructed to “increase its investment in Money Sense, which provides free and impartial money guidance to customers”.

The Keynesian model of intervention which Brown has implemented has been out of favour since the early 1970s. This model holds that during recessions, it is governments’ responsibility to borrow money and inject it into the economy – so-called “pump-priming” – which aims to sustain the flow of capital, and combat the threat of unemployment. The Chancellor’s Pre-Budget Report, due next month, will very likely see a “reprioritisation” of the Government’s capital spending programme towards schemes that have collateral benefits in creating jobs.

Brown’s Government is likely to be carrying out major construction projects which otherwise might have waited in a tight public spending round. Construction of those London 2012 Olympic sites waiting for private investment could well be brought forward; the Crossrail link, currently estimated at £16bn, might be accelerated.

As far as defence is concerned, the Chancellor has indicated that the construction of two aircraft carriers and the replacement of the Trident nuclear deterrent (or more accurately the Vanguard submarines that carry it) will create extra jobs. In the education sector, the modernisation of schools through Building Schools for the Future will be pushed ahead. In each of these situations, the Government would benefit from reduced construction costs, as they might represent the only demand in the market.

What now?

Regulation has been lacking for too long from the financial sector, and steps will have to be taken to address this. The pendulum will no doubt swing too far to start with – after such a monumental crisis, few MPs will want to be seen arguing for minimal regulation. But it is encouraging that Lord Turner, Chair of the FSA has said that “there is no doubt the [regulatory] touch will be heavier. We have to make sure it’s intelligent and focussed on where the risks really are.” The secret, to which Lord Turner hints, is to apply smart government, not big government.

As for Gordon Brown’s future, it is not clear whether the hefty improvement he and Labour have shown in all the recent polls marks the start of a slow and steady trudge to a hard-fought fourth victory; or merely a dead cat bounce, a false dawn before the recession completely destroys the electorate’s faith in the Government.