The banking crisis and the sink schools crisis are two sides of the same coin. Or, to put it another way, what we are apparently witnessing now as a crisis of capitalism is in fact a crisis of government.
As I wrote in the Scotsman yesterday, there’s nothing wrong with market capitalism per se. Indeed, it’s the main reason behind the success of the West. But it depends on effective competition, in both capital and consumer markets.
The problem we face is that government, particularly democratic government, inevitable intervenes in the economy to bestow economic benefits on voters. And in intervening it undermines the competitive dynamic, either by creating monopolies through outright state ownership or underwriting industries and thus effectively doing the same by transferring investor / management risk to the taxpayer.
So the current crisis is evident not just in banking, but in other sectors which are underwritten by the state.
The Thatcherites (intermittently 1975-2007) realised that state ownership doesn’t work. But they couldn’t find an effective replacement for those industries where the state cannot absolve itself of responsibility (e.g. PFI, Railtrack, NHS trusts, Lloyds Banking Group, water companies, care homes, Royal Mail, planning system).
This leaves a political opportunity. Whichever politician can define and articulate this problem coherently, and then come up with a holistic approach to dealing with it, could set the political agenda for a generation or more.
You can see the likes of Milliband and Osborne groping towards this. But it remains to be seen if either has the vision to grab their chance.
