Thursday 9 October 2008

No such thing as a free market

A call yesterday from Landon Thomas Jr of the New York Times. Did the Fabian Society feel that Socialism was back - with the government's banking bailout meaning that the the tide of ideas was now flowing our way?

Well, only up to a point.

I hope that I didn't disappoint too much in resisting the temptation to sing the red flag, and demanding the restitution of Sidney Webb's old clause IV as the true faith, taking these developments as just the first step to seizing the commanding heights of the economy for the workers.

But this is an important reminder of some central social democratic truths, on which I am quoted in Thomas' NYT and International Herald Tribune news analysis pieces.

In a country that is not so far removed from a period in the 1970s when the government's economic hand was a heavy one, the move to partially renationalize the banks was seen as a rejection of some of the worst excesses of capitalism.

"This reminds you of a fundamental truth - there is no such thing as a free market," said Sunder Katwala, the general secretary of the Fabian Society, an organization in England that has long held the view that the government should have a supervisory if not interventionist role in the economy.

"If you believe the markets are important," he said, "then you need the rule of the government to make that possible."

These are truly historic developments, but much will depend on further policy and political debate about the post-crisis response. And here are at least three reasons not to get too carried away about their political implications.

1. The largest nationalisations have been undertaken by the Bush administration, the most right-wing government in any OECD country in recent memory. At least, the game of never saying the n-word (nationalisation) over Northern Rock seems a long time ago now.

2. There was a very broad consensus in the UK for the action which the government has taken - across non-partisan opinion formers as well as the major parties. OK - Simon Heffer thinks this is Bolshevism. But anybody reading his piece is left at a loss as to what he thinks should have been done (which may be why he's struggling to carry the argument even on the Telegraph messageboards).

3. Those much further left may exult in developments. The problem with waiting for the end of capitalism is that they will have just as little idea as Heffer about what to do in a crisis. (Indeed, David Marquand's magisterial biography of Ramsay MacDonald showed that the eye-watering economic orthodoxy of MacDonald and Philip Snowden from 1929 to 1931 was rooted in the belief that some post-capitalist utopia would follow, making engagement with alternative economic proposals such as those of FDR or Lloyd George pointless.

The social democratic and (positive) liberal traditions have never been about a fundamental break with capitalism. They have been important in providing the governance on which markets depend, and have also rebuilt public legitimacy to give markets a licence to operate, a point which is usually recognised by political opponents too, at least at the moment when the crunch comes.

That tradition is now being adapted to new global economic conditions. For, however easily it is forgotten by those who benefit during a boom, the historic task of social democracy has often been to save capitalism from its worst excesses - and its worst advocates too.

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