Oh dearie me Mr. Coman

This is a bit of a stretch.

Even Douglas Carswell, one of the more right-wing MPs among the new Conservative intake, has joined the fray, arguing that \”the free market all too often turns out not to be a free market at all, but a corporatist racket for the few\”. That judgment was approvingly quoted by Dominic Sandbrook, the Daily Mail\’s favourite historian, who castigated the capitalist system\’s inability to deliver on its most fundamental promise: equality of opportunity.

To paraphrase Aretha Franklin, when it comes to the critique of capitalism, the Tories are doing it for themselves.

It\’s a reasonable enough critique. It\’s one I would sign up for myself.

Now that the Vatican has a British ally in Charles Moore, the biographer of Margaret Thatcher, the time is ripe for Labour to resume the corrective role that it performed with such distinction in the postwar period. Different solutions and approaches will be required for a different world, although some of the features of \”the golden age\” – capital controls and an enhanced role for reformed trade unions – may be worth revisiting. But the starting point is to recover some of the old moral dynamism that gave the party its reason for being in the first place.

The summer of 2011 may well be remembered as the moment at which it became clear that global free markets are as incapable of perfect self-regulation as the News of the World.

This is not reasonable and isn\’t something that I would sign up for.

That capitalism, or markets (two very different things recall) require regulation is not in doubt. The interesting questions though are who regulates what and how?

To this interesting set of questions there are, very roughly speaking, to possible sets of answers.

The liberal answers and the Statist answers.

The initial diagnosis, fine, let us run with it. We do not in fact have \”free market\” capitalism, we have a form of crony capitalism. Those doing just fine from the current system do so because they\’ve been able to protect themselves from upstarts. If you like, the bankers have been able to socialise losses. Further, large companies can crush the competition from upstarts as regulations are composed that weigh  more heavily upon new companies than extant ones. The established piss on the marginal: this is as true of requiring CORGI accreditation to be a gas fitter as it is the 5,000 tonnes* of paperwork required to build a nuclear power plant.

We\’re in exactly what Adam Smith railed about, a world in which those already rich, those politically connected, get to manipulate the rules in favour of those already rich and politically connected.

I don\’t think there\’s be all that much argument from the left side of the aisle on this?

Good, so we\’ve two possible solutions. We can go down the route of more state regulation of all of these things. However, there are two problems with this.

1) We\’ve already tried that. We tried it for a number of decades and in the end, we found that it didn\’t work.

2) These privileged positions of those who are already rich and politically connected come because they are already rich and politically connected. We\’re thus trying to argue that we should use precisely the system that gives them their privileges to deny them such privileges. As Adam pointed out, this isn\’t likely to work.

The other solution is to let markets do what markets are good at: forcing competition upon those who would rather not face competition. That is, the solution to a cartelised market is to free the markets. Tear down the regulations which protect the incumbents, have a bit more of those gales of creative destruction.

This is known as the \”liberal\” solution to the problem we agree that we\’ve jointly identified.

In short, when markets fail us because of political cronyism the solution is not more politics and cronyism but more markets.

*Made up number.

7 thoughts on “Oh dearie me Mr. Coman”

  1. Agree entirely (apart from the fact that CORGI was replaced on 1st April 2009 by the Gas Safe Register).

    It seems to me here that the politicians are applying the same inputs (more regulation) all of the time and expecting different outputs (increased competition, growth) as opposed to the outputs they’ve historically been getting (stagnation, crony capitalism).

    Isn’t that Einstein’s definition of insanity? Doing the same thing and expecting different results?

  2. Anyway, to be fair, the primary problem with the regulatory model isn’t really corruption. I think we liberals rather overdo the corruption thing. It’s not really cronyism that is the problem. It is that however much information the State collects, it can never have enough information to run the market, which was Von Mises’s point. Which is also why, Tim, Pigovian corrections for supposed externalities are equally a non-starter.

    The problem isn’t that such a system will be corrupted, though it inevitably will be to some greater or lesser degree. It is that even if everyone involved is a paragon of virtue, it still cannot possibly work.

  3. You say the initial diagnosis is that we do not have a free market but crony capitalism. However, I don’t think that’s how Mr Coman or many on the left see it. They blame the financial crisis on deregulation and the unconstrained free market itself. They claim we are seeing the excesses of unrestrained market forces, having been subjected to free markets since Thatcher. They’ll cite Gordon Brown’s “light touch” regulation of the banks as being an example of what went wrong with the neoliberal model, contributing to the crisis. From this standpoint they propose more state intervention and regulation, not less.

  4. There was no good reason for Brown to nationalise the banks’ debts – but at least it showed that whatever the solution is, it ain’t going to come from bloody socialists.

  5. Some thoughts about this post:

    – You never manage to suck it up and say “politically connected” alone – it’s always “rich and political connected”. The two may be related, but let’s bare in mind that they are separate things.

    – Of course, those who are rich have a much better chance of having political influence. This is for two reasons – one set seem broadly institutional and vary from country to country. In the US your wealth can go a very long way in politics because of things like campaign contributions and TV ads. In the UK it’s a bit more subtle – direct donations are less useful. More usually you’ll need to own a newspaper or thinktank in order to genuinely influence policy.

    – There’s also factors related to distribution. This only becomes noticable at levels of high inequality, but if there is massive inequality, then political parties will need to appeal to the rich for donations. Back before the 1980s the money given by average salaried people in the form of trade union subs could fund a political party with it needing to recourse to the wealth of capital or business. After a significant redistribution of the wealth the same is not really true anymore.

    – Nevertheless, economic wealth to an extent does translate into political power. Surely this is the beginning of an argument for equality – if we want people to have broadly equal political power then we also ought to want them to have broadly equal economic power as well.

    – Your answer seems to be that we’re best abandoning political power altogether, and letting market power rule. Fair enough, but your criticism of political power was that there was an indirect influence of money on the political system. That criticism is true (although as I suggested above, it seems potentially minimisable)

    – But surely the elephant in the room is that money and previously accumulated wealth has even *more* of an impact on the outcomes that occur in markets than the outcomes that occur in politics – especially the outcomes that could occur in politics. It’s practically a mathematical fact that when you vote with your wallet you get more votes depending on the size of your wallet. Politics is sometimes able to transcend wealth – otherwise we wouldn’t have the occasional populist politician, or governments would never do anything that the wealthy disagreed with – which despite the history of all shades of government since Thatcher, they have historically shown they are capable of doing.

    – Basically, if you care about the influence wealth can have on economic decisions, you should be just as wary of free markets (if not more) than you should be of politics.

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