ENGLISH VERSION - MarketWatch 14.12.09
Goodbye, laissez-faire capitalism
LONDON (MarketWatch) -- For many years the British were world champions on the field of laissez-faire capitalism.
Whether in regulating financial markets or ruling foreign takeover bids for British companies, there was always just one standard Panglossian response. The interplay of free market forces will ensure that everything has a happy ending.
This is a surprising phenomenon, given the historical perspective. The Labour party, after all, has traditionally been in favour of intervention in economic and financial affairs. But after the election defeat of the Conservatives in 1997, the new government under Tony Blair (with present Prime Minister Gordon Brown as Chancellor of the Exchequer) maintained the former Tory administration's hands-off approach -- and even intensified a liberal course in economic and financial policies.
Not any more. The parliamentary elections, likely to be held in May next year, are casting ever-deepening shadows. And we have had a little thing called the financial crisis and the near-collapse of capitalism.
Neo-liberal economic models that used to guide Gordon Brown have now been unceremoniously dumped. The Labor administration has launched a new line in interventionism and, in what will probably be its last few months in office, is pumping it as if there's no tomorrow. (Which for Labour ministers is probably true.)
Peter Mandelson, the powerful and poker-faced Minister of Industry and No. 2 in the government after Brown government, is preaching a new doctrine in industrial policy. Out goes red-blooded capitalism and his previous defense of Britons becoming "filthy rich". In comes a verbal castigation of hostile takeovers (such as in the "Chocolate War" between domestic confectionery group Cadbury Plc and American food giant Kraft Foods Inc.)
Mandelson has unveiled new measures to strengthen British industrial capacity in nuclear energy -- only three years after government-owned British Nuclear Fuels sold its Westinghouse nuclear development company to Toshiba of Japan. Mandelson took an overtly hard-nosed pro-British interventionist line over the restructuring of the European operations of the General Motors car group. Freshly printed strategy documents from the Mandelsonian Ministry play up the role of manufacturing and the usefulness of industrial training for apprentices.
After a decade of neglect of such issues, many skeptics see such initiatives as too little, too late.
The most iconic performances are reserved for the banking sector.
Punitive taxes on bank bonuses announced last week by Chancellor of the Exchequer Alistair "Everybody's" Darling will miss their targets in many ways. The measure will apply only until April of next year, and is likely to encourage distortions and sidestepping in most convoluted fashion. These measures will end up sanctioning not the biggest, wealthiest and most inventive institutions, but the most vulnerable -- and will therefore accelerate concentration processes in banking. The opposite of what the government wants.
No matter, the people are pleased. Putting bankers in the stocks is all part of Darling's populist game. And it is accompanied by other attention-grabbing measures such as reducing taxes on the working class leisure activity, Bingo -- a form of lottery game much regarded in the clubs of Labour constituencies in the industrial north of the country.
Will this be enough to restore Labour's battered fortunes in the crucial months before the election? Given the dismal budget figures and the further tightening of economic competition from around the world, probably not. But the government wants to send a signal.
Labour activists see a more proactive approach to industrial policy as providing a useful marker against the laissez-faire Conservative Party.
Recently, however, Labour has had to defend itself against a fatal objection, namely that the importance of manufacturing industry has fallen since 1997 from a 20% share of gross domestic product to just 12% now. The rate of decline has more than doubled compared with the previous 18 years of Conservative rule.
Pitted against such devastating statistical ammunition, Labour's political froth on manufacturing -- no matter how cleverly packaged -- will have only limited effect.
