China’s Deng Xiaoping signaled the end of statist orthodoxy when he said he didn’t care whether a cat was black or white, as long as it caught mice. Similarly, President Obama wrote the epitaph for neo-liberalism in his inaugural address, saying it is ‘not whether our government is too big or too small, but whether it works.’
In many countries, state ownership has certainly allowed many forms of micropolitical management. The New York Times succumbed to the prejudices of the Washington consensus by always referring to former UK premier Margaret Thatcher as the ‘privatizer of the loss-making nationalized industries.’ In fact, the firms she sold – BP, British Airways, British Gas, British Telecom – were making money, which is why investors were so eager to buy them.
Similarly, the UK’s building societies were steered obsessively toward demutualization. By the end of 2008, however, only those that had kept their mutual status had survived as independent businesses. The rest were defunct, bought out or nationalized, like much of the US banking system.
The high tide of the Washington consensus has hit like a tsunami, but the cleared landscape should allow some dogma-free discussion. And those who did the wrecking should not dictate plans for the rebuilding. For example, the privatization of Social Security should stay off the agenda for a generation, as any potential retiree would choose a government guarantee over a share in Bernie Madoff.
Still, there is room for creativity. Taiwan set up a state-run health insurance agency, but left the actual provision of healthcare to a mix of municipal, charitable and private providers. As a result its healthcare system costs one third that of the US.
But the immediate problem is government stakes in financial institutions on both sides of the Atlantic. Governments owe it to the long-suffering taxpayers not to allow any reflexive phobias about government control to stampede them into unloading their bank stakes hastily or at bargain-basement prices. They should take time to clean them up thoroughly, making banking boring again, and only sell their holdings when there is a good return for taxpayers.
The issue is as much about governance in business as it is about government. Managements have been looting shareholders and taxpayers alike, with shameless bravado and relative impunity.
Just after the inauguration, the Financial Times revealed that Merrill Lynch had rushed to pay ‘billions of dollars’ in bonuses to executives just three days before its taxpayer-financed rescue by Bank of America. Shareholders received no such largesse.
If banks can loot, they will; that is the lesson of the last few decades. The administration needs to stomp on the lobbyists and ensure shareholder rights and much stricter regulation, especially in the ruins of the financial sector. It should not let any fetish about government interference inhibit it from appointing independent directors – it needs cats that will catch the mice that have gnawed their way through the national granary.
