Tucker, Harvey and Hayek

Peston’s revelation of some of the content from his interviews on TV tonight is fascinating. What strikes me is the essential philosophy at the heart of the ‘worried capitalist’ establishment: that we must intervene and regulate to allow a free market system to operate in some sort of shielded bubble. Here it is encapsulated by Paul Tucker, deputy governor of the Bank of England:

“If we have a system where banks take the upside but the taxpayer takes the downside something has gone wrong with capitalism, with the very heart of capitalism, and we need to repair this… Capitalism can’t work unless these financial firms at the centre of the heart of capitalism can be subject to orderly failure. The rules of capitalism need to apply to them just as they do to non-financial companies.”

Tucker is here arguing for the creatively destructive aspect of capitalism which is what has always attracted entrepreneurial types. Yet he is missing a fundamental point by using the word ‘orderly’. That order cannot be achieved. Capitalism cannot be tamed like some tantalisingly productive and potentially-domesticable creature sniffing around our human encampment. It is not a mode of economic activity which can be regulated or managed in the long term (though short term mitigations can certainly be provided by an interventionist state). David Harvey has always made the point that capitalism thrives on having barriers placed around it; it then simply finds ways around, over, or through them. As he puts it in “The Enigma of Capital”:

“In practice capitalism seems to have evolved in ways somewhat similar to Stephen Jay Gould’s ‘punctuated equilibrium’ theory of natural evolution: periods of relatively slow but reasonably harmonic co-evolution… punctuated by phases of disruption and radical reform. We are possibly now in the midst of such a disruptive phase. But there are also signs of a desperate attempt to restore the pre-existing order, and to proceed as if nothing of consequence has really changed, nor should it…”

And why is the faith in the rationality of the market misplaced?

“Creative destruction is visited upon the good, the beautiful, the bad and the ugly alike. Crises, we may conclude, are the irrational rationalisers of an irrational system.”

In a social-democratic sense, Tucker and other interventionists deserve applause for their insistence on a shift from our current ‘privatised profits, socialised risks’ system, but there will always need to be people saying this sort of thing to give the illusion that regulatory bodies have some control over the capitalists. Which, clearly, they don’t, and if either Basel III or the new government’s craven attitude to the banks over bonuses are anything to go by, nor will they anytime soon.

And Peston is totally right to say that it bankers can (and, I think do) still hold this country to ransom. As a neat little tweet put it recently, why should we be frightened of them taking their tax avoidance elsewhere? Hayek himself (retch) admitted there were, “with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information.”* Let’s stop fearing some putative capital flight. I would hazard a guess that four in five people in this country derive no benefit whatsoever from the financial activity of the top quintile (imprecise and general, see!). Let them fly. There is no point having a high GDP if society is so markedly unequal, so why not aim for a smaller economy that is more equal and less risky. It could work, at least until we can undergo a transition to a better system…

*Obviously I am being facetious in quoting Hayek. At least I hope that’s obvious.

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Published in: on January 18, 2011 at 2:14 pm  Leave a Comment  

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