At 6pm yesterday I posted an article by Michael Fallon MP on the banking crisis. It’s a terrific piece that points to massive errors from the banks, regulators and the government. It’s vital that Gordon Brown doesn’t get away with the lie that this recession is all the fault of bankers and of America.
One paragraph from Michael’s piece stood out to me:
"When Gordon Brown first set up his new system of banking supervision, the amount British banks lent out was matched by the amount that they held on deposit. In fact, they were often in overall surplus. By the time he finished as chancellor, they were lending over £625 billion more than they held on deposit. That’s not supervision – it was sheer recklessness. It’s that funding gap which is the key to understanding how our banks have crumbled."
When we hear pundits call for a fundamental restructuring of our economy and when we hear that capitalism has failed we need to remember facts like that one. Capitalism was working reasonably well at the end of the Thatcher-Major years. It’s true that there were too many people who were struggling (and that is why Iain Duncan Smith’s social justice agenda is so incredibly important) but there is a huge danger that – like markets – politicians ‘overshoot’ and over-regulate and over-nationalise in response to current difficulties. We must remember that businesses like Tesco, Ryanair and Sky Sports have been huge instruments of social welfare. More importantly still we must give room for the small firm and entrepreneur to flourish without suffocating regulations and taxes.
I worry sometimes that Team Cameron is too fascinated by new ideas like ‘nudging‘ and ‘Red Toryism‘. All new ideas are worthy of study but conservatives should always prefer reforming imperfect systems to building new systems. The most important thing is that we get back to some of the permanent truths highlighted recently by Ryan Robson:
"You can’t spend what you don’t have. We can’t afford more teachers and nurses unless a healthy private sector creates the profits to pay taxes. The family is the basic building block of our society. The state is the people’s servant not its master."