Mar 26th, 2008 by Conor McCabe
Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.” (Martin Wolf, “The rescue of Bear Stearns marks liberalisation’s limit”, Financial Times, 25 March 2008)
God, there is something decidedly new-age about the idea of a self-healing market. Joseph Ackermann later qualified his statement, saying that he was talking about the American housing market only. A strange qualifier, no? The healing hand of the free market applies to everywhere EXCEPT America? Even more strange is the fact that the German federal government has spent the last year bailing out the Industriebank to the tune of around €5 billion.
Recently, Thomas Straubhaar had this to say about the so-called free market and its brand of helping hand-outs.
“Profits are to be privatised and losses nationalised - I consider that screamingly unjust.”
There is a popular, unchallenged, belief in Ireland in the free market - one to which the Irish Labour Party gives more than a nod. The party’s website, for example, gives a 2004 policy document as its latest policy statement on all things economic.
My purpose is to set out the framework of a social democratic alternative, based on the long-held values of the political left, but adapted to modern conditions, and attuned to the needs of one of the most open economies in the world.” (Pat Rabbitte, July 2004)
This needs to be updated, if for no other reason than this unassailable faith in the open market has been demolished by recent events, and has been dropped by some of the most serious players in world economic affairs.
Consider the Labour party’s economic policy document in the light of Martin Wolf’s article, especially the closing paragraph:
“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.
Martin Wolf remains committed to the broad principles of the free market, but even he has recognised that regulation is once again back on the economic agenda. In this context the events of last week, never mind four years ago, are indeed a foreign country.
There is a vacuum in Irish political debate with regard to social democratic principles of a regulated market. (In fact, the idea of “profits privatised and losses nationalised” lies at the heart of the ongoing rape of the Irish healthcare system by the PDs. Private profits and public losses is what “two-tier” is all about.) The Irish Labour party has an opportunity to grasp once again these values and to take ownership of them. By doing so, it would strengthen its hand in the move away from being the complacent member of a future coalition, to becoming the dominant partner. Now´s the time to do it.