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There was no golden age of finance and industry

Responding to a recent speech by Peter Mandelson

Two important questions historians may ask about the current time is did our political leaders really understand the magnitude of the challenges facing them, and did they meet those challenges?  The evidence so far is mixed at best.  While we may find ourselves incredulous at the inability of eurozone governments to find a quick solution to the euro crisis, we should hesitate before feeling smug in the UK.  We face large challenges ourselves and we cannot exist in isolation.

Peter Mandelson addressed these themes in an interesting speech he gave yesterday.  Speaking to the National Association of Pension Funds, the former European commissioner and first secretary of state focused on short termism and short-sightedness in politics.

Mandelson noted that the decline in political stability has even affected the UK to some extent.  In such circumstances, he argued, ‘the risks of making short term policy mistakes are growing’.  One such policy area where this is the case is financial reform.  The Vickers banking reforms should be implemented, Mandelson said, but ‘we also have to remember that however laudable the aim of reinventing capitalism to make it more responsible, it also has to be more productive.’  The two aims should be pursued together.  After reform there should be a period of stability so the financial system can do its job of facilitating funding of future economic growth.  Mandelson lamented regular policy reversals in the UK, noting that his conversion to a more active industrial policy was reversed by the coalition when it came to power but that it was now itself adopting a more active policy.  Short term disruptions can have long term consequences for growth. The contrast with other European countries where there is a higher level of consensus was clear.

The coalition’s engagement with the rest of the European Union provided another example. Mandelson argued that the UK has a healthy level of support among European countries but that it is doing a good job of eroding it quickly.  While they are dealing with a large scale financial crisis ‘we are bombarding our partners with selfish demands…It is like negotiating with a fire engine on its way to a fire’.  Mandelson ended his speech deploring excess disagreement in politics as a luxury we can less afford.

This central issue, the scale of the crisis and the need for solutions which meet it, is likely to become more important.  Previous crises – financial crashes, wars – have often led to bold leadership and policies which were ambitious but which matched the problems faced.  Roosevelt’s New Deal, for all its faults, helped change things and out of the slumps of the 1920s and 1930s came Keynes’ General Theory.  The Second World War led to the expansion of the welfare state in the UK and ultimately to the European Union, for example.  However, the depression of the 1930s was worsened by short termist and isolationist thinking.  Mandelson was right to highlight the very real risks of short termist policy-making, especially where party political gain is put ahead of building a national consensus.

However, I am not sure that there is a golden age to which we can return as far as finance or industry is concerned.  Each era had its own problems; restrictive practices and declining industries for example.  The challenge is actually greater.  It is not to reform then stabilise so that we can then be productive.  It is to reinvent and create a working and productive capitalism that is right for the next few decades.  The additional challenge is how we in the UK can find consensus while remaining a vigorous democracy and avoiding passive decline.  Can new institutions, such as a national investment bank, really be established in a way that ensures they pursue the common good without being captured by the Treasury or a particular special interest?  It takes time and a level of agreement in politics which we do not yet have.  Mandelson was right to highlight the lack of long term thinking and continuity as a threat to our future.

This article was first published by Progress on 18 October 2012.
Progress, 18 October 2012, 23/10/2012

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