GOVERNMENT DIGS HARD ROCK

18-02-2008

The government is bringing forward emergency legislation to nationalise Northern Rock today. Though the Chancellor’s failed pursuit of private suitors is highly embarrassing, letting the free market rip would have been even worse.

Let us remember that if there had been no intervention last September, the run on the bank – which saw shares lose 30% of their value in the space of 48 hours – would almost certainly have continued, leading to its complete collapse.

That, in turn, would have almost certainly triggered a run on other financial institutions, causing untold damage to a sector which has become a powerhouse of the British economy.

Thousands of jobs would have been lost and the credibility of our banks put on the line.

Then there are the shareholders, a much maligned group, but of course they are responsible for pension funds owned, indirectly, by many ordinary people with no intimate knowledge of the stock market.

It’s tempting to say that investors should realise that share can go down as well as up – but should the law of the economic jungle really apply to hard-working individuals who’ve been saving conscientiously all their lives?

Only the most extreme free marketer would say so – even if propping up this ailing institution has so far cost us £25 billion – with much more to come.

Nothing more exemplifies the government’s unpalatable dilemma than the David Cameron’s schizoid response.

As the West Bromwich East MP Tom Watson suggests in his blog, “The Tory leader’s response to Northern Rock would have won an Olympic medal for back-flipping.” (http://www.tom-watson.co.uk/)

The Conservatives have variously advocated nationalisation and opposed it, leaving them exposed to charges of naked opportunism; only the Liberal Democrats Vince Cable has held a consistent line, arguing from the start that the state should take over Northern Rock.

For a socialist government, propping up and ameliorating the worst effects of capitalism should be second nature; what’s remarkable is that this government has made such heavy weather of it.

Of course, their intervention now begs so many other questions – why didn’t they intervene in the same way to protect our motor industry and save Longbridge, for example?

The answer, of course, is that the ramifications of the loss of the Rock would have been so much greater, and it’s ripples could have become a tsunami engulfing British banking – creating the impact of several Longbridges across the country.

Quite simply, nationalisation was a no-brainer, and although it leaves questions hanging in the air it isn’t the obvious one of “were they right to do it?” – but “should they do it more often in other failing parts of the economy?”

If they did, we'd would still have a car industry in Birmingham today.