In an interesting piece on government intervention Matthew Paris brilliantly exposed the dilemma that faces any Conservative individual, and any Conservative government. When should the might of state power be used for the good in economic matters? How far should a government go in freeing the economy and following the laissez faire doctrine? How much should it seek to mould, speed or improve the market by Ministerial decision?
Most of us accept there has to be a balance. Much of UK economic political debate is about striking that balance. As one towards the free market end of the spectrum, I have always accepted the role of government to enforce a strong competition law, to provide a legal framework, to make some planning decisions about where things can be built in our cramped island, and to regulate the basics of the banks intelligently. In a mixed economy where the state controls so much of the money and resources, the state does need to take strong and good action where it is in charge.
Matthew Paris asks me how I would have responded to the collapse of Rolls Royce, and what I thought about government intervention in Docklands to create Canary Wharf. They are fair questions which may help to illuminate how the balance should be struck.
I was a keen exponent of Docklands redevelopment as Chief Policy Adviser to Margaret Thatcher. The land of the old docks was largely in public sector hands. Local and national government needed to provide a planning framework to get things moving, and was able to pump prime what become a very successful private sector property investment. As Adviser, and subsequetly as one of the responsible Ministers I was egging it on and helping design the right mix of public sector intervention and private sector led investment. The aim was to turn public liabilities into mixed economy assets.
I cannot say how I would have responded to the bankruptcy of Rolls Royce, as it was before my time. Without knowing the detail it would be phoney to dream up a response now. I can give a parallel in perhaps a more important and testing set of cases. When major banks were in financial trouble in 2007-8 I was a keen exponent of keeping the government out of owning the shares. I urged the adoption of controlled administration.
This would have used Bank of England temporary support to avoid meltdown of deposits and UK clearing activities, but would have forced the break up of a bank like RBS. Shareholders and bondholders would have taken more of the hit, and the foreign and investment banking arms would have been sold off rapidly to raise funds and cut risks. This policy is now adopted by the authorities as the way future banking crises should be handled, but is still not being followed for the one we are living through. It is rarely wise for the state to step in and nationalise the lossses. I think we would be making more rapid economic progress today if we had sorted the damaged banks out at the time of the collapse, instead of letting them carry on as malfunctioning conglomerates propped up by the public sector.