Newspaper article The Evening Standard (London, England)

Free Markets Aren't the Success We're Led to Think

Newspaper article The Evening Standard (London, England)

Free Markets Aren't the Success We're Led to Think

Article excerpt

Byline: Anthony Hilton city comment

LORD (Adair) Turner once explained when he was still the head of the City's regulator, the then Financial Services Authority, how in the preceding 30 years global economic thought had been hijacked by free-market dogma. It had become a universally accepted truth that markets, not governments, knew what was best for an economy and therefore the role of governments and regulators was to keep out of the way. But this was not a universal truth. Rather it was the self-confident but ultimately self-serving assertion of mainly American investment banks to further their own business.

It worked not wisely but only too well. The bankers made more and more money, and became more and more confident of their own abilities until they overdid it and blew up the whole system. One might have thought the financial crash, the most extreme drop in living standards and the slowest recovery for 100 years, would have led to a re-think about the economic theories which led us there. It would have been reasonable to challenge the trust in neo-liberal economics and the financial market theory based on it the efficient market hypothesis, shareholder value and all that.

But that seems not to have happened.

There are voices in the wilderness: Paul Woolley at the London School of Economics, Saker Nusseibeh of Hermes and like-minded fund managers in the 300 group Turner himself. But they have not dented the prevailing orthodoxy.

The US politician Upton Sinclair once said it was difficult to get a man to understand something when his salary depended on not understanding it, so that might explain how the City thinks. But the interesting thing is the way the Left has been cowed by free-market orthodoxy too to the extent that no one on the Labour benches has yet been willing even to speak out against the latest nonsense promoted by George Osborne the idea that Governments must aim for a balanced budget every year.

It may be the ideas are so resilient because they chime with an even deeper-seated belief held particularly among those who were not born at the time that the British economy was a basket case until Margaret Thatcher came along in 1979. There is almost no challenge to the view that her embrace of the free market transformed our economic prospects.

Now this may be widely believed, but it is not what the figures show.

A couple of academics at the Judge Business School in Cambridge Ken Coutts and Graham Gudgin yesterday released a piece of research which demonstrates the opposite. Their analysis of the data shows the economy performed better before the arrival of Thatcher and neo-liberal economics than it has done since.

They have analysed the statistics in the public records and these show conclusively that the British economy performed significantly better in the three decades up to 1980 when the average annual growth of Gross Domestic Product per head was 2. …

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