Why socialists are not vindicated by the credit crunch

Encountering Ken Livingstone the other day, he expressed this opinion:

The only people to have been vindicated by this crisis are those of us who supported the 1983 manifesto.

This is quite a common view. And quite wrong.

The nationalisation of the banks was part of the socialist programme for almost a century. But, as Edmund Dell makes clear in his wonderful book on democratic socialism, A Strange Eventful History, those who supported this policy were never quite clear what it was intended to achieve.

It was always the problem with nationalised industries that if they were run as normal enterprises, public ownership was pointless, but if they were not they quickly became inefficient and unviable.

The best one can discern is that the intention of nationalising the banks was to force them to do things that were not in their direct commercial interest. For instance, make loans to people who couldn't really afford to borrow.

Even without nationalisation the Clinton administration tried to force the banks to do this. Dennis Sewell's fascinating article in last week's Spectator tells the story of what happened.

In short, it was a disaster. And partly responsible for the calamity we are living through.

What the credit crunch has demonstrated is that the laws of free markets are iron ones. Far from vindicating the 1983 manifesto, it shows why it was such a stupid idea.

Comments

[james mcsparron]

The problem with Mr. Finklesteins view is that it assumes that there is no value to society of Nationalised buisinesses run on a commercial basis. The opposite is in fact true. Society could gain greatly.The profits from successful state owned buisinesses can be used directly by that society for services and investment to benefit all. Publically owned buisiness free to behave as a normal profit orientated enterprise, with the employees, including the senior staff, renumerated to match can work. Just look at two examples, which are for all intents and purposes in this category, and great British success stories; The BBC and the University sector. Neither privately owned,both commercially free and profitable. Nationalised industries freed to make money, rather than soak up unemployment in marginal constituencies are a model for the future of buisiness.

[Whig]

it is a remarkable thing, that somehow `deregulation' is being blamed for the financial crisis, which was actually a result of regulation.

[Ross]

"Even without nationalisation the Clinton administration tried to force the banks to do this. Dennis Sewell's fascinating article in last week's Spectator tells the story of what happened. "

I suspect that you are now going to be deluged with Democrat trolls, repeating identical talking points, outraged that anyone can point the finger of blame somewhere other than Bush and the Republican Party.

[Michael Moran]

If the BBC is being run 'commercially' - why am I paying over £100 in subsidy every year?

When it had distinctive and edifying output perhaps there was a point to it but now it runs the same low-budget trite reality nonsense as everyone else..only not quite as well.

[David]

I've just turned up the 1983 Labour manifesto to see what was said about banks in that extraordinary document. There was to be a National Investment Bank to channel private and public funds into "our industrial priorities." Also, the Bank of England would exercise "much closer direct control over bank lending." Then: "We expect the major clearing banks to co operate with us fully on these reforms, in the national interest. However, should they fail to do so, we shall stand ready to take one or more of them into public ownership." This astonishingly vague threat was not to fix a crisis in banking and it is completely unclear what it was thought the Govt would do with these banks. The possibility is never raised that it might cost money; or that it could cause a financial crash. Bearing in mind that the manifesto speaks of preparing to withdraw from Europe and reintroducing exchange controls, the bank proposal, if that is what it was, surely has nothing to do with our current predicaments, worldwide.

[Mark]

"Even without nationalisation the Clinton administration tried to force the banks to do this. Dennis Sewell's fascinating article in last week's Spectator tells the story of what happened."

Well, a more considered view of the facts about the CRA and sub-prime lending tells a rather different story.

Try:http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

Or: http://www.newamerica.net/blog/asset-building/2008/no-larry-cra-didn-t-cause-sub-prime-mess-3210

[Mike Donovan]

I'm sure the hundreds of millions of people all around the world must be wondering just what the Financial Markets are for. Of course they instinctively know that without the markets, normal life would grind to a halt. But they must also be asking themselves whether the actions of the markets are largely to blame for the sudden rises in basic commodity prices and the fall in the value of shares. They will rightly be appalled that the banks that they assumed were acting in the best interests of their customers were actually only interested in their own profits. Which is why I disagree with your comment about the point of nationalising (or imposing government controls over) the banks. Yes, this is to force them to behave in a way that is not wholly driven by their own commercial interests (to paraphrase what you said), but in order to make them act more responsibly and take less risk. No one has had to force banks to lend to companies and individuals who are not good credit risks, they have been all to happy to make loans on the assumption that they are underpinned by asset values that will never fall. When banks are run as normal commercial operations, for the short-term benefit of their shareholders and in reckless pursuit of growth, then the service and protection that they should be providing to their customers comes a distant second. Banks will argue that they are giving their customers what they want, but the world would be a much better place if their main purpose was to give their customers what they need.

[Don Peppers]

There's no question that deregulation played a role in this mess, but so did the wrong kind of over-regulation. Specifically, under US banking laws, commercial banks in the US have been undone more quickly by the newly introduced requirement to write down assets immediately to their "fire sale" value (this was a regulation designed to avert the next Enron).

See the discussion at http://www.1to1media.com/weblog/2008/10/did_deregulation_cause_the_fin.html#more

[Daniel]

I can understand why right wingers would want to blame regulation, rather than de-regulation, for the credit crunch. It's the phenomenon pyschologists call cognitive dissonance. When you adhere to an ideological dogma, but encounter facts that appear to undermine your beliefs, your first instinct is to retreat into denial. Although in general I dislike Ken Livingstone's politics intensely, in this particular case his ideas do contain a grain of truth that conservatives would prefer not to acknowledge, namely that free market capitalism is not naturally self-regulating and is prone to periodic crises, as Marxists have always claimed. The suggestion that the Clinton administration is somehow responsible for the credit crunch is truly risible: the relaxation of credit standards of recent years occurred across a wide range of banking asset classes, not just sub-prime loans, and the Clinton administration played no part whatsoever in the creation of the complex, opaque financial instruments which have proven so toxic for the banks. This was a market failure, and if you can't accept that Daniel you're in denial I'm afraid.

[Bruno Breyer Caldas]

There are no long term benefits for nationalised bussinesses. If they arent efficient they will become a burden for the society through taxes. If they are efficient, they will have to be run just like private profit making enterprises. Better to let it be private then.
No social benefits would be permanent.