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In the Financial Times earlier this week, Peter Mandelson wrote:

Sir, I was surprised by the unreconstructed tone of your editorial (”The umpire should not choose sides“, April 21) criticising our paper on a more active approach from government to equipping UK businesses and their employees to compete in a global economy. To be frank, it read rather like an Institute of Economic Affairs pamphlet from the 1970s, especially at a time when the catastrophic failure of laisser faire in the financial markets has required massive state intervention.

Just a couple of things. The pamphlets in the early 21st century are no less laisser faire and I am sure that there is much that Peter Mandelson could learn, for example, from the chapter in Prohibitions on the hand gun ban – adopted as a policy at the height of power of the New Labour spin machine for purely political reasons. However, the letter from Peter Mandelson does make one worry that we have a Business Secretary totally out of touch.

Mandelson believes that there has been a catastrophic failure of laisser faire in financial markets. He is clearly not aware of the statutory objectives of the Financial Services Authority which include “maintaining market confidence” and is also not aware of the hundreds of thousands, if not millions, of paragraphs of banking regulation generated by that institution. A laisser-faire environment would also not include deposit insurance, a central-bank lender-of-last-resort facility, the Basel Accord and the extraordinary amount of EU regulation of banking activities.

Indeed, the sure knowledge of a government bailout of banking institutions on the grounds that they were too big to fail made it inevitable that banks would become bigger and failure inevitable.

As Martin Wolf has pointed out, this expectation of government intervention makes it reasonable for free-market economists to differ on the extent to which we should have banking regulation. However, it is clearly wrong to suggest that we have laisser faire.

Philip Booth 154x154

Academic and Research Director, IEA

Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Mandelson has head in the sand”

  1. Posted 30/04/2009 at 17:01 | Permalink

    It is truly incredible that a government minister should believe that the credit crunch demonstrates ‘the catastrophic failure of laissez faire in the financial markets’. If Mandelson believes that one million paragraphs of regulation constitute laissez faire, one wonders what his vision of middle-of-the-road interventionism must be?

  2. Posted 30/04/2009 at 17:01 | Permalink

    It is truly incredible that a government minister should believe that the credit crunch demonstrates ‘the catastrophic failure of laissez faire in the financial markets’. If Mandelson believes that one million paragraphs of regulation constitute laissez faire, one wonders what his vision of middle-of-the-road interventionism must be?

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