INSIDE OUT: For politicians, the boundaries of the state have moved in a way that empowers them at the expense of companies, markets and citizens

INSIDE OUT: For politicians, the boundaries of the state have moved in a way that empowers them at the expense of companies, markets and citizens - They may not admit it but the latest crop of western politicians love war and military conflict. It is that

by ROBERT PESTON, editorial director of Quest (www.csquest.com)E-mail: rpeston@csquest.com.
Last Updated: 31 Aug 2010

They may not admit it but the latest crop of western politicians love war and military conflict. It is that rare moment when what they say and do really matters.

The point is that so much of ministers' responsibilities in 'normal' times amounts to good housekeeping. Any really big decisions are preceded by months of analysis by legions of civil servants and then interminable debate by elected representatives. The gap between word and deed can be many years. Meanwhile, in the borderless, globalised economy, it is arguable that the CEOs of big companies or central bankers are at least as powerful as senior cabinet members - probably more so.

However, since 11 September, Tony Blair has had to make life-or-death choices under inordinate time pressure. Even the chancellor has been forced to make snap decisions that have profound consequences for the health of the economy.

At the risk of appearing flippant, it is a buzz for them. Have you spotted the renewed fire in Tony Blair's eyes or a spring in Jack Straw's step?

At last they are acting out the schoolboy dream of what it is to be a Palmerston, a Lloyd George or even a Thatcher.

And for politicians in general, things can only get better, because the boundaries of the state have moved in a way that empowers them at the expense of companies, markets and citizens. And I'm not just talking about the constraints being put on civil liberties.

As important are the shoots of an idea that was last seen before Thatcher arrived with her dead-heading secateurs: that government should routinely intervene in markets to correct apparent anomalies and that ministers should rescue 'good' companies that have got into trouble 'through no fault of their own'.

The ground is fertile for the rebirth of the corporatist state because confidence of investors, trade unions and business people is at such a low ebb. They want succour - and, in this secular age, where better to turn than to government?

The kind of help ministers have given so far is reasonable. It would not have been sensible to sacrifice all UK airlines on the altar of free-market ideology after private-sector insurers refused to provide them with sufficient cover in the wake of the US atrocities. Far better for the Treasury to become insurer of last resort, until the industry regains its nerve.

So far, so benign. But pressure is building for a more profound change to industrial policy. This came home to me when John Redwood argued that the Government should create a financial lifeboat to rescue firms in danger of sinking in turbulent economic seas.

Now Redwood has, for most of his career, been more Thatcherite than Thatcher. His call for public money to be injected into ailing British businesses was counter-intuitive, to put it mildly. What on earth was driving him?

Well, a disproportionate number of British companies are financially stretched to a serious degree. From telecoms equipment (Marconi) to cable TV (NTL and Telewest), to engineering (Invensys) and to air transport (BA), companies have been caught in the vice of high debt/high interest payments and falling earnings. But since businesses are being created and destroyed all the time, why should they be saved?

Perhaps ministers should provide financial help to firms whose overseas competitors are in receipt of aid from their governments. In other words, they should act to level the international playing field.

But this is a dangerous argument. If subsidies of uneconomic businesses are wrong in principle, what good is it for our bunch of do-gooding ministers to repeat the mistakes of their overseas peers? If Washington injects billions into a US airline industry suffering from chronic over-capacity, would there be any benefit for the UK if Blair took steps to reduce the pressure on BA and others to become more efficient? Seems implausible.

Meanwhile, it may be unfair that companies, their shareholders and employees should suffer as a direct consequence of a grotesque and evil act by terrorists.

But if governments use this as an excuse to rescue airlines, where would it all stop? Should ministers inject funds into luxury hotels or fashion houses or makers of performance cars?

There is only one clear-cut reason for governments to interfere in the Darwinian process and that is when a bankruptcy threatens to cause a domino effect that undermines the entire financial system.

Even then, governments should be careful. The current economic downturn has been made worse by banks' imprudent lending to companies - especially those in the telecoms and technology sector - than by the terrorists' actions. Banks learn from their mistakes only when they pay for them (and, even then, they are pretty poor learners).

It is in all our interests for the Government to allow the banks to graze their knees and bruise their ankles. However much they may shout and scream, nanny should steer clear.

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