Review: A blunt-edged hatchet job of free markets
By Robert Cole
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Bryan Gould’s new book is a closely argued critique of current trends in globalisation, monetary policy, and big business. Gould, a senior figure in the UK Labour Party in the 1980s has found some culpable targets. But his own answers are unconvincing.
Gould’s ambition is to explain the financial failings of Western societies of the last 40 years. Fine. It is an era which gave us the worst banking crisis in a century, a depressing divergence in the fortunes of rich and poor, and a ridiculous dot-com mania. Finance has a substantial and important case to answer.
Blame free markets, writes Gould. They are dominated by a self-serving cabal of international investors which exists to protect the financial elite. Gould thinks free markets are the enemy of genuine freedom. He reckons they undermine democracy, keep wage earners downtrodden and hobble industrial development.
In Gould’s view, a pervasive obsession with inflation creates an awful lot of unnecessary pain. Higher interest rates serve to protect the real-terms value of capital held by the faceless cabal. But persistent high borrowing costs and uncompetitive exchange rates raise the cost of investment in manufacturing capacity and jobs. Low inflation, meanwhile, helps bosses keep labour rates low.
Gould would put economic nationalism at the centre of policymaking. Governments should manipulate the value of their currencies to stimulate export markets, he says. Exchange controls, money printing and managed interest rates should be deployed. At the same time, he says banks’ licences to supply money – credit – to economies should be curtailed. After the failings of the last decade, Gould believes banks have lost the credibility needed to perform such an important task.
But by championing national currencies, Gould appears to forget that foreign exchange markets are a zero-sum game. Gains for one nation come with equal and opposite costs elsewhere. Devaluation may sometimes bring some benefits to some countries. But it cannot be a global solution.
With some justification, Gould berates the private sector as incompetent, short-sighted and greedy. But he fails to show why it is reasonable to expect state-owned enterprises to do any better. Maybe they can. But how? And if commercial banks are to have their role as money creators curtailed, can the state really be expected to rise to fill the gap? Gould acknowledges that private banks have a virtual monopoly on credit creation. He skims over the threat that the disruption accompanying reform could trash any potential benefits.
Perhaps rightly, Gould says it is a mistake to depend too much on the policymaking power of interest rates set by central banks. He also says that international capital sucks power away from the people who should have the whip hand in democracies. But he spends too much time bashing global finance and too little effort hitting at those democratically elected leaders with the responsibility for holding those with financial power to account.
Gould is interesting enough. But the analysis in Myths, Politicians & Money leaves plenty of room for more convincing answers. Sadly, it is all too typical of the Left’s disappointing response to the financial crisis.