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Far from being ideological, I am speaking from personal experience, and particularly in relation to Ireland.  I am constrained in what I can say specifically because I am on the Boards of three Charities who receive much of their funding from three separate Government Departments (and have to spend much of their management resource "managing" those relationships which are often quite dysfunctional.

On the more general point I would agree that there is nothing worse than a public sector monopoly except a private sector monopoly and I would always want key infrastructural resources to be in public ownership and control, particularly when it is dysfunctional or uneconomic or environmentally undesirable to have competing infrastructures.

If the current financial melt-down has taught us anything, it is that key parts of the financial infrastructure have become so strategically indispensable and vulnerable that they also need to be taken into public ownership to prevent some of the dysfunctional behaviours which precipitated the meltdown.

I am not enough of a financial expert to delineate precisely what the scope of that public ownership needs to be - it need not, for example, include many smaller retail banks, mortgage institutions, credit unions etc.

However once a bank becomes "too big to fail" it also becomes too big to regulate effectively, and thus must either be broken up into smaller components or taken into public ownership.

Even market ideologists who extol the virtues of competition have to accept that that model only works when there are sufficient players in the market to create real price competition and where the more inefficient or less innovative players have to be allowed fail for the good of the consumers within the whole system.

The reality is that big business is all about stifling competition by gaining near monopoly control of certain segments and thus being able to dictate prices.  Unless the regulatory environment can prevent this happening, public ownership is the only alternative.

The problem in todays globalising economy is that many corporations are bigger and power powerful that the states which are supposed to be regulating them, and even in the US the bigger businesses wield so much lobbying , media, and political power that they are effectively beyond regulation or fair competition.

In the meanwhile the political ideology of free market competition is still rooted in the economic realities of 50 or 100 years ago or of smaller businesses now.

My only concern with the nationalisation route is that managing such huge complex and specialised businesses is beyond the competence of most Civil Servants and the comprehension of most politicians and their constituents.  We are thus in danger of replacing a fundamentally dysfunctional private sector system with a badly managed public one.

We thus have two imperative:

  1. Dramatically improve our public sector management capabilities, and
  2. Better regulate those strategically important sectors which remain in private ownership

Calling for one doesn't obviate the need for the other and neither am I dogmatic as to precisely where the boundary between the two should lie.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jan 22nd, 2009 at 07:58:52 AM EST
[ Parent ]
if you take out the first paragraph.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 22nd, 2009 at 08:24:13 AM EST
[ Parent ]
I'm not sure I'm qualified to write a good FP story on this.  I don't have much knowledge of the banking industry, and have only been following the nationalisation debates through your and Melanchthon's diaries and the odd link.

The purpose of my intervention is to draw attention to the fact that running a major bank - or an entire banking system - is a non-trivial management challenge which politicians will tend to run away from because it could involve unpopular decisions and make them vulnerable to their electorates - who understand high finance even less.

Rather than having an ideological lets nationalise/ no you can't debate, it may be helpful to identify more precisely the dysfunctional aspects of the current system, the the parts which need more public oversight or outright control, and in particular the skills, structures and systems required to exercise that oversight/control more effectively.

The public will not want to be duped into "socialising the losses, after the profits have been privatised" and being left with the shell of a system which is poorly understood and doesn't work very well in the first place.

Long term we may well need entirely different systems and processes - on the lines advocated by Chris Cook - in any case, so now could be a very bad time to be taking on huge contingent liabilities in return for a business model which no longer works.

Ireland has Nationalised Anglo-Irish bank, whilst being adamantly opposed to nationalising the big two.  The "social partners" are now going to be asked to accept major wage cuts and cuts in public services to generate a minimum saving of €2 Billion p.a. (and rising) in order to reduce our public sector deficit from 10% to 3% over the next few years.

The Unions are bound to ask for a quid pro quo- if workers are to make such major sacrifices what guarantees do they have that they will also be the major beneficiaries when the economy turns around?

Some kind of corporate partnership and profit sharing model seems to be required - and Chris would be a great person to input into that design process.  I'm thinking of writing more considered piece as a LTE,op ed or other intervention into the Irish debate, and if I do I will of course also publish it here.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jan 22nd, 2009 at 10:38:41 AM EST
[ Parent ]
Long term we may well need entirely different systems and processes - on the lines advocated by Chris Cook - in any case, so now could be a very bad time to be taking on huge contingent liabilities in return for a business model which no longer works.

Can I point out that no-one appears to have any clue what the long term consequences of what Chris advocates would be?
by Colman (colman at eurotrib.com) on Thu Jan 22nd, 2009 at 10:42:37 AM EST
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That tends to be the way with new ideas. I'm going through some of the practical ramifications with him at the moment.  There are elements of what he prooses already in place.  Partnership, profit sharing, employee Board representation, unitisation of future revenue streams are not all reasonably well understood concepts.  The key issue is that you cannot expect people to make huge sacrifices without some stake in future gains...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jan 22nd, 2009 at 11:06:42 AM EST
[ Parent ]
Colman:
Can I point out that no-one appears to have any clue what the long term consequences of what Chris advocates would be?

I do, and I've said it often enough.

Personally, I don't think much of the long-term consequences of the existing system.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 24th, 2009 at 12:18:16 AM EST
[ Parent ]

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