Monday, 18 February 2008

Northern Rock nationalised – what an opportunity

The government is going to nationalise Northern Rock, but the opposition think this is a "disaster" and takes us "back to the policies of the 1970s".  
I think it's a fabulous move, and a very capitalist one.  The difference between the 1970s and now is that in the 1970s, the government felt it needed to own industries as a whole and there was no private competition.  In the 1980s, the government changed plan and backed off industry entirely, relying just on regulation and competition.  I think now there's an opportunity to realise that governments can do something slightly more than just regulation: they can get their feet wet in the market and be competition.
What would this do for the everyday citizen?  It's a very effective way of ensuring consumer minimum standards in an industry – much faster than regulation, and potentially more effective.
For example in Australia there is a problem with bank fees – not just for overdrafts, but just for accessing your money.  And these bank fees, as always, hit lower income earners hardest.  The Australian government would have a hard time pushing through regulations to outlaw bank fees – there would be law suits for judicial review complaining loudly that it's "not a viable commercial model".  But what if the Australian government still owned a bank (it used to own the Commonwealth Bank), and told it not to charge bank fees?  The private sector, just to compete for customers, would have to drop their bank fees too.  And by running a profit-making non-fee-charging bank, the government would prove that it is a commercially viable model.
Competition can be more effective than regulation, but if the public wants to drive the industry in its direction, then the public sector has to get its feet wet.
And now that Northern Rock has had to be nationalised, I hope the UK government will realise just how useful it could be to them.

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