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Thursday 4 December 2008

Say farewell to gentlemanly capitalism

Tony Curzon Price foresees a new era in which finance will be as tightly regulated as pharmaceuticals

So goodbye, gentlemanly capitalism; goodbye, light regulation. The two were inextricably linked. What will the state now do? It will deem that any transaction which might benefit from the ultimate guarantee of taxpayer bail-out through ‘lender of last resort’ or ‘buyer of last resort’ shall be completely regulated, from beginning to end. The fees earned, the prices charged, the identity of the parties and the value of the asset — all these will be subject to regulatory disclosure and control. Darling and Brown will implement this to improve their chance of winning the next election; Obama or Clinton or McCain will do it to deliver on campaign promises.

Think of the new world of finance that will emerge as being like the pharmaceutical industry. The snake-oil salesmen of old sold dreams of a healthy future. We insured ourselves against our collective gullibility by hyper-regulating medicine. New products take 17 years to gain regulatory approval; they go through testing in every detail; their use is constantly monitored; quack doctors get struck off. Companies like GlaxoSmithKline have one foot in the laboratory, the other in the regulator’s anteroom. It is honest business and very rewarding, but without much cut and thrust. Subprime has revealed the snake-oil nature of today’s ungentlemanly finance. We have models for dealing with the mis-selling of dreams for huge private gain. Not as draconian as Deuteronomy, but it will feel dull.

So what will happen to the City, its star traders and bright quants? The best thing about tighter regulation will be an end to the gross misallocation of talent that the financial boom has witnessed. These competitive, intelligent, driven people can at last be freed to do better. What would Britain rather have created these last ten years — Granite or Google?

Tony Curzon Price is editor-in-chief of openDemocracy.net

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