Are the days of market self-regulation over?
The prospect of financial markets being left to regulate themselves in future is looking highly unlikely. Support for the concept is on the wane as the idea of giving governments more control over the financial sector gains traction.
The issue of state regulation of markets has provoked much debate recently. On one hand, the Confederation of British Industry recently dismissed as “total nonsense” the notion that the chaos in the financial markets means we must consider widespread state intervention in the sector. But the opposing view is that increased regulation – such as the FSA’s recent ban on short selling – helped to bring stability to the UK’s leading financial institutions.
There is a growing belief that market self-regulation as a concept is in its death throes. This is exemplified by the fact that the top brass at the European Commission have lambasted those who hold the view that markets can police themselves. Speaking in the European Parliament this week, Günter Verheugen, vice-president of the European Commission, said that the days of market self-regulation were over. He said: “This is the end of an economic ideology which was not based on real experience and social reality – an ideology that told us ‘don’t regulate as the market will regulate’, which is obviously not true.”
Some are sure to disagree with Verheugen’s comments, and will argue that now is the time to reduce the amount of red tape in order to aid the recovery of markets that have taken a pummelling recently. But free market devotees should not underestimate the damage caused by a financial sector that has operated unshackled. The global plan for tackling the financial crisis has cost governments more than two trillion pounds.
Meanwhile, unemployment in the UK increased by 30,000 last month. And the fall-out from the crisis could be felt for years, even decades, to come. As one commentator pointed out this week, the total £2.1 trillion cost of the global bank bail-outs is one third bigger than the British economy and represents enough money to fund the National Health Service for the next 20 years. Unregulated financial markets have caused problems for every single one of us and it’s time they were brought under control.
