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August 15, 2010

Comments

Naadir Jeewa

The UK's financial sector is definitely a case of crowding out in my (non-economist) books.

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Harvey is more substantive in analytical terms, but Hutton does at least offer policy proposals despite his credulity as regards the possibility of changing the variety of capitalism - it's not only that short-term thinking defines political cycles, it is also that it is easier to concede to concentrated wealth in order to do good in the short-term.

James

(Question for any economists reading: does the metaphor of 'crowding out' not apply in this context? We constantly here from tories that the state has 'crowded out' the private sector; might a less over-bearing financial services sector and capital city have created space for alternative modes of wealth creation in the UK?)

Basically, yes. The City, aided and abetted by government and the Bank of England, proved very adept at producing short-term credit for property; but very bad at producing cheap long-term credit for business investment - which is more-or-less Hutton's argument. It consistently picked one over the other. We've ended up with a ludicrously mis-shapen economy partly as a result.

Mind you, I'd disagree that the current German boom has much to do with the innate superiority of Rhenish capitalism - or else how do you explain the last few years' feeble performance? It's got much more to do with the more contingent factors of stagnant (or falling) real wages, the relative undervaluation of German exports within the Euro system, and continuing demand from China than anything really fundamental. It is, after all, these high-minded German banks that have turned out to be up to their necks in all manner of dubious financial shennanigans over the last few years.

Chris Williams

There's probably a case for arguing that such a long-term reorientation of the British economy was exactly what Wilson was trying with Minitech. I'm not competent to argue it, mind - although David Edgerton is.

Will Davies

What was minitech, if you don't mind me asking?

Chris Williams

Ministry of Technology - the operational bit of Wilson's 'White Heat' plan.

Hope you had a good time at your conference. Was our Fran on good form?

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