Free Societies, Free Markets

Alistair Darling (God bless him) is proposing, in the forthcoming Queen’s speech, to introduce a measure to allow the government, or the FSA, to “rip up” bankers’ contracts, if they feel that the contracts promote undue risk.
Questions are being asked about whether bankers’ bonuses are necessarily the right target, or whether the focus on them might be distracting us from more important systemic issues  The attack on bonuses could be seen as an atavistic desire for revenge, rather than a logical policy response.  Other are asking whether, in fact, such a measure can be made legally watertight.  There will be all sorts of questions about how risk is defined and assessed.
But these questions miss a more basic point.
Free societies and free markets don’t just happen by accident.  There are clear and prerequisite criteria to enable free markets to exist and to operate effectively.  These criteria include the rule of law, the right of property, and enforceable contracts.  Take away any one of these preconditions, and you are hacking at the very foundations of the free market.
Oxfam tries to solve the problems of Africa with aid, with various worthy projects and the injection of money.  But those of us on the right of politics know that money is not the root of the problem, nor the solution to it.  Africa has the potential to be rich.  What it lacks is those three essential pre-conditions: rule of law, rights of property, enforceable contracts.  And not just Africa.  Croatia, which hopes to join the EU next year, has very similar problems.
Alistair Darling has already followed Zimbabwe (or Southern Rhodesia, as I still think of it — though it was a much richer place in those days) in his policy of printing money — for that is what Quantitative Easing means.  He is now following Zimbabwe by abandoning enforceable contacts.  This will eventually cause our market economy to perform less well.  It will also be a huge disincentive to foreign investors (and not only in the financial services area).  Who would want to invest in a country where the government of the day can tear up your contracts on a whim?

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1 Response to Free Societies, Free Markets

  1. I agree with your general point about contract enforceability, and I don’t wish to see bankers’ bonuses curtailed, but I think you are really trying to force an anti-Darling point where (for once) there really isn’t one.

    Comparing the extent of quantitative easing in the UK to the extent that it has been employed in Zimbabwe is laughable. Almost as laughable maybe, as trying to claim that ?

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