Governments and markets: Time to get serious (OECD article)

Nat O'Connor: An article in the OECD Observer poses a few useful questions about the role of governments in the economy.

The author argues that "we have no choice but to step back and at least examine the course we have taken, and maybe change it altogether if we are to restore lasting confidence in government and financial markets, and avert future crises."

He asks "Have policymakers missed a golden opportunity to reset the balance between markets and governments, as many of them wanted to do at the height of the crisis?"

He warns [If governments] "succumb to undeserved short-term pressure from creditors, then the risks are large. For instance, important efforts to address climate change, green growth, biodiversity, social inclusion, poverty and countless other essential public policy objectives that were front-burner policy issues before the crisis will lose steam."

The article is perhaps weakest in its conclusion - or rather lack of any real conclusion other than asking "what can be done to defend the public interest?" But the questions (and there are more in the article) are a useful reminder that the roots of the crisis have not been addressed, and solid foundations have not been laid for a recovery that will benefit all of society.

The key issue seems to be how we define the public interest. This is highly contentious, but one flexible idea that merits some discussion is the 'triple bottom line' of the economic, social and environmental effect of a company's activity or a government's policies. Definitions of the triple bottom line vary, but The Economist offers a short one and here is a longer article in the Indiana Business Review. A critique of the idea can be read here.

It may be the case that all the triple bottom line does is remind us that we need to calculate the effect of economic activity on people and the planet. But that alone is such a major consideration that it must cause us to consider major changes in how we measure 'economic success'. And therefore it provides a very different frame of reference for what governments should be striving to do as they attempt to bring about economic recovery.

In this context, the need to reduce the deficit (which is a very real need!) needs to be balanced against the long-term damage to the economy, society and the environment.

For example, not only would the rapid sale of state-owned enterprises or other state assets result in a low price gained by the state in the depressed global market, but such a sale could have consequences on the wider economy, society and the environment; such as the possible loss of employment around the country (as a private entity might centralise operations), a loss of social conscience (such as with utility bills in arrears) or the unsustainable commercial exploitation of land sold along with a semi-state company (which might be a carbon sink or habitat for wildlife).

It might be argued that the concerns articulated as the triple bottom line can all be addressed through regulation. But, in most cases, such regulation is not in place and it will take careful consideration of all of these factors to put in place comprehensive rules; and to see if the costs of regulation outweigh the benefits of maintaining state ownership. None of which should be done in a rush.