A state-hating free marketeer ignores his own failed experiment to offer discredited theories riddled with blame-shifting and excruciating errors
Brass neck doesn't begin to describe it.
Matt Ridley used to make his living partly by writing state-bashing columns in the Daily Telegraph. The government, he complained, is "a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them."(1) Taxes, bail-outs, regulations, subsidies, intervention of any kind, he argued, are an unwarranted restraint on market freedom.
Then he became chairman of Northern Rock, where he was able to put his free market principles into practice. Under his chairmanship, the bank pursued what the Treasury select committee later described as a
"high-risk, reckless business strategy"(2). It was able to do so because the government agency which oversees the banks "systematically failed in its regulatory duty"(3).
On 16th August 2007, Dr Ridley rang an agent of the detested state to explore the possibility of a bail-out. The self-seeking fleas agreed to his request, and in September the government opened a support facility for the floundering bank. The taxpayer eventually bailed out Northern Rock to the tune of £27bn.
When news of the crisis leaked, it caused the first run on a bank in this country since 1878. The parasitic state had to intervene a second time: the run was halted only when the government guaranteed the depositors' money. Eventually the government was obliged to nationalise the bank. Investors, knowing that their money would now be safe as it was protected by the state, began to return.
While the crisis was made possible by a "substantial failure of regulation", MPs identified the directors of Northern Rock as "the principal authors of the difficulties that the company has faced". They singled Ridley out for having failed "to provide against the risks that [Northern Rock] was taking and to act as an effective restraining force on the strategy of the executive members."(4)
This, you might think, must have been a salutary experience. You would be wrong.
Last week Dr Ridley published a new book called The Rational Optimist (5). He uses it as a platform to attack governments which, among other crimes, "bail out big corporations"(6). He lambasts intervention and state regulation, insisting that markets deliver the greatest possible benefits to society when left to their own devices. Has there ever been a clearer case of the triumph of faith over experience?
Free market fundamentalists, apparently unaware of Ridley's own experiment in market liberation, are currently filling cyberspace and the mainstream media with gasps of enthusiasm about his thesis. Ridley provides what he claims is a scientific justification for unregulated business. He maintains that rising consumption will keep enriching us for "centuries and millennia" to come(7), but only if governments don't impede innovation. He dismisses or denies the environmental consequences, laments our risk-aversion, and claims that the market system makes self-interest "thoroughly virtuous"(8). All will be well in the best of all possible worlds, as long as the "parasitic bureaucracy" keeps its nose out of our lives(9).
His book is elegantly written and cast in the language of evolution, but it's the same old cornutopian nonsense we've heard one hundred times before (cornutopians are people who envisage a utopia of limitless abundance(10)). In this case, however, it has already been spectacularly disproved by the author's experience.
The Rational Optimist is riddled with excruciating errors and distortions. Ridley claims, for example, that "every country that tried protectionism" after the Second World War suffered as a result. He cites South Korea and Taiwan as "countries that went the other way", and experienced miraculous growth(11). In reality, the governments of both nations subsidised key industries, actively promoted exports and used tariffs and laws to shut out competing imports. In both countries the state owned all the major commercial banks, allowing it to make decisions about investment(12,13,14).
He maintains that "Enron funded climate alarmism"(15). The reference he gives demonstrates nothing of the sort, nor can I find evidence for this claim elsewhere(16). He says that "no significant error has come to light" in Bjorn Lomborg's book
The Sceptical Environmentalist (17). In fact it contains so many significant errors that an entire book -
The Lomborg Deception by Howard Friel - was required to document them(18).
Ridley asserts that average temperature changes over "the last three decades" have been "relatively slow"(19). In reality the rise over this period has been the most rapid since instrumental records began(20). He maintains that "eleven of thirteen populations" of polar bears are "growing or steady"(21). There are in fact 19 populations of polar bears. Of those whose fluctuations have been measured, one is increasing, three are stable and eight are declining(22).
He uses blatant cherry-picking to create the impression that ecosystems are recovering: water snake numbers in Lake Erie, fish populations in the Thames, bird's eggs in Sweden(23). But as the Millennium Ecosystem Assessment shows, of 65 global indicators of human impacts on biodiversity, only one – the extent of temperate forests – is improving. Eighteen are stable, in all the other cases the impacts are increasing(24).
Northern Rock grew rapidly by externalising its costs, pursuing money-making schemes that would eventually be paid for by other people. Ridley encourages us to treat the planet the same way. He either ignores or glosses over the costs of ever-expanding trade and perpetual growth. His timing, as BP fails to contain the oil spill in the Gulf of Mexico, is unfortunate. Like the collapse of Northern Rock, the Deepwater Horizon disaster was made possible by weak regulation. Ridley would weaken it even further, leaving public protection to the invisible hand of the market.
He might not have been chastened by experience, but it would be wrong to claim that he has learnt nothing.
On the contrary, he has developed a fine line in blame-shifting and post-rational justification. He mentions Northern Rock only once in his book, where he blames the crisis on "government housing and monetary policy."(25) It was the state wot made him do it. He asserts that while he wants to reduce the regulation of markets in goods and services, he has "always supported" the careful regulation of financial markets(26). He provides no evidence for this and I cannot find it in anything he wrote before the crisis.
Other than that, he claims, he can say nothing, due to the terms of his former employment at the bank. I suspect this constraint is overstated: it's unlikely that it forbids him from accepting his share of the blame.
It is only from the safety of the regulated economy, in which governments pick up the pieces when business screws up, that people like Dr Ridley can pursue their magical thinking. Had the state he despises not bailed out his bank and rescued its depositors' money, his head would probably be on a pike by now. Instead we see it on our television screens, instructing us to apply his irrational optimism more widely. And no one has yet been rude enough to use the word discredited.