You can’t blame capitalism for this 'shambles’

Real free markets require genuine competition if they are to offer the constantly improving quality of service that is the redeeming virtue of private enterprise

A protester makes his point in front of the Bank of England Photo: GETTY

By Janet Daley

9:00PM BST 21 Jul 2012

What a feast the past week has been for the last adherents of the old socialist religion. There was yet another banking scandal and this one actually involved (wow!) laundering of drug money, and possible terrorist connections. And then there was a whopperoo of a public relations catastrophe, when a private firm’s commitment to providing security for the Olympics fell apart. So here we go again. From the planet where state power and government provision is an eternal fount of benevolence, come the voices of reproach. They always knew it would end like this: the forces of rabid capitalism have been allowed to pillage and destroy the moral fabric of the nation with their rapacious lust for profit, laying waste to the great public service ethos which once ruled our communal life.

Thank heaven for Mark Serwotka. Just as this outpouring of egregious moral hokum was reaching its ululating zenith, along came the Public and Commercial Services Union to remind us what the “public service ethos” is all about. Mr Serwotka’s comrades, who hold the security of the entire country in their grip, were to pull the plug at Britain’s ports of entry on the day before the Olympic Games opened. Ah, yes. There is the spirit of the untrammelled, invincible public sector at its purest: self-serving, politically ruthless, and indifferent to any needs or concerns outside its own vested interest. This was the mindset that once prevailed in the government-owned public services, with their hugely powerful national unions, which dominated our day-to-day existence within living memory.

Those of us old enough to recall what it was actually like to be persecuted by the North Thames Gas Board, to be put on a six-month waiting list for a telephone by the General Post Office, and to be at the mercy of dustmen who went on strike whenever their feelings were hurt, are not likely to be taken in by meretricious rhetoric about the glories of state ownership. It was the blinding rage against all of that – and the determination that it should never return – that kept the Conservatives in power for 18 years.

But I worry about the youngsters. Could a whole new generation of useful idiots be recruited to the cause of collectivism and state ownership, bamboozled by deliberately muddled assertions which do not stand up to examination? Will they be inclined, for example, to accept the hysterical claims that HSBC’s alleged money-laundering activity is a revelation about the nature of capitalism itself: that it encapsulates the essential immorality of the free market? Perhaps it would be pertinent for someone (David Cameron?) to point out that laundering drug money is not capitalism. It is not even “rampant capitalism”: it is a crime.

Freedom – as in “free market” – is not the same as lawlessness. If bankers are criminals, they should go to prison. It is the careless enforcement of the law – or a lack of the transparency which makes such enforcement possible – which should be in the dock here, not free-market economics. To consign capitalism to the devil because criminal activity went on within it is absurd. We may as well ban the ownership of goods because it creates the possibility of theft. Criminality is a danger under any system, because it is a function of human frailty. The point is to pursue and eradicate a particular crime, not to smash the freedoms under which it was conceivable. What is needed now is diligence and discipline in the running of markets – which brings us to that other great embarrassment for the private sector.

The word that has been uttered more than any other throughout the week (with much self-important pomposity in some cases) has been “shambles”. Yes, the failure of G4S to provide the security staff which they were contracted to recruit was indeed a four-star mega-shambles. But so was the Government’s failure to monitor the slipshod way that its contractor was managing such a vital programme. And for that matter, so was George Osborne’s last Budget, and the Coalition’s catastrophic attempt to hammer Lords reform through Parliament, and the BBC’s coverage of the Diamond Jubilee. Yes sir, “shambles” is the word of the moment – and it applies as much to amateurish, incompetent, self-indulgent government or national institutions as it does to hapless private companies that make very public messes.

This is the real British disease: unseriousness, lack of rigour, ill-discipline, failure to attend to detail and inadequate follow-through. Certainly it is true that what is now called “outsourcing” of public services – the disgraced Public Finance Initiative or public-private partnership – has taken a lot of hits. It has sometimes (but not always, as the neo-nationalisers would have you believe) ended up costing more and delivering less than it should. But that is almost wholly the fault of government agencies (both central and local) that are hopeless at commissioning and monitoring contractors. Getting value for money and insisting on efficiency are so alien to the mentality of public bureaucrats that they are far more inclined simply to hand over responsibility to outside firms and wait for them to perform miracles. Labour did this with the clear intention of fudging Whitehall spending limits so that it could pour even more money into its benefit entitlement programmes. The Tories do it in better faith but with less excuse for sloppy management: they are the people whose backgrounds ought to have taught them that private contractors need to be chased, harried and held to the mark.

But then the Tory record on privatisation has not been covered in glory. It will not do, for example, to dismantle a state monopoly in telecommunications only to hand it to a private monopoly. BT may not make you wait six months for a telephone, but they will rip you off with the joyous alacrity of a company that knows it has no effective competitors. Nor should the old gas and electricity boards have been stripped of their power only for energy supply to be run by a cartel of price-fixing giants. Real free markets require genuine competition if they are to offer the constantly improving quality of service that is the redeeming virtue of private enterprise. Otherwise private provision will seem like a profit-obsessed conspiracy against the public – hardly an improvement on the old nationalised industries, which had become comical in their failure to serve the consumer by the time the country threw them out. There is no time left for inept, half-hearted, inadequate administration. The argument against state power could be lost – and then another generation will have to learn the lesson all over again.

Some History of Monetary Unions

Making friends the shared currency way

Greece is falling out with its neighbours over their common currency - just as it did about a century ago. But forging closer bonds through shared currencies rarely works for long, says historian David Cannadine.

The continuing travails of the Greek economy and the threat they represent to European Monetary Union may both seem novel and unprecedented, but in several significant ways, we've been there before.

Far from being a recent innovation, there have been monetary unions for almost as long as there has been money. But across two and a half millennia, and whatever varied forms they may have taken, few of them have endured, which helps explain why they've been so easily and so largely forgotten.

On earlier occasions, too, the part played by Greece has been pivotal - sometimes positive but sometimes negative. And history has recently been repeating itself in other ways, for the present single currency is not the first such European scheme from which Britain has held aloof.

It's no exaggeration to say that European history is littered with the ruins of earlier endeavours. The most immediate predecessor to the EMU was the 19th Century Latin Monetary Union, which attempted to unify several European currencies at a time when most circulating coins were still made of gold or silver.

It came into being in August 1866; its initial members were France, Belgium, Italy and Switzerland, and they agreed that their national currencies should be standardised and interchangeable. There was no shared, single legal tender, but the currencies of the member countries were pegged at a fixed rate with each other.

Two years later, the four founding nations were joined by Spain and Greece and in 1889 the union was further enlarged by admitting Romania, Bulgaria, Venezuela, Serbia and San Marino. Thus the enlarged Latin Monetary Union lasted until World War I, which abruptly brought to an end the global financial system based on the gold standard. The result was that the LMU effectively came to an end in 1914, although it lingered on as a legal entity until its formal dissolution in 1927.

Negotiations to bring such a union into being had started in 1865, and Britain had initially been part of them. But two proposals were made, which proved to be a major stumbling block: the first was that the UK must reduce the amount of gold in its sovereigns, albeit by only a tiny amount, to make one pound sterling the exact equivalent of 25 French francs.

The second was that Britain must give up shillings and pence and decimalise its coinage to bring it into line with the other European currencies. Neither of these proposals was deemed acceptable, and so then, as in 1999, Britain stayed out, and left the continentals to their own devices. It also showed no interest in another and even more grandiose scheme floated by the French in 1867, for what was termed a "universal currency", which would have been based on equivalent gold coins to be issued by France, Britain and the United States.

Here were signs and portents aplenty of recent British attitudes and behaviour.

As Walter Bagehot, the essayist and editor of The Economist, put it in the late 1860s, there seemed to be a real danger that, "Before long, all Europe, save England, will have one money, and England will be left outstanding with another money."

If this happened, Bagehot went on, "We shall, to use the vulgar expression, 'be left out in the cold'. If we could adopt this coinage ourselves without material inconvenience, I confess I, for one, should urge our doing so."

But Bagehot believed that the practical difficulties of such a step were "simply insurmountable". He feared more generally that "the attempt to found a universal money is not possible now", and the unhappy fate of the Latin Monetary Union would later bear him out. Yet with the establishment of the late 20th Century European Monetary Union, it did seem as if the state of affairs, which Bagehot one day envisaged - and feared - had come very close to realisation.

But in 2001, Greece joined the European Monetary Union, and the rest, as they say, is history - but a history that is not yet anything like being over.

Ever since it gained its hard-fought independence from the Ottoman Empire in 1832, Greece has been plagued by recurrent budget crises, frequent state defaults and long periods during which it's effectively been cut off from the international capital markets.

So while it was one of the earliest nations to join the Latin Monetary Union, its membership soon became more a cause of concern than celebration, for its chronically weak economy meant successive Greek governments responded by decreasing the amount of gold in their coins, thereby debasing their currency in relation to those of other nations in the union and in violation of the original agreement.
So irresponsible and unacceptable did Greece's behaviour become that it was formally expelled from the Latin Monetary Union in 1908. As a result, some effort was made to readjust the nation's
monetary policy and Greece was readmitted to the Union two years later. But by then, the whole enterprise was increasingly fragile, its future looked increasingly uncertain, and the outbreak of WWI was only four years off.

The Latin Monetary Union was not the only one of its kind in Europe during the 19th Century. A German monetary union was created in 1857, which replaced the many different currencies of the many different German states with a dual system based on the north German thaler and the south German gulden. It proved to be a rare success story among such ventures, surviving until German unification in 1870, when political union was effectively aligned with monetary union and five years later the two separate currencies were replaced by the reichsmark.

Less successful was the Scandinavian Monetary Union, established between Denmark and Sweden in 1873, which was joined by Norway two years later. The aim was to do for Scandinavia what the Latin Monetary Union was attempting more broadly for Europe as a whole but it, too, effectively ceased to function on the outbreak of WWI and it was formally brought to an end in 1924.

Such efforts to create common currencies during the 19th and 20th Centuries are only the most recent examples of a process that's been going on for almost as long as coinage itself has existed. It's an intriguing historical irony that among the pioneers of these endeavours seem to have been none other than the ancient Greeks.

One of the earliest examples of such a union occurred sometime about 400BC, along the western coast of Asia Minor, where seven Greek states allied themselves and produced a coinage that directly foreshadowed later European monetary unions. On the front of the coins was a common design of the baby Heracles strangling a snake, and the first three letters of the Greek word for alliance. On the reverse, each state placed its own particular image. All these coins were minted to the same weight and formed a unified currency, which was the tangible symbol of the seven members' economic alliance.

No-one quite knows why or when this early effort at a monetary union collapsed but 200 years later, the ancient Greeks had another try, organised through what was known as the Achaean League, an alliance of territories and city states covering the whole of the Peloponnese that had been formed about 280BC.

Once again, their shared currency had a common obverse design, in this case the head of Zeus, and reverse patterns that were specific to the individual issuing authority.

The result, according to the historian Polybius, was that the Greeks "had not only formed an allied and friendly community but they have the same laws, weights, measures and coinage, as well as the same officials, council and courts of justice". Here was a level of integration, which the most ardent and ambitious Eurocrat of today might envy and this may help explain why, unlike the Latin or the Scandinavian monetary unions, the Achaean League lasted for well over 100 years.

Its eventual dissolution, in 146BC, was not because the members of the league fell out with each other, over the currency or anything else but was the result of an external shock in the form of a crushing military defeat by the Romans at the Battle of Corinth. Which leaves us with the following paradox: the ancient Greeks were pioneers of monetary unions and were quite eager to keep them in being.

Modern Greece, by contrast, has been a threat and a danger to any monetary union that it has ever joined.