06 September 2011

Propping up interest groups: everyone loses

John Kay, explaining the current financial crisis, writes:
The subtle but important distinction between policies that support a market economy and those that support the interests of established large firms was not widely appreciated by policy makers on either right or left. A good crisis gone to waste, 30 August
Governments make this mistake often: they identify the success of the economy with that of large corporations - which often just happen to be big contributors to their party funds. Failing corporations, just like failed policies, are not allowed to expire, but are instead propped up with taxpayer funds. The 'creative destruction' on which our economic system depends, doesn't operate: instead government policy takes over from market discipline. Diversity goes and, with it, the ability of our political and economic system to adapt. What we are seeing now: social, political, evironmental and economic crisis, is largely a result of government propping up special interest groups. The short-term beneficiaries are the bosses of big corporations and the visionless politicians who buy them off. The losers are...well...everybody else.

We urgently need to move toward a system that rewards favourable outcomes. Not, as under the current system, those who say they're going to deliver them or who may have delivered those outcomes in the past, but cannot efficiently do so now. That's where a Social Policy Bond regime could help. Only those who actually and efficiently achieve targeted social and environmental outcomes would be rewarded. In stark contrast with the current system their identity would be entirely subordinated to their efficiency and effectiveness.

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