Nice comment piece by Sir Howard Davies in today’s Financial Times, in which the former chairman of the FSA warns politicians and regulators of the dangers of standing in the way of creative destruction.
Now director of the London School of Economics and Political Science, Davies says without publicly mentioning Joseph Schumpeter’s theory of creative destruction — that the failure of outdated business sectors is an “essential fact about capitalism” as it is the very mechanism that drives its dynamism — our political leaders would be sensible to keep hom in mind.
He said much of the recent political debate on the intensifying financial crisis has ignored this, “as frontbenchers and their acolytes have scurried off in search of measures that will induce the banks to lend money they have not got to people who cannot afford to pay it back.”
You could summarise it as saying rather than focus on seeking to prop up falling banks, the government should consider letting them collapse.
As one listens to Mr Brown and Alistair Darling, chancellor of the exchequer, one can hear them hesitantly trying to recover the lost art of recessionary conversation.
In troubled times, politicians must sound empathetic, and strike a balance between emphasising the power of the forces that overwhelm them and sounding as though they are nonetheless in control. They need sometimes to provide constructive assistance to casualties (training and retraining investment can be useful) but must try not to resist the irresistible or to stand in the way of creative destruction.
Few politicians have won votes by invoking Joseph Schumpeter’s theory in public, but they are wise to keep him in mind. Much of the recent debate on the crisis has ignored these guidelines, as frontbenchers and their acolytes have scurried off in search of measures that will induce the banks to lend money they have not got to people who cannot afford to pay it back.
This blog post was published on 20 August 2008