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The   Death   of   Neoliberalism?
Interviewer:   Toby   Thompson
Interviewee:    Professor   David   Parker
November,   2008
Hello,   my   name   is   Toby   Thompson.
I   am   with   David   Parker,   Professor   of
Regulation   and   Privatisation   here   at   Cranfield.
David,   have   we   seen   less   regulation   recently   or   more   regulation   recently?
Well   it’s   an   interesting   question,   Toby.
If   you   go   back   to   the   1980s,   the   days   of
Thatcher   and   Reagan,   we   saw   a   great   dismantling   of   government   in   the   sense   of   owning   industry   outright   and   this   has   continued   in   many   parts   of   the   world,   and   continues   today.
We   also   saw   some   deregulation   in   the   80s   in   the   UK,   for   example,   until   the   mid   80s   all   opticians   charged   the   same   prices   for   spectacles.
Now   you   have   got   a   great   choice,   you   have   got   your   Spec   Savers   or   you   can   go   to   your   corner   optician.
Similarly   we   saw   the   stock   market   heavily   deregulated   and   of   course,   most   topically   in   terms   of   what   is   happening   today,   we   saw   building   societies   effectively   become   banks   and   banks   kind   of   become   building   societies   –   a   very   big   mixture   of   services   provided   by   financial   institutions.
Now   that   is   the   backdrop   to   you   question.
But   on   the   other   hand   government   has   got   more   involved   in   the   economy,   in   many   respects,   because   privatising   some   of   our   industries   like   telecommunications,   water,   electricity,   gas,   the   railways   meant   that   you   transfer   these   to   the   private   sector   but   you   couldn’t   leave   them   to   the   private   sector   because   there   is   such   a   big   public   interest   aspect   to   them   and   many   of   the   services   and   monopolies   are   supplied.
Government   got   involved   in   setting   up   new   regulatory   offices.
Also   the   government   has   got   more   and   more   involved   in   things   like   environmental   matters,   health   and   safety,   employment   laws.
We   have   got   the   European
Commission   churning   out   directives   month   after   month   which   the   member   states   of   the   EU   are   required   to   implement   into   their   own   national   laws.
So   the   short   answer   to   your   question   today,   is   we   are   probably   more   regulated   than   we   were   say   thirty   years   ago,   but   it   has   taken   on   something   of   a   different   form.
So   what   is   the   cost   of   that   regulation?
Well   estimates   vary.
The   top   end   estimates   for   the   UK   is   that   it   is   around   about
75 ‐ 80   per   cent   of   the   equivalent   to   the   total   income   tax   revenue   –   so   we   are   talking   about   well   over   £100bn   a   year.
Now   that   is   probably   on   the   high   side.
A   more   realistic   one   is   probably   around   about   £30 ‐ £40bn   a   year   to   the   economy.
So   in   what   way   is   the   current   international   financial   crisis   relevant   to   regulation?
Where   are   we   at   with   that?
Well   this   is   interesting   because   as   I   mentioned   a   few   moments   ago   banking   and   the   stock   market   were   areas   opened   up   to   the   deregulation   in   the   80s,   and   not

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DP   just   in   the   UK   in   other   countries   too.
In   the   United   States,   for   example,   up   until   the   1980s   there   was   a   legal   division   between   investment   banking   and   commercial   banking.
So   you   had   got   a   high   street   bank   that   lent   you   money   and   dealt   with   domestic   customers   and   local   businesses   which   was   different   from   investment   banks,   which   were   about   raising   large   amounts   of   capital   and   getting   involved   in   a   lot   of   the   derivatives   type   markets.
Now,   as   we   are   speaking   at   the   moment,   it’s   the   day   that   Citibank   appears   to   be   moving   into   effective   state   ownership   in   the   United   States.
Now   what   has   gone   wrong,   what   went   wrong   with   Lehman   Brothers,   they   are   both   classic   cases   of   banks   that   moved   across   all   services.
So   Citibank   was   a   commercial   bank   and   became   an   investment   bank.
Now   the   legislation   in   the   United   States   that   prevented   this   up   until   the   80s   was   something   called   the   Glass   Eagle   Act,   passed   in   1933   and   interestingly   passed   at   a   time   of   a   crash   in   the   American   banking   market.
So   there   is   a   political   response   to   the   very   same   sort   of   things   that   are   happening   today.
So   my   view   is   that   we   are   going   to   see   over   the   next   few   months,   and   couple   of   years   or   so,   is   a   big   move   back   to   regulation   of   the   financial   system.
Possibly   not   back   to   the   1930s   style   regulation,   but   I   think   the   days   of   the   neo ‐ liberalised   financial   markets   is   over   –   at   least   for   some   time.
So   are   we   seeing   a   reduction   in   performance   with   this   increased   state   intervention?
Performance   of….?
Of   the   company   and   business   in   general.
Well   again,   difficult   to   say.
These   costs   have   to   be   borne.
If   we   are   talking   about   £30 ‐ 40bn   a   year   then   somebody   is   paying   for   it.
Now   that   cost   is   made   up   of   two   broad   parts.
One   is   the   cost   of   administering   the   regulation   which   falls   on   the   taxpayer   because   it   is   government   spending.
But   the   other   part   which   falls   directly   on   business   of   all   types   is   the   compliance   cost   with   the   regulation.
Now   we   all   know   as   we   fill   out   our   tax   returns   and   deal   with   correspondence   from   government   departments   that   it   takes   up   time.
But   for   businesses   today   it   is   a   huge   burden   and   for   some   businesses   an   enormous   burden.
If   you   are   a   water   company   today   you   are   constantly   having   to   manage   a   regulatory   office   and   all   of   the   compliance   costs   of   that.
So   it   is   a   big   cost   on   business   and   it   makes   business   in   a   sense   more   interesting,   for   me   as   an   academic,   but   more   difficult   if   you   are   actually   doing   business   on   a   day   to   day   basis.
So   are   we   seeing   a   re ‐ nationalisation   of   the   UK   economy,   at   least?
This   is   being   used   at   the   moment   and   I   think   one   has   got   to   be   careful   because   the   term   nationalisation   actually   has   no   real   legal   status.
It’s   associated   with   the

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DP   creation   of   public   corporations   in   particular,   which   is   what   occurred   under   the
Attlee   government   after   1945.
What   we   are   seeing   today   is   more   akin   to   the   sort   of   things   that   happened   in   the   1970s   with   the   taking   into   public   ownership   of   British   Leyland,   Rolls   Royce.
These   stayed   companies,   they   stayed   as   PLC   companies,   not   public   corporations   –   so   they   worked   under   the   Companies   Act,   a   different   legal   framework.
Now   clarifying   that   rather   esoteric   issue,   if   you   are   saying   are   we   seeing   more   businesses   owned   by   government   and   directly   controlled   by   government,   then   yes   we   are.
Whether   this   is   temporary,   just   the   result   of   the   financial   crisis,   we   will   wait   and   see.
The   government’s   intention   is   that   it   will   return   to   private   ownership   businesses   like   Northern   Rock,   but   of   course   this   will   take   time.
And   we   don’t   quite   know   what   form   these   businesses   will   take   when   they   transfer   back   into   the   private   sector.
So   looking   forward,   do   you   see   a   decrease   in   state   intervention   as   we   move   out   of   the   recession?
No,   I   don’t   think   so.
If   you   look   at   the   main   political   parties   in   Britain   today,   we   do   not   have   now   a   party   with   a   kind   of   Thatcherite   agenda   that   we   had   in   the   late   1970s   and   during   the   1980s.
There   seems   to   be   now   an   uneasy   consensus   which   is   more   akin   to   what   we   used   to   call   Butskellism   in   the   1950s   and   the   60s   –
I   don’t   know   whether   you   know   that   term   –   which   is   a   meeting   in   the   middle   ground.
And   what   we   are   getting   between   the   parties   is   really   a   difference   of   emphasis   rather   than   a   difference   in   principle.
And   I   think   what   we   are   going   to   see   therefore   is   no   massive   type   privatisation   programme   as   we   saw   in   the
1980s.
I   don’t   think   we   are   likely   to   go   back   to   that   neo ‐ liberal   agenda   for   quite   some   time.
Indeed,   if   anything,   the   risk   –   some   might   see   it   as   the   opportunity,   but   I   would   see   it   as   the   risk   –   is   that   we   go   the   other   way,   that   we   get   more   government   involvement   without   really   appreciating   the   true   costs   of   this.
David   Parker,   thank   you   very   much.
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