If everything was free (market theory)…

Just thought I’d let you in on a couple of thoughts I had on the train coming into work this morning, mainly about the credit crunch. The credit crunch is weighing heavily on my mind at the moment, not least because I work in the banking industry and I’m a homeowner with a mortgage but also because a number of the guys I work with (currently at a US investment bank) are just waiting to be fired in the same way a number of their US colleagues were recently.

Reading about the latest on the Northern Rock debacle, it occurred to me that in the current depressed economic climate, without any state, governmental or regulatory intervention, a number of (at least smaller) banks and financial institutions would perish. The obvious, and most high-profile, example is Northern Rock, which provides a useful scenario to run the free market theory on. I’m talking free market theory in its purest form; the idea that the price of goods and services should be determined purely by the mutual consent of buyers and sellers. If this approach were allowed to prevail, then there is no doubt that Northern Rock would perish, those who deposited cash with it would find their accounts empty and shareholders would lose their entire investments. Nobody would want to buy it, nobody would want to bail it out of trouble. There would be carnage. And it is only because of governmental and regulatory intervention that this has not yet happened.

Now, by running the Northern Rock example, I am not advocating that the government become more interventionist than it already is, particularly in other areas of public policy, such as health and education. I am just simply astounded that so many seemingly intelligent people fail to recognise the flaws and pitfalls in a free market economy. Whilst I recognise that many advocates of free market theory do not necessarily see the purest form of it as a normative approach and that they allow for intervention in times of market failure, a large number of the same people advocate the complete privatisation of the NHS. They don’t transfer the lessons they’ve learnt in one sector into the other.

I completely acknowledge that a wholly nationalised NHS is perhaps not the most efficient approach to satisfying the health demands of our country. However, I hope proponents of privatisation can recognise that perhaps a completely privatised NHS is not the great panacea to the problem they think it is. There is no doubt the NHS could be made more efficient – but perhaps the inefficiency is effectively the premium we pay for the insurance policy of governmental backing. If a previously robust product of free market theory such as Northern Rock requires this backing, there can be little doubt that the NHS might need it also.

Recognise.