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[Opinion] Britain's Future - Too Big Too Fail?
Election Day Is May 6. What Issues Will The New Government Face?
James Osborne (osborne)     Print Article 
Published 2010-05-01 18:31 (KST)   
Finally we are off and running. Although Prime Minister Gordon Brown had not yet set a date for the UK's 2010 elections, due to UK law stating that no Parliament shall last longer than 5 years, the day for UK's general elections was eminent. But it has now been confirmed that the general election will take place on May 6.

If you are visiting Britain over the next few weeks I recommend you take the time to read the newspapers and enquire as to what the issues are as you might find it interesting.

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This is the closest election in over thirty years. Poll predictions indicate we may have a "hung parliament", a case in which both parties will rule together. The uncertainty surrounding which party will rule presents a valuable opportunity for Britons. When polls indicate a clear winner, the results can often have negative effects on the democrat process.

But for this author it is good news. Close polling data sends a positive message to voters that every vote really does matter, especially in an election where polling data shows a close fight-to-the-finish race.

Personally I believe all polls should be banned from being published once an election has started. The turnout for this election will probably be the highest since 1997 and possibly reach 70% voter turnout. There is general feeling that the future is up for grabs and we need to decide what we want. However what are the key problems the Government faces?

I believe the key issue is not so much Britain's debt but its service sector and in particular the banking sector. This election has been compared to the general elections in 1979 when Margaret Thatcher rose to prominence and the election marked a turning point in modern British history. Why?

In 1979 the UK had just been bailed out by the IMF (International Monetary Fund). The government had a huge debt and the economy appeared uncontrollable. Sounds familiar?

At that time the government dominated the economy as it owned telecoms, car manufacturers, steel manufacturers, coal mines, gas, water, electric, and railways. Often these state-owned companies were seen as "too big to fail".

The thinking at the time was that they employed too many people to be allowed to fail. Successive governments prior to 1979 propped these companies up with subsidization. By 1979 this wasteful subsidy was approximately 占50 million a week and it was bringing the entire economy down as they required more taxation to pay for them.

Margaret Thatcher came to power in 1979 and privatized these state-owned companies. Opponents said that if this happened, millions of people would become unemployed and chaos would ensue. Just another reason why they're "too big to fail."

She argued differently stating in plain language the country had no choice but to privatize as the alternative was that Britain would decline anyway. What was the outcome?

Yes, millions were either made unemployed or given early retirement when the industries were privatized and/or closed. Unemployment reached over 3 million in the early '80s as the reforms kicked in (3 million, which is approximately 10-12% of the workforce was previously considered to be an un-imaginable figure).

There is no doubt the country went through an intense and difficult period of change throughout the 80s, but we DID go through it. The argument, "too big too fail" proved false.

Ultimately the majority of people accepted the changes as although they were nasty, they needed to be done. People in the 1980s proved democracy can deliver substantial and difficult change where there is a leader who has clear vision and keeps to that vision.

Margaret Thatcher famously delivered a speech in the early 80s when her policies were being questioned and before the rewards of her policy were showing as her opponents asked for a "U turn" and retreat from her policies.

In Thatcher's famous response, she said "You turn if you want to, this lady is NOT for turning."

So the net result was that in 1979 the subsidized industries were costing the government approximately 占50 million a week. By the end of 1995, they were actually paying the government approximately 占50 million a week in taxes.

Too big to fail?

No, they just needed tough reform. Margaret Thatcher successfully brought the manufacturing industries under control and stopped them from bringing down the whole economy.

Why is this important? Well, in 1979 the state-subsidized manufacturing industry was the problem. Today it's the state-subsidized service sector and banking in particular. The same problem has simply shifted onto a different sector. Today's bankers are the same as yesterday miners. They use the same arguments that their mining counterparts used thirty years ago: "we are too big to fail." Same problem, different sector.

The number one long term issue the next government must sort out is to say to the service sector, "No one is too big to fail." This will mean some serious changes in banking, namely some companies will need to be broken up.

Companies like RBS, HBOS, Llyods should be broken up. Currently Britain has six large banks, but the government needs to encourage more banks coming in to increase competition by passing new laws breaking up larger banks. The aim of the policy needs to be this. The UK needs to be in a position where no bank is too big to fail. When a bank fails it should not bring down the whole system.

It is likely by having smaller banks there will be higher costs of borrowing to the customer. This argument is not entirely convincing as it doesn't take into account having greater competition in the market and the efficiencies this brings.

However, even if borrowing costs go up 1%, this is simply a long term price worth paying.

The next government needs to sort out the service sector and make sure it's a private market that functions normally with no distortions. To shirk this responsibility in the next parliament would be terrible as it is in my opinion the number one long term problem facing the country.


©2010 OhmyNews
Other articles by reporter James Osborne

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