07 July 2009

Going public

Today the Chancellor of the Exchequer, Alastair Darling, has moved quickly to scotch rumours of public sector pay freeze. Once again the scent of Moral Hazard is surrounding events, as unions beat the populist drum about not punishing public servants for the follies of the super-rich bankers. If you can find £300bn for The City, what's 3% for the hard-working nurse? Brendan Barber, the TUC General Secretary, said that there would be a “very strong reaction” if the Government attempted to “punish” public sector workers for the private sector’s problems.

I like the "Animal Farm" logic of the argument: Public sector good, private sector bad. Mr Barber may be surprised to learn that the private sector, as a whole, did not create the financial crisis, but it is already being "punished" for it, picking up the bill in redundancies. None of my friends who have been laid off had ever been near a Credit Default Swap or Sub-prime Mortgage. But it's part of a bigger perception issue, caused by that timeless political fall-back: creating a false opposition, in this case public vs. private.

In the future, the movement towards the blurring of the lines between public and private sectors will continue even more rapidly. Previously this was seen as the public sector learning from the private: competitive tendering for contracts, commissioning models for public services, privatisation. But this will now have to work the other way: given the Biblical proportions of the present economic calamity, the banking industry will have to accept greater regulation.

I would go further and suggest that, actually, the banking system will need to swallow a thoroughly unpalatable truth: that they are, in fact, a part of the public sector. If the government underwrites your operation and prevents you going bust, you are a public sector organisation, ipso facto. You may not be wearing corduroy, and the lifts in your building may actually work, but as the engine of the UK economy, you are an extension of the government.

The system of international capital flow means we can't go back to a system of little banks. The taxpayer is the lender of last resort, just like it is for Essex County Council. Further proof of this truth is the way the same local government unions, who criticise bail-outs of private banks, were clamouring not so long ago for a similar bail-out when their Icelandic investments went south. There is a total interdependency that may render terms like "public" and "private" sectors meaningless in a few years.

Instead of hoping for short term pay rises, the TUC should accept a freeze on the condition of a share in future banking profits in the form of bonuses. And those bankers who always complain of working 80-hour weeks for their measly six-figure income should take the chance to turn up to work at 9.30 and leave at 3. I think the whole country would feel better for it.

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