The debacle at Northern Rock in Britain illustrates again how vulnerable financial institutions can be to the vagaries of the global markets – and how such scandals can seriously affect governments.
The British Prime Minister, Gordon Brown, and his Chancellor, Alistair Darling, have been forced to reverse the policy of the past 20 years, by taking the Rock under national ownership.
For nearly 30 years, the foundation of Britain’s economic success was the privatization policy begun in the 1980s by the government of Margaret Thatcher, which encouraged entrepreneurialism and breathed new life into the City of London as a financial centre. Britain sold the privatization story to the world, and made billions advising other countries how to do it.
By nationalizing the Rock, Brown’s government is the only one in the world, apart from Vladimir Putin’s Russia, to apparently believe in the extension of state ownership of business. Brown will have to answer to the electorate for this scandal, which has cost the taxpayer a staggering $25 billion.
Another international comparison springs to mind. We have heard much criticism of sovereign wealth funds from the Americans, Europeans and most recently the Australians. But isn’t Brown behaving exactly like the SWFs that have attracted such opprobrium?
Isn’t Northern Rock an extreme example of the kind of financial bail-out we have seen from the American and European banks that have gone begging to Middle Eastern, Chinese and Singaporean financiers?
I think it is about time we heard what the new financial watchdog of the world, the Australian government, has to say about Brown’s blatant use of government funds in support of clearly political motives in the private business sector.
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