Nama or nationalisation?

After months of talk the government has finally signed-off on the National Assets Management Agency. The initial response has been a small rally in Irish bank shares as investors relax safe in the knowledge that the government is about to buy their distressed assets. (1)

Everyone agrees that the Irish economy will not recover until it has a functioning banking sector and that, as it currently stands, this is not what we have. The banks have failed and the government is desperate to keep them alive by any means necessary.

Surely, though, as business pundits are fond of telling us, failure is supposed to have consequences. In the US conservative commentators have poured scorn on Barack Obama’s temporary nationalisation of General Motors. GM was a failed business, the theory goes, so why not let it collapse? Whatever about the auto industry, why has this not even been countenanced for finance and banking industries?

The idea that if Ireland’s banks failed it would spell the end of banking or even capitalism is bizarre. If Ireland’s banks collapsed they would be replaced by new institutions, ones that wouldn’t have the legacy and debts that have strangled the current banks ability to lend.

Allowing the banks to fail would be a fairly easy sell to the electorate. According to a poll in the Sunday Independent the public has no appetite for bailing out the banks, preferring nationalisation to signing blank cheques backed by the public purse. (2)

Unfortunately, nationalisation is not a particularly useful strategy either.

Nationalisation is generally seen as a left wing idea – the Labour party’s former desire to put the commanding heights of the economy in public ownership. Apart from the fact that state ownership does not necessarily equate to public control, it’s worth pointing out that the drive toward state control is not driven by any progressive or democratic impulse. In fact, it’s life support for private business.

Looking at the British experience during the 1970s one can see that those industries that were nationalised were, without exception, industries that had already failed. The fact that private finance was replaced with government ownership tells us more about the precariousness of the firms’ finances than it does about any commitment to public ownership

Rather than nationalisation it should be called hospitalisation. Privately owned companies that are considered vital to the economy make mistakes and face bankruptcy. The government steps in and bails them out using public money. If the companies recover they are once again privatised; if not the government and public pick-up the bill and the workers lose their jobs. In effect nationalisation and bailouts are moves to socialise risk and privatise profit.

Of course, the government isn’t actually lying or attempting to defraud the public – it is simply trying to stabilise the economy by whatever means it can. The problem is that the de-politicisation of economics and industry over the last thirty years has made radicalism, of any political stripe, unthinkable.

(1) Bank shares rise on Nama bill, Charlie Taylor, Irish Times, July 31, 2009
http://www.irishtimes.com/newspaper/breaking/2009/0731/breaking26.htm

(2) Public No to Nama ‘bail-out for banks’, Jody Corcoran, Sunday Independent, August 2, 2009
http://www.independent.ie/national-news/public-no-to-nama-bailout-for-banks-1849308.html