Government fiddles while economy burns...

There’s an ominous lead story in today’s Financial Times which suggests “senior government figures” are discussing whether they should buy out the remaining privately-held shares in Royal Bank of Scotland and fully nationalise it.
This would be an enormous step and, in a government led by the Conservatives, a surprising one.
It’s important to note right from the start that the story doesn’t quote a single named minister, but a series of euphemisms for high-level sources – ‘ministers and officials’, ‘some at the top of government’, and ‘one official’.
This smells to me like a story that has been floated by either political advisers to a minister, a senior Whitehall mandarin, or even a Lib Dem member of government.
These discussions are said to be drive by government ‘exasperation’ at the barriers banks continually put in the way of lending money to business.
That exasperation is almost certainly shared by business.
But I’d be amazed if this government nationalised any bank unless we lapse into another global economic crisis.
It flies in the face of Tory philosophy, would be hugely complicated, and the idea that government could force a state-owned bank to do things other banks won’t or can’t throws up all sorts of competition issues – never mind leaving the taxpayer exposed to much greater risk.
It would also take ages before the nationalisation process was complete and the state-owned bank was able to miraculously turn the financial tap on.
Nor would it alter three fundamental problems faced by our economy.
The consumer appetite for credit which lay behind so much of the boom expansion just isn’t there. Consumer credit markets have been shrinking. Some of that may be because cheap credit is not available, but so many people are still paying down debt.
Many businesses are reluctant to borrow, particularly that breed of privately-owned firm which hates the whole concept of ‘working for the bank’. For some of them, one of the key issues is not so much the cost of borrowing as the cost of basic facilities.
Then there is the stupefying spectacle of the eurozone’s inexorable crawl towards the next bit of sticking plaster, with one fix after another leaving markets pretty much convinced that the EU looks likely to fall apart like a melting icecap.
The problem for government is that, despite all this, it needs to be seen to do something. It’s actually floated plenty of initiatives – ranging from the Regional Growth Fund to yesterday’s Funding For Lending programme.
But they are progressing at a glacial pace – partly because government itself dismantled some of the very structures which used to get money spent at the grassroots (think East Midlands Development Agency).
Neither is it marketing and communicating some of these initiatives properly (here again, it got rid of the long-established Central Office of Information, which had a presence across the regions).
Banks are a problem. So is the expectation that there are quick fixes to enormous structural economic problems which go well beyond these shores – throwing money at our economy won’t make a key export market any better.
But nationalising RBS would be a government fiddling while our economy burns.