The national interest

With France’s dirigiste economic approach being hailed as a model for the world, state intervention

When Gordon Brown was confronted with the run on Northern Rock in September 2007, he did everything in his power to avoid nationalisation. The bank was put up for auction and for six months he prevaricated, entertaining bids from all and sundry, including Richard Branson and avaricious private equity groups, until he accepted the advice of Goldman Sachs that the only equitable solution was public ownership. Even then the Prime Minister, brought up on the post-Thatcher/Reagan consensus that state control was bad and privatisation good, was extraordinarily reluctant. Brown and his Chancellor, Alistair Darling, did everything they could to present the government takeover of the Rock as temporary and to emphasise that ownership would be at “arm’s length”.

Brown, as a leading player in the Blair project, could not forget that the price for the birth of New Labour was the destruction of Clause Four, when the party gave up all claims to public ownership of the means of production. He was also acutely aware that Michael Foot’s 1983 manifesto, which committed the old Labour Party to nationalisation of the banks, had gone down in political folklore as the “longest suicide note in history”. The excruciating vacillation over ownership of the Rock now looks ridiculous. Nearly two years of credit crunch have forced Anglo-Saxon capitalism to retreat, and brought the return of government intervention on a scale not seen for decades. It has also led to the dirigiste economic ethos of France (which has survived the “Great Recession” surprisingly well) being hailed by the Economist as a model for the world.

The Rubicon was crossed in September 2008 when, in the panic following the collapse of the New York investment bankers Lehman Brothers, governments around the world moved to take public control of their banking systems. Some of the biggest financial houses in the world, from Royal Bank of Scotland in the UK to Citigroup in the US, were in effect nationalised as governments and central banks fought to prevent a train wreck every bit as messy as the one that led to the Great Depression. Any pretence of letting capitalism take its course was subverted as risks in the banking system were socialised.

In Britain, the Labour government found itself owning big stakes in RBS and Lloyds Banking Group (the amalgam of Lloyds TSB and HBOS); it also took the flawed mortgage books of the Bradford & Bingley and the Dunfermline Building Society on to the public accounts.

What has happened subsequently was all but inevitable once governments moved to bail out the banks. The cries of pain from other parts of the private sector, led by a car industry wounded by falling sales and production, were bound to resound as unemployment piled up on both sides of the Atlantic. General Motors, for decades the world’s dominant motor manufacturer, was long regarded as embodying the spirit of the

free market. In 1953, the corporation’s president, Charles Erwin Wilson, told Congress, “For years I thought that what was good for the country was good for General Motors, and vice versa.” Some five decades later, the fates of General Motors and the Obama administration have become inextricably entwined. With the car giant bleeding cash (it ate up $10.2bn – £6.7bn – in the first three months of the year), it is offering the US government 50 per cent of its shares in exchange for a financial lifeline.

The pattern is being repeated here in Britain. For months, Peter Mandelson’s Department for Business declined to offer assistance to LDV, the near-bankrupt van-maker carved out of Leyland and DAF, fearing it would be seen as offering sustenance to LDV’s Russian billionaire owner, Oleg Deripaska. But with a new Malaysian buyer on the scene and LDV making promises about developing Europe’s first commercial “green” vans, the business minister Shriti Vadera has reversed policy and offered LDV a £5m loan.

More significantly, the government’s Business Department has engaged in detailed negotiations with Jaguar Land Rover (owned by the Indian group Tata) about a much larger subvention, described by the City analyst Howard Wheeldon of BGC Partners as “back-door nationalisation”. In exchange for an injection of funds, Mandelson is demanding that the government appoint its own chairman to the board, be paid an arrangement fee and have a veto over redundancies.

Indeed, calls for the state to intervene are being heard all over the country. The Anglo-Dutch steel giant Corus (also owned by Tata) is in a desperate fight to keep open one of Britain’s oldest slab-steel mills at Redcar on Teesside, following the cancellation of a crucial contract. It, too, can be expected to pass round the plate. Meanwhile, the transport group National Express is seeking to persuade the government to waive the £1bn

licence fee it owes for running the East Coast rail franchise, and so on.

Having allowed manufacturing to wither on the vine, in favour of encouraging an ever-larger financial and services sector, the government ­appears to have rediscovered its value. Endless speeches by Peter Mandelson have talked of building a new economy for Britain around low-carbon vehicles (such as those at LDV), biotechnology, renewable energy and other technologies in which Britain excels. He has launched a modest £750m fund to begin investing in such products. There is nothing new under the sun and much of this sounds like Harold Wilson’s famed “white heat of technology”, the 1970s

Industrial Reorganisation Corporation and bodies such as Finance for Industry, which were

intended to build a new manufacturing future for the UK. Without anyone much noticing, the maligned dead hand of the state has become fashionable again.

Labour maintains that the privatisation drive will go on, with Post Office and the Royal Mint among the enterprises in line for the Thatcherite treatment as the government desperately looks for more cash. But whether it intended to do so

or not, it has in parallel embarked on a policy

of intervention more intrusive than anything in British commercial life since the postwar Attlee government. Credit crunch has produced an irresistible lurch back to the future. l

Alex Brummer is City editor of the Daily Mail