Mar 02 2011

Adair Turner: financial liberalisation was a failure

Posted by: Nick Shaxson in: Thoughts

OK, Britain’s top financial regulator didn’t exactly say that. But he said something almost as damning. As picked up by the excellent new Progressive Tax Blog, what he actually said in a long speech called “Reforming Finance: are we being radical enough?” Here is the killer line:

“There is no aggregate level empirical evidence to support the belief that financial liberalisation and financial deepening has generated superior economic performance.“

Coming from the chairman of Britain’s Financial Services Authority – the financial regulator – this is a stunning admission. It’s similar to something he said before, about social uselessness (as mentioned by Stephen below,) but different. And he makes a point that I make forcefully in Treasure Islands:

“Empirically it is worth noting that the period of post-war ‘financial repression’ from 1945 to 1975, apparent both in measures of financial activity and of financial sector remuneration, was one of rapid and steady economic growth which compares well with the subsequent 30 years.”

In other words, growth was higher in the quarter century of “financial repression” after the Second World War, than in the subsequent period of financial liberalisation.This does not prove that curtailing the power of finance will make your economy grow faster – but it lends support to the idea, and it does prove that it’s quite possible to have high growth while keeping Big Finance on a tight leash. Just as Keynes himself understood all those years ago.

And there’s plenty more in Turner’s speech. I’ll get to that shortly.

4 comments so far

Skylarksara 3nd March, 2011 10.53 am

It seems that both Adair Turner and Merv King have finally read Treasure Islands!

Stephen 3nd March, 2011 11.05 am

I’m pretty sure he has made similar statements before. He was the man who labelled much ‘financial innovation’ as ‘socially useless’ and stated that the financial sector was probably too big for the good of the rest of the economy.

Nick Shaxson 3nd March, 2011 11.43 am

Well, he said something similar, and got huge media coverage for it. This is a slightly different statement. What’s interesting is what comes next – my next blog. His recipe is to tax banks a lot more. Coming soon.

[…] Having just blogged about the comments by Adair Turner, chairman of Britain’s Financial Services Authority, that financial liberalisation doesn’t seem to have delivered the goods (it’s not exactly the first time he’s said these things), I will now turn the specific problems he identifies, and how to deal with them. […]

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