Podcast: Play in new window
Subscribe: Apple Podcasts | RSS | More
Aubrey McCarthy is the founder and chairman of Tiglin, a charity that provides services to homeless people.
*****
I listen to podcasts quite a bit in arrears. I’m not too worried about being current, I suppose, and I was just listening to a David McWilliams podcast from August, he was talking about the banks, not too surprising. And he touched on a topic that I’m surprised that more people don’t discuss.
David McWilliams didn’t really discuss the topic I’m referring to, but he did kind of arrive at the topic. This goes all the way back to Marx, The Communist Manifesto and all that, and the workers seizing the means of production.
Whatever about my other views, I think this misunderstands how economies work. Firstly, that whole thing about the workers seizing the means of production, whenever it has been put into effect, or even tried to be, it inevitably means the state seizing the means of production, nationalising industries.
This was a cornerstone of left-wing policy up to about the 1970s, but became a bit taboo after that, not least because of how badly nationalised industries performed. When Mary Robinson was running for president in 1990, there were a few desperate Fianna Fáil attempts to throw back at her statements, that she had made in the 1960s, advocating nationalising the banks.
So it was particularly ironic that another 20 years later in 2010, it was Fianna Fáil that ended up effectively nationalising the banks, and the Labour Party was the only party in the Dáil that voted against the bank bailout that led directly to that nationalisation. But history, or at least the observations of a pop economist is proving that … well, I suppose they were both right and wrong, but Fianna Fáil were right first.
The bottom line is that the Irish public are being hosed by Irish banks. But hang on a minute, Irish banks were, and largely still are, nationalised. Haven’t the workers seized the means of production already.
This exposes why the Marxist analysis doesn’t work.
The government – the people – can regulate an industry, or they can own an industry, but they can’t do both. It is a fundamental conflict of interest.
And the reality is that, yes, the state is the collective will of the people, but it is naïve to imagine that doesn’t have an independent existence of itself. Yes, there are people there who have the best interests of the people at heart most of the time, also there are people who only think of their own interests, but also, the state, like any other institution has a collective sense of self-preservation and promoting its own interests.
And if the state owns a huge chunk of the banking sector, it is inevitable that the desire to accrue profits from that ownership comes into conflict with regulating that sector, protecting the consumers, the public, who need its services.
And it’s pretty clear which side is winning in that conflict.
And it isn’t just the savers who are getting ripped off.
So when you hear about the record profits of Irish banks, don’t imagine that it’s some sort of business acumen, some sort of talent at running an enterprise that is making those profits. They make those profits because they have us over a barrel.
In a free-market the solution to this problem would be competition. Someone sees that Irish banks are making an absolute killing, and they say that they’d like a piece of that action too, and they set up shop, bringing more competition to the market, and thereby lowering prices.
In a business with a lot of state regulation, which banking kind of has to be, you’d expect the regulator to step in and prevent the banks from making supernormal profits at the expense of their captive market.
But when the government is both the owner and the regulator, and motivated not to make it easy for competition to enter the market, and motivated not to lessen their own profits by preventing overcharging, neither of those solutions are possible.
The proof is in the pudding. We’re being ripped off. We own the banks, and they are still ripping us off.
I’m not saying that every nationalised industry is always worse in every case that every privatised one. It’s true that our telephone service is bad, but it’s light years ahead of where it was when it was run by the Department of Posts and Telegraphs, even allowing for the development of technology. But without the Department of Posts and Telegraphs it’s doubtful that we would got a telephone service at all when we did.
But many businesses are just too big and complex for the consumer to have any chance when they go head-to-head with them, so there needs to be some sort of government-sponsored regulation. And, as I said, even if it’s the government, the owner can’t be the regulator without having a major conflict of interest, and experience shows that conflict is not resolved in favour of the consumer.
But that’s not the only problem.
The massive margins that the banks are taking from consumers – both savers and borrowers aren’t all actually going into bank profits. As we hear there, banks need to make fatter margins in order to cover the fact that, much more than in other countries, they often can’t get their money back.
Nobody wants to be throwing people out of their homes, but the fact is that, if your neighbour doesn’t paying their mortgage, then you pay it. And, your neighbour is likely to go knocking on the door of the local TD and say how they don’t want to be thrown out on the side of the road, and when the bank that is doing the throwing out is state-owned, that could well be an effective way to avoid repossession.
There are lots of problems with our banks, a lot of them touch on the housing market, but I’m sorry to say you shouldn’t imagine that solving those problems will in any way solve the housing crisis, or even make housing more affordable. They won’t. That’s not to say we shouldn’t solve them, but we should be aware that for every euro saved by the consumers on their mortgage payments, that’s another euro that house prices will go up, because demand for housing is so inelastic, and supply of housing is so restricted.
So that’s a problem for another day.
