The market-based approach is, in principle, the best means we have of allocating resources to where they can be most productively used and raising global as well as national economic efficiency. But that can’t mean simply a free-for-all. It needs accompanying conditions to limit distortions if it is to work well.
It needs a consistent framework of macro-economic stability, for example, with countries living within their means, limiting aggregate public and private sector demand to the supply-side capacity of our economies. [That involves both fiscal “prudence” to borrow the Chancellor’s favourite expression – if I’m actually allowed to borrow from the Chancellor – it used to be the other way round! – and it involves “monetary stability” to use my own favourite expression. But more than that, markets needs to operate within a transparent framework of accepted principles and standards of behaviour if they are to function effectively.
But we also need a clearer and more predictable framework governing the massive increase in international private capital flows - which can be of real benefit to recipient countries if they are sustained, but deeply damaging if they prove to be volatile – as we have seen dramatically demonstrated in recent years. We have come a long way in the various international fora to address the many issues arising under this heading but the recent disruptive volatility of financial markets in the industrial world reminds us that we still have a long way to go.
But I want to make just two points this evening.
The first is that while governments – nationally and internationally – clearly have the primary responsibility for establishing and applying the framework within which markets operate, reflecting both social and economic priorities, they cannot do everything themselves. An effective market-based system depends fundamentally upon the standards of professional competence and behavioural conduct of the private sector participants in the market. We’ve recently seen the damage which markets themselves inflict on those involved when standards fall short of what is expected. My concern is that without high standards of professional responsibility the market system will become increasingly rule-bound.
Wasn't that a clear warning that the tri-partite system wasn't working? And yet no one did anything about it. Or am I reading too much into this?