---

Why the state cannot save the economy
One of the arguments that goes almost unquestioned, certainly in Europe, is that what is required is re-regulation, a systematic form of state intervention both in the financial markets and in other sectors. I find this outlook puzzling, since it is based on the assumption that the recent past has been an era of neo-liberalism where the state had a small and undistinguished role in social and economic life. In reality, the state already has a formidable presence in the economy, and has had for a very long time.

For example, in every major economy, we have seen very large government budget deficits in recent decades. In the UK and elsewhere, the public sector has played a crucial role in the creation of new jobs. Many of the financial policies now linked to the global recession are part-and-parcel of this state involvement in the economy, from low interest rates to encouraging consumer spending to the housing boom. The state has not been a neutral observer but an active promoter of these things.

Contrary to popular prejudice, the state is not a stranger to regulation. Listening to contemporary debates, you could be forgiven for thinking that the European Union (EU) is the most unregulated place in the world. Yet if you look more closely, you will find that while there has been some deregulation in some sectors, in the financial and banking markets for example, there has also been an expansion of state regulation in a whole number of areas in various different ways – including in finance and banking. Anyone who has had to put up with the rise of corporate governance and its many petty rules will know what I am talking about. The world of business is far more regulated than ever before....