uk-policy NEW LABOUR, OLD MARKETS

G P Hammond (ensgph@bath.ac.uk)
Fri, 22 May 1998 14:57:58 +0100 (BST)

Daniel Yergin and Joseph Stanislaw recently provided some interesting
insights from across 'the pond' on the way in which the Clinton
Administration has tried to accommodate its policies to the discipline of
economic markets ("How Clinton taught the left to trust markets", New
Statesman, 15 May, pp28-29). Similar strides are rightly being made by
the Blair Government as a central element of the new Labour project. But
Ministers should not lose sight of the deficiencies in markets, some of
which had long been recognised by old Labour. In this sense 'trust' in
market mechanisms by the centre-left should not be automatic.

Take the energy sector, which was an earlier area of interest for both
Yergin and Stanislaw. Here there are quite obvious imperfections in the
structure of the market; for example many social costs are not reflected
in prices, neither are environmental 'externalities' (such as pollution
and waste disposal costs). The short time horizon of markets also means
that they tend to ignore both the possibility of fossil fuel depletion and
the long-term potential for technological innovation; 'pinch points' often
go unrecognised by commodity and stock markets until they are almost
reached.

The difference between old and new Labour attitudes to market deficiencies
should be one of approach. "Command-and-control" (democratic socialist
attempts at planning and state enterprise in a mixed economy) has been
seen to fail rather comprehensively, as Yergin and Stanislaw point out. In
order to work with the grain of the market, a diverse range of means for
intervention need to be employed. These include regulation, and a variety
of economic instruments; 'green taxes', traded permits, and the like.
Decisions on intervention, and the choice of policy measures, should be
largely pragmatic and experimental. But a framework needs to be developed
that will guide government action. Perhaps an enhanced sustainable
development strategy, like that currently under review by John Prescott
and his colleagues, might be able to place market economics in a broader
perspective. Indeed a better defined notion of sustainability may need to
be at the heart of the Third Way.

Geoff Hammond

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Professor G P Hammond Tel: +44 (0)1225 826168
Department of Mechanical Engineering
Faculty of Engineering and Design Fax: +44 (0)1225 826928
University of Bath
Claverton Down
Bath BA2 7AY
United Kingdom Email : ensgph@bath.ac.uk
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