National Rock

As most people (at least those in touch with current affairs) will know by now, the stricken bank Northern Rock is in the process of being nationalised by the government.

Many have been critical of the nationalisation and the billions of pounds of public money lent to the Rock to stop it from failing. Northern Rock was a private institution operating within the "free" (but how free is it if the government is prepared to intervene like this?) market. If the market were allowed to take its natural course, the Rock would have gone bust. Shareholders would have completely lost out and many would have lost their savings (although the government now protects these). By pumping so many billions in to the Rock, the government had hoped that it could stop it from falling. It couldn't and to cut a long story short, the bank has had to be nationalised.

The government has dithered for months to try and avoid nationalising the bank. Nationalisation is a last resort. The word itself is 'dirty', tainted by the free market Thatcherite policies that began in the 1980s. For many it has throw-backs to the 1970s and the days of Labour nationalising the big industries. This isn't the case.

If Gordon Brown had wanted to nationalise the bank he would have done it back in September, instead of dragging this saga on and on. Nationalisation of banks could be seen as a socialist policy, but when implemented as a last resort, this is clearly the wrong view to have.

Even in America, leader of the free world and free market capitalism, banks have come close to nationalisation when the fail. In the 1980s, under the neo-liberal presidency of Ronald Reagan, the Federal Reserve bailed out the Continental Illinois National Bank. Letting the bank fall would have had a hugely negative knock-on effect on the economy and this was to be avoided at all costs. The situation is the same with Northern Rock.

Nationalisation is the best solution for most parties. Taxpayers gain as the bank will stay in public ownership until it can be given back to the market (when conditions improve), savers will gain as they don't lose their money. It is the shareholders who will lose out. The government will pay compensation but only a minimal amount, resulting in some shareholders plans to sue the government.

However, these shareholders are, in my opinion, missing the point and getting caught up in their own greed. Shareholders are capitalists. They invest money with the aim of making a profit but know the there is a risk of losing that money. Profit is not guaranteed. This is how capitalism works, and in this case, the shareholders lost. This is the price of investing in such a risky business.

The government will however be the ultimate loser. The dithering and constant indecision has caused many to lose faith in Gordon Brown's government. The Lib Dems have been calling for nationalisation for a long time, but with the opposition to nationalisation now, even though there isn't much choice, it's likely that the government would not have been able to win in either situation.