Monday, November 03, 2008

France vs. Britain on regulatory competition

The FT has a decent article today looking forwards to next week's summit in Washington considering an overhaul of the global financial architecture. The article highlights tensions between France and Britain about what needs to happen next. Note this:

"There are still big differences between Paris and London about the lessons to draw from the crisis and a fear in the Elysée that Mr Brown, the UK prime minister, is still committed to preserving a light-touch regulatory regime for the City of London. French officials say the strongest message that should come out of the Washington meeting on November 15 would be a broad commitment from the US, the UK and other European countries to abandon competition between regulatory systems in favour of convergence. But they acknowledge this is unlikely."

It is unlikely because Britain's New Labour government supports the race to the bottom, and the opposition Conservative Party is even more tied to tax haven interests. You don't often get them saying it in such bald terms, but they do.

We have never heard any British official giving a convincing defence of this stance, and we suspect we never will -- because it is not possible to construct a reasonable and reasoned argument in favour of regulatory competition. Their stance is even less defensible now that the public can see for themselves the huge costs arising from Britain's poisonous embrace of tax havens and regulatory competition.

Instead, Britain relies on the sorts of arguments peddled by Dan Mitchell of the Center for Freedom and Prosperity (watch his arguments being demolished on TV here), waving about words like "cartel" - which are simply bogus analyses. Mitchell (along with other defenders of tax havens like Norman Macrae, a former deputy editor of The Economist, who has a letter in the pro-tax haven magazine this week pushing the same line) knows full well that the idea of market competition being in any way comparable to competition between countries on tax and regulation, is, as Martin Wolf of the FT has explained, "nonsense."

We challenge the British government to explain, clearly and publicly, how a race to the bottom on regulation (or tax, or secrecy, for that matter) serves the public interest . (While they are at it, they might also explain why beggar-thy-neighbour competition between corrupt politicians in an oil-rich nation, to get the biggest slice of the national cake for themselves, is a good thing. The arguments would have to be rather similar.)

Here is a reasonable argument, though, from the same FT story.

“I hear leaders taking a very different stance to the one they took six months ago,” said a senior French official alluding to Mr Brown. “But have they really changed? If we could have an agreement that regulatory convergence was more important than the individual interests of different market places, that would be great. But I’m not sure we are going to get that.”

It isn't an optimistic message. There is certainly no chance of change while the current US administration is in place. But there are nonetheless grounds for hope:

"The crisis has made it politically unwise for UK politicians to stand up for the City. The previous British political mantra of “light touch” regulation has now become a defence of “effective” regulation."

That's a start. Now everyone needs to keep piling on the pressure, demanding that Britain's captured politicians explain their bogus arguments in public, and submit them to a debate. Now that would be interesting.


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