State aid must be international
£500bn state support here, $825bn there; pretty soon we’ll be talking about serious money. But if we’re going to be paying for these government aid packages for more than 20 years, might not it best to go bust and start again?
The £2.5bn help for the UK motor industry looks very small beer compared with the £37bn invested in British banks and the £500bn government lending to them. In his first week as US president, Barack Obama has pushed through his stimulus plan to spend more than $800bn.
All normal economic rules have been ripped up but there seems little direction in these rescue packages. As soon as one is shown to fail an even bigger one is produced with equal lack of scrutiny.
If the world is facing the worst economic setback for 60 years, as the IMF believes, then it requires more co-ordinated and more considered action than we have seen so far.
The UK has delivered a series of piecemeal incentives from stamp duty holidays, Vat reductions, bank recapitalisations, mortgage aid and help for the car industry. Other countries have made similar series of disconnected announcements, from Dutch wage subsidies, German grants to replace old cars to France’s free newspapers for teenagers.
But if these measures are to work, the stimulus plans must not only be co-ordinated nationally but internationally.
The reason Britain has given half-baked aid to car makers to keep producing unwanted vehicles rather than giving customers help in buying cars is because much of the money would be spent buying imported cars and the UK government has no wish to help foreign car plants, even if they are owned by the same companies it is helping in Britain. If the plan was global however, such local worries would disappear.
The forthcoming summit of world leaders gives a chance to make concerted measures that stop one country competing with another and allow all to benefit simultaneously.
Without that, governments are throwing money down the drain in many cases. It is seriously argued that spending money badly is better than not spending it at all. Yet it is going to have to be paid for over a whole generation: if we do not ask whether it’s worth it, our children will ask. Maybe it is just worth defaulting now and starting again from scratch, just as so many corporates are doing?
