Adair Turner and more than just capital

By Simon Barrow
September 7, 2009

The financial regulator who recently called for a Tobin-like tax on banking is unapologetic about the fuss he caused, and determined to re-interate basic questions about what economics really is.

In his lively interview with Robert Peston (The Money Men, BBC Radio 4) FSA director and former investment banker Lord Adair Turner described the recent financial collapse as based on “collective irrational exuberance” within western capital markets, and said it was “the biggest crisis for a hundred years, if not the biggest crisis in the history of free market capitalism.”

What had happened, he suggested, was not simply a matter of mal-administration, but raised questions about the very nature of the system itself.

“One of the essences of what went wrong was [that we tried] to develop an idea of economics based too much on the notion of mathematical precision. … [But] economics is a mixed discipline: part mathematical, but also human and social.”

Scientific reductionism has to be questioned, he suggested, and the human behavioural variability and purpose of economics re-emphasised.

Turner continued: “We have got to make banks less intrinsically dangerous. The question is, ‘how?’”

The banking failure of the US, he pointed out, was one of interconnected small banks, whereas Britain’s involved larger ones. So reducing the size of the institutions is not necessarily the solution. Nor is it possible to distinguish easily between productive and ‘casino’ banks. Tweaking regulation is inadequate and problematic. The way forward is to make banking more expensive (via a tax on transactions, which would also fuel social goods) and to make banks hold more capital to sustain their activities.

“I can’t do the party loyalty game”, Turner said, talking of politics – in which he identified himself within the spectrum marked by Christian Democracy and social democracy. “I am interested in the intellectual challenge… If I hear a better argument, I will change my mind.” There is a vital role for independent thinking and action outside a party-based political process, he said.

I haven’t yet read Adair Turner’s Just Capital, but I intend to.

Economic thinking has got to get radical, green, rooted in locality as well as globality, and to stretch the notion of “accountancy” towards a broader conception of who is accountable to whom, for what.

We will need more than reform capitalists on that journey, but people like Turner, Soros and Stiglitz show that the fundamental questions are arising from within as well as without the current system.

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