London Briefing/Chris Johns: As the dodgy dossier drama moved from mere Whitehall farce to encompass real human tragedy, even the financial markets had to sit up and take notice.
Sterling has wobbled, slightly, and has now to think seriously about the possibility that New Labour has been holed below the waterline. Even if the BBC ends up taking the bulk of the rap, there is now a whiff of something discernibly sordid about this administration.
The Financial Times website has been running an online discussion about whether or not this government can be trusted. The question says it all. But the government's troubles amount to much more than this. It's not just about trust but basic competence.
Almost lost in the furore over justifying war with Iraq was an official report warning the government that its obsession with target-setting for the public services is in danger of producing perverse outcomes. It is possible, it seems, to cut hospital waiting lists (a key target) without improving the health of the patients so affected (not a target). Believe it or not, Tony Blair has something called a "delivery unit", the head of which recently delivered a warning that targets were not all they were cracked up to be. Although the gentleman concerned was trying to defend the setting of targets, you could see he was getting somewhat uncomfortable with the odd results that can sometimes follow.
I am reminded of the old story that explains why centrally directed economies are a fantastic idea in theory but simply fall apart in practice. In the old Soviet Union, there was a directorate for tin-tack (and everything else) production. The guys setting the tin-tack targets would get a bonus if the factories under their direction came in on time and to plan. The factories themselves were similarly incentivised. The targets called for 100 tons of tin-tacks to be produced per week. Everyone was simply delighted when the factory employees worked out that the most efficient way of meeting that target each week was to produce a single tin-tack weighing 100 tons.
The moral of this story is less the lunacy of a 100-ton tin-tack but more the fact that everybody was satisfied that the targets had been met. Essentially, this story encompasses the contrast between market-delivered outcomes and economies that are directed by central planners. Those planners may be the most gifted and well-meaning people on the planet but they often fail to see how unintended consequences, often perverse ones, can arise as a result of their actions. This is the economic reason why socialism failed.
Of course, the market-based solution can also be unsatisfactory. There are plenty of instances of market failure and, more generally, it is the impersonal and somewhat arbitrary nature of the market's decisions that gets up the noses of those who think they know better. Having witnessed the failure of socialism and still wanting a role for government in the economy, Tony Blair invented something called the "Third Way". Rather, somebody called Anthony Giddens, a sociologist, discovered it. Cynics have argued that it is just social democracy with a new label, and that it reads exactly as you would expect from an academic sociologist (Giddens's books are often long on words and very short on number-based evidence).
Capitalism leaves most decisions to the market, socialism tries to direct the economy from the centre. Social democracy, or the Third Way, swings both ways. Like all his forebears who tried "mixed economy" policies, Tony Blair is in danger of producing very large tin-tacks that are impressive in scope but bring no benefits to anyone. That means loads of money being poured into one end of the public sector and nothing useful coming out the other. It is an outcome as old as the Labour Party itself.
How much government does a modern economy like Britain actually need? Blair's guru, Giddens, is quite clear in a recent book on globalisation. "Our runaway world doesn't need less, but more government." Actually, this is the last sentence in his book, leaving the reader to guess at what all that extra government is supposed to do. This lies at the heart of Tony Blair's dilemma: all that power and nothing to show for it.
Financial markets have noticed all this and have rendered their judgment: but it has been only the lightest of sentences. Sterling is a touch weaker as a result of the political uncertainty. The deadly game played out in London over the past few weeks has produced tragedy, a badly damaged government and a probable emasculation of the BBC. Britain is much poorer as a result but in ways that are not accurately reflected by a mere weakening of the currency.
