The Rhineland model


There are various possible models of what we might loosley call capitalism. Say, our own Anglo Saxon vaguely free market one (anyone who says that we currently have anything close to "free markets" is of course deluded). There's also the Nordic model which, while it has eyewateringly high income tax rates, does get some things right. Business is taxed very lightly and almost never protected, being left to get on with creating the high paying jobs that can then be taxed to pay for the welfare state. A third alternative is what is known as Rhineland capitalism.

Instead of those secondary markets in shares and bonds (the "locusts and vultures" of the City) the banks are the primary source of finance. Decisions are long term, big business, big labour and big government plans things out so that all is for the best in an orderly manner. This is roughly the model that Will Hutton is always proposing.

Germany's economy shrank by 3.8pc in the first three months of the year - a record contraction that is almost double the fall of Britain's gross domestic product in the first quarter........The export-reliant country has been hit hard as world trade nose-dived in the latter months of last year. Charles Dumas of Lombard Street Research said: "German economic policy is bankrupt, and the Mediterranean countries stuck in EMU are also condemned to ongoing economic collapse. "Already we have real GDP levels that are up only about 3pc from 2000 in Germany and Italy – ie growth has been only a little over ¼pc a year – making this a lost decade for much of continental Europe on a worse scale than Japan in the 1990s."

Yes, yes, I know, something must be done and something must be seen to be done because we are, after all, in a recession. But why is it that people can, with a straight face, seriously propose that we move from our current system to a worse one? One like Rhineland capitalism, that produces less growth in the good times and a greater contraction of growth in the bad?

It would be absurd, wouldn't it? To insist that there must be more regulation, more central direction of the economy, more "planning", when the result is that there is less economic growth and thus less wealth to share around. Well, unless you were one of those who expected to be occupying the planning suites and the regulatory palaces of course.

Ahh, yes, that might be it.