Should we have State owned banks?


National Investment Banks, State owned banks directing investment to politically important ends: yes, we do see people arguing for this in the UK at present. Their argument is simple: banks failed thus government must do it. They are thus, as ever, making the illogical leap from market failure to the assumption that government will succeed.

That isn't what the World Bank appears to believe on the same point:

Research is seldom conclusive, but in the area of state ownership of banking the evidence is as overwhelming as it gets. When it comes to lending, it appears that the state banks are the best at lending to cronies.  Government officials face conflicts of interest that go against efficient allocation of resources – such as securing their political bases and rewarding supporters.  Overall, greater state ownership of banking is associated with less financial sector development, lower growth, lower productivity and even less stability

We can make the same point in slightly earthier tones. Given the choice between investment allocation being done by some random collection of chinless wonders in The City or by Lord Mandelson or, Lord forbid, Ed Balls, my money's on the chinless wonders. At least they're attempting to make a profit while the others are after votes in the short term, not profit in the long. And no, Gideon and his chums wouldn't be any better at it either: it isn't which politicians doing the investing, it's a problem with having politicians doing the investing.

It's entirely true that markets are not perfect: but for real gargantuan failure you need government.