Adam Smith once wrote that, “It is not normal to see members of the same trade together, but when they are, rest assured that they are conspiring to defraud the rest.” Greed and the idea of gaining some advantage over others, seem to be the rule of the game and in an unregulated economy, this will always be the case.
Smith himself acknowledged that the ‘invisible hand’ of the economy needed to be tempered. So it is within any industry. If there are no regulations — rules laid down to protect society as a whole — unscrupulous individuals will seek to create some advantage for themselves.
We have seen this story played out time and time again, whether it be collusion in the ‘gas pump prices,’ the price of oil or even in the auto-sector, it always seems that we, as the little guy, have to suffer. And this is no different when we look at the banking industry. As we have seen in the news, while our banks continue to make ridiculous profits, they are refusing to accept some form of co-ordinated regulation within their industry in the name of ‘economic liberalism.’ Yet it was these same banks that created an environment that led to this recent recession.
Karl Marx, another economic theorist, wrote that if we do not learn from history, we are doomed to repeat the mistakes of the past. Never have such words sounded so true than when it comes to the banking industry. In 1982, the savings and loans scandal led to economic problems worldwide. In 1993, unscrupulous banking with sub-prime lending led to the collapse of Japan’s economy, a collapse that affected the globe. In 1997 the floating of the Thai baht led to a collapse of the Asian economy, exposing some of the corruption within the banking system, and this too affected our economy here. So with the lack of banking regulation and its related investment sector where warnings were ignored, leading to the most recent recession, what can we conclude?
Here in Canada we have been more fortunate because by chance and our own banks trying to protect their interests within their small market, we were protected to a limited extent from these problems of corruption. In a globalized economy, however, we were still affected. We faced a slow-down in our economy also and our tax dollars were used to bail out industries, industries that we were told were too big to fail. This is ironic for if the invisible hand of the economy had been allowed to operate in a truly liberalized market, the problem of failing businesses would have taken care of itself — they would have ceased to exist. Of course, so would many of our jobs and much of our investments, which politicians could not have tolerated, as their jobs would have been lost too.
In answer to our rhetorical question above, it is time that we demand better regulation upon our global banking systems, and in fairness, it is Canada that is leading this crusade. Sadly, though taxpayers around the world will continue to pay for the failings of such industries, other countries are not as far-sighted. The lesson to be learned is that this will happen again. The best that Canadians can hope for is that our government will continue to make prudent decisions that will lessen the impact of future recessions and unscrupulous actors. But to ensure this we must be ever vigilant, demanding better government.
John Kennair is a professor of law and an international business consultant who lives in St. Albert.
