Is this a failure of democracy?

The continuing crisis in the Euro zone, framed by a series of meetings that seem to never come to a conclusion, has many people asking whether government, or more broadly democracy, has failed (as Prof Ngaire Woods discussed in a recent radio interview). The narrative goes something like this - the markets need clear signals and strong action, government cannot provide them with these actions or they do not wish to do so as the actions that are needed are politically unpalatable. So this is now a failure of government, of the system of democracy, as we are seeing the limits of what can be done via the political process.

This for me is completely wrong headed - what we are seeing is a failure of our combined system of governance, including the public and the private sector. There is no public sector without a private sector, and no matter what some libertarians would have you believe, there is no private sector without the public sector. Markets are embedded in social structures and to try to claim that they are independent is foolish and in many cases disingenuous.

The past couple of weeks have been hairy for my television, as the risk of something hitting it at speed has been very high. A parade of commentators, valued and promoted on the basis of their expertise as economists whilst ignoring their interest in specific outcomes, claiming that the credit crisis was due to a lack of regulation are happily forgetting the drum beat of no regulation, no government that existed pre the crisis. At the same time many politicians are castigating the evil bankers while forgetting either their campaign contributions or their lack of action on existing regulation. No wonder I see the television shudder when I flick over to Paxman and his sneer.

This is a failure of the business-government relationship, specifically in the financial sector, on a global basis. The narratives of growth and the zealous belief in the end of boom and bust, the death of risk and the boon of every rising incomes, all were built on false foundations. Niall Ferguson's latest op-vid (a horrible term for someone making a speech to camera with some natty supporting animation) hits this nail on the head, turning Clinton's mantra of 'It's the economy stupid' into a more pointed 'It's the stupid economists' (however, his proposed actions are not ones I'd agree with).

There are some industrialists, some economists, some politicians who are trying to move forward, not letting ideology hold them down. But they are a little lost in the cacophony that surrounds the Greek situation, the probable Italian bailout and the continuing problem of stalled growth. Unless we can create the space for a new conversation to occur, for clear thinking and constructive debate to emerge, we won't be able to solve our problems. And that would be the worst failure of our liberal, democratic system.

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