The banking system has just collapsed on a world scale, requiring the concerted intervention of governments across the globe. Just as vested interests helped to produce the crisis, so banks’ individual vested interests will delay the recovery. Such is the extent of the collapse in trust in established mechanisms. There is a possible conclusion that in this case, the private sector has failed, and worse, that capitalism has no real answer to this crisis.

Margaret Thatcher and Ronald Reagan ended a long period of ‘positive government’, which had endured since at least the Second World War. Their shared philosophy was that too much government is a bad thing: it distorts free market activity and encourages a nanny state.

This change was dramatic in the UK. It was only fifteen years since Harold Wilson had come to power with a programme of nationalisation. It is remarkable how alien a concept nationalisation has become since then. No-one blinked as Tony Blair’s government sold off mobile telephony licences and continued along a similar path in terms of the apparatus and size of the machinery of state. Collectively, we accepted the argument that the private sector knows best.

But the banking system has just collapsed on a world scale, requiring the concerted intervention of governments across the globe. Just as vested interests helped to produce the crisis, so banks’ individual vested interests will delay the recovery. Such is the extent of the collapse in trust in established mechanisms. There is a possible conclusion that in this case, the private sector has failed, and worse, that capitalism has no real answer to this crisis.

The action taken by the G7 nations is positive, practical and sensible. It is sufficiently radical to deserve to succeed. But it is a rescue plan: nothing more, nothing less. It has no parallel with the ambitious 1930’s reconstruction plans set by US President Roosevelt. There is no redolence here of Keynsian economics, of investment in public works to counter a depression. In the UK, the rescue plan is the nationalisation of the key financial institutions in the economy to address the problems of banks being so concerned about credit that they are frightened to lend even to each other.

By taking a stake in High Street banks, the UK Government is signalling a determination to address the outfall from the failure of financial markets, on behalf of its citizenry. The country is investing in banks which might otherwise fail in the current climate of toxic loans and asset backed instruments which are dramatically reduced in value. Collectively, we are trying to force cash and credit to start to circulate again. This is unprecedented in recent history and is a renaissance of what used to be called ‘positive’ government.

So, if our government has accepted a much more positive approach to the credit crunch, then local government and other areas of the public sector need to be asking themselves whether there is an equivalent need for action at local level. Is there now a need to look more closely at the balance between the public and private sector?

If we accept that the private sector doesn’t hold all the answers, then there is a debate to be had. And there are legitimate questions to be asked about the speed of response to issues of growing importance to society. For example:

Can we respond to the challenge of climate change more rapidly?
Can we do more to care for the environment?
How can we become greener, cleaner and more sustainable?
Can we do more to encourage a safer, more cohesive and more caring local community?
How can we encourage healthier lifestyles?

The private sector will always have much to offer in terms of support to the public sector in expertise and direct delivery. But we may need to reassess the leadership role which the public sector has in encouraging sustained collective action towards common goals. It is the big issues which help to shape places, and we may need to think of ‘place’ on a bigger scale in future.

The credit crunch may offer an opportunity for the public sector to show greater leadership and to be more assertive in not accepting too easily the commercial reality which the private sector sometimes tries to impose. After all, our horizons have changed in a very short time. I doubt that a plan to nationalise the major UK banks would have met with any degree of support had it been made six months ago!