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Matt Ridley
Matt Ridley, winner of the Institute of Economic Affairs' annual free enterprise award. Photograph: Mark Pinder
Matt Ridley, winner of the Institute of Economic Affairs' annual free enterprise award. Photograph: Mark Pinder

Why do we still honour free-market intellectuals?

This article is more than 9 years old
Nick Cohen
It's mystifying that the former chairman of Northern Rock is still garnering plaudits

If the way we treat the past is a guide, the historians of early 21st-century Britain will look back at us and find significance in people and events we are failing to notice. Whatever else they choose to emphasise, however, I cannot believe they will ignore 14 September 2007. On that morning, Britain went from a mature modern democracy to a country that resembled a bankrupt banana republic. The crowds of savers queuing to pull their money out of the failed Northern Rock bank were a funeral procession marking the death of the old world. Margaret Thatcher's Big Bang, Gordon Brown's endorsement of light-touch regulation, and the wealthy's convenient belief that fantastic bonuses were no more than financiers' just deserts died that morning – not with a bang but a Weimar.

Seven years on and rightwing intellectuals still cannot accept that their certainties no longer make sense. Like old men at a bar, they block out the present and relive the moment when they were young and filled with audacious vigour; the days when Thatcher was in power and conservative thinktanks could propose the most outlandish privatisations and see them adopted and, apparently, succeed.

In a spectacle that was both ridiculous and in its small way pathetic, the Institute of Economic Affairs presented its annual free enterprise award to one Matt Ridley last month. Mrs Thatcher's favourite thinktank honoured Ridley's efforts in the conservative press to promote "free-market policy ideas in areas as wide-ranging as energy, the environment and income distribution". Ridley is too close to being a climate change denier for my taste, and too willing to please his readers to be an independent thinker, but I should not be too harsh on his pieces. Writers with any knowledge of science are a rarity in the press. If you are on a train with nothing else to read, he'll do.

Unfortunately for what is left of the Institute of Economic Affairs' reputation, Ridley's full title is The Right Hon Matthew, 5th Viscount Ridley. And he is better known for being the chairman of Northern Rock from 2004 to 2007 than for his contributions to scientific debate. He certainly proved his commitment to free enterprise there.

The British class system slips like gas into every corner of our thought. The most solidly leftwing people admit to preferring the old Tory aristocracy to today's vulgar and grasping nouveaus. If Ridley were to play the part that stereotype assigns an old Etonian and a viscount to boot, he would have exemplified the best traditional values. His stewardship of Northern Rock would have been prudent. He would have shunned the get-rich-quick schemes of flash money men.

About the only good to come out of Northern Rock was that it provided an antidote to servile illusions. Its board combined ruthlessness and folly in equal measure. The building society had its roots in the self-help traditions of the Victorian north-east, traditions more worthy of preservation than the traditional aristocracy. Northern Rock trashed them. It transformed itself from a building society to bank in the 1990s. Instead of attracting savers and lending out their money to home buyers, it raised funds by packaging its mortgages as bonds and selling them to investors.

The international money markets allowed Northern Rock to expand so fast it had seized 19% of the new mortgage market by 2007. The willingness of its managers and board to pander to their customers' desire for instant gratification helped it grow too. The viscount presided over a bank that offered loans of 125% of the value of a property. Its customers could buy a home without a deposit and still have money left over to pay off credit card debts, or go on holiday, or go to the pub. When the asset-backed securities market failed in September 2007, Northern Rock failed with it. The taxpayer had to provide £31.5bn of rescue loans.

That the Institute of Economic Affairs can honour Ridley's commitment to free market ideas, when his record shows that in practice his version of the free market had wrecked his institution and milked the taxpayer, reveals how the bankrupting of the banks bankrupted rightwing thought. Whatever the left of the day thought of them, the thinktanks that inspired Thatcher confronted Britain as it was in the 1970s. Now they think without a thought for a changed world in a Britain of make-believe.

Conservatives should never be allowed to forget that their immediate response to the banking crisis was to say that the real villain was, er, the BBC's business editor, Robert Peston. The British Banking Association, an organisation that ought to have curled into a foetal ball and died of shame, and Tory politicians said the public had lost confidence in the banks, not because of any fault of the bankers, but because Peston had told his viewers what he knew. Only last week, the Telegraph and the British Banking Association – still with us, I'm afraid – warned that modest proposals from the Bank of England to claw back the bonuses of bankers whose deals turned bad would drive the best and brightest overseas. Seven years after the crash, the notion that no country wants financiers who expect taxpayers to pay for their failures has still not penetrated their skulls.

There are principled arguments against the state interfering in businesses, just as there are principled arguments against the state telling adults what they must eat and how much sugar should be in their bottles of Coca-Cola. It is just that whether they are coping with failed financial systems or an obesity epidemic, modern societies have learned the hard way that they no longer have the luxury of believing them. If the above sounds like the opening of a stirring account of leftwing triumph, consider that the British left was as surprised by the collapse of Northern Rock as the 5th Viscount Ridley. To generalise, but not too extravagantly, after the death of socialism, the left wing went off to fight culture wars and embrace identity politics. It worried more about the use of language than economics, and when financial capitalism collapsed, it had no idea how to reform or replace it.

More than any opinion poll, the inability of the left to say how it can move on from a failed status quo, and the inability of the right even to admit that it has failed, explains why we are stuck in a kind of limbo and the most likely result of next year's general election is another stalemate.

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