Growth, deregulation and rent seeking in post-war British economy

Abstract

ABSTRACTPost-war political consensus about the need for government action to rectify market failure began to unravel in the 1970s, and even the need for prudential control of banking and finance began to be challenged by the start of the 1980s. Regulatory oversight was relaxed in the belief that emerging techniques in financial engineering would render irrelevant fears of sharp periodic downturns that have historically been the consequence of lightly regulated finance. The outcome of this new policy, embracing the idea of unregulated markets to deliver greater prosperity, is disappointing. We find that the average growth rate of UK GDP and output per person employed for three decades from the start of liberalization was no greater than that in the previous three post-war decades. Cyclical fluctuations were deeper. A remarkable feature of the second period is the sharp rise in income inequality in favour of the very top earners. An illusion of greater prosperity for a wider segment may have been created in the second period due to asset price bubbles and housing inflation.