The cathartic financial events of recent months have exposed a great many naked emperors – not a pleasant sight, particularly in Edinburgh, where some had been entrusted with running Scotland’s major banks.
I never joined in the uncritical adulation of these institutions, not least because of first-hand experience when I was a minister.
Undoubtedly, they provided loads of jobs and helped make Edinburgh a leading financial centre. But their wider commitment to the Scottish economy was never very enterprising or long-term, as many businesses discovered to their cost.
If the Sir Georges and Sir Freds and Sir Peters had shown half as much interest in Scottish innovation and enterprise, not least in the energy sector, as they did in the latest money-making scams and wheezes to come out of America, the Scottish banks would not have ended up in their current dire straits.
But the other set of naked emperors I want to concentrate on are the advocates of “light-touch regulation”, which has been so fashionable in recent years. Leave things to the market and the people who know best, the argument ran, and the financial system would function dynamically, competitively and – with very rare exceptions, perish the thought – honestly.
Well, they ken noo. Suddenly, the idea that banks, building societies, hedge funds and investment trusts can be left to run their own affairs on the basis of “light-touch regulation” does not sound as impressive a doctrine as this time last year.
Now, countless billions of taxpayers’ money are being spent baling out institutions which might have been protected from their own folly if the regulator had been half awake.
But the lesson that we need more rigorous regulation does not begin and end with the financial sector. One good thing about recent events is that people have had to start thinking the unthinkable – like virtual nationalisation of our biggest banks – and it is time the same kind of radicalism was applied to the energy sector in order to preempt the same kind of cataclysms.
The prime candidate for tough regulation should be one that epitomises freewheeling capitalism – the oil industry. It is simply too important to be left to the kind of forces that have seen prices lurch upwards to more than $140 and then downwards to less than $40 a barrel, all within the space of a few months.
There are many factors involved, but the most important one was naked speculation in the markets, causing prices to soar and panic to set in about security of future supplies. Now we are going through the inevitable follow-up period as prices collapse because, having returned to the real world, the market discovers that supply actually exceeds demand.
The world needs a stable oil price, and not necessarily a low one. At current prices, most of the big investments needed to postpone oil scarcity make no economic sense.
That is as true of the Canadian oil sands as it is of our own West of Shetland prospects – Energy referred to the increasingly marginal nature of the North Sea last month. The objective must surely be a stable price that sustains investment in new discoveries and also protects consumers and poor economies against huge spikes in the oil price.
If that objective is ever to be achieved, there must not only be control of the speculators – particularly in the New York exchange, where most of the futures trading is done – but through a global forum that includes Opec, non-Opec producers and consumer nations in order to reach a consensus on where the price should settle.
At any other time, that would surely be an impossible aspiration. But the parallels with the financial sector are now striking. Societies run on oil almost as much as on money.
If the same unregulated forces are left to determine not only the price of oil, but also its long-term availability, then the same kind of chaos and, ultimately, cost will ensue.
The other area in which “light-touch regulation” must surely be past its sell-by date is our own domestic energy market.
In short, consumers deserve a lot more protection than they get and, once again, events of recent months deserve a great deal of study in order to learn lessons for the future.
I am pretty sure it will transpire that, while consumers were suffering prices rises of 30% or 40%, the profits of the power companies were soaring. There is a moral inconsistency in these two factors which also explains why Britain has the highest energy prices in Europe.
The idea that competition alone can address it is a delusion clung to only by Ofgem.
Of course, these vertically integrated companies will plead poverty in their retail businesses. But it is their bottom line that counts and should be watched closely.
Prices that went up by huge percentages on the back of the oil price have not come down by the same degree, if at all. That reality demands firm regulation rather than a denial of responsibility.
As I have often pointed out before, nobody elects regulators. They elect politicians whom they expect to keep the banks secure, the lights on and the prices bearable. And so, when it comes to elections, the regulators are nowhere to be seen while the politicians who hid behind them, naked or otherwise, face the judgment of the mob. Quite right, too.