Can government(s) solve the global financial crisis?

A common assumption is that if there is market failure, as there has been in the global financial markets, government must step in and sort things out. This overlooks the risk of government failure.

A great deal of hope is being pinned on the forthcoming G-20 summit in London but will it amount to anything more than warm words or photo opportunities? The predecessor G7/G8 summit did not have a very distinguished record of achieving anything, other than perhaps in the 1970s.

Now we have a G-20 which may represent a trade off of legitimacy for effectiveness. The Foreign Office has recognised the realities of the situation by creating a list of A list and B list countries which to their chagrin has leaked out. Australia is on the B list which will go down well there where they understandably dislike being patronised by poms. Australia has moved a long way from the 'stone age diplomacy' it was accused of in the 1970s.

Getting anything meaningful out of a G-20 discussion is going to be very hard, particularly given that some countries such as Germany are reluctant to provide a further fiscal stimulus. Meanwhile government debt piles up with no discernible effect on the economy. Of course, traction takes time but there has been a massive failure of confidence in the financial markets.

Meanwhile, the UK government has been plagued by initiativitis, often badly coordinated with tensions within the Government and between the Government and the Bank of England coming to the surface. One response has been to beef up the Treasury press office which was used to being busy just twice a year for the main budgetary events. At least Alastair Darling seems to have realised that the cupboard is so bare that he cannot afford more ineffective tax cuts.

The latest idea from Peter Mandelson is that if you get a car that is nine years or more old recycled you will be able to claim a £2,000 credit that can be used to purchase a new or nearly new car. Bingo! It's green and it stimulates the car industry.

But wait a minute. How many people with nine year old cars can afford a new one? And what about the taxpayers who have slightly older cars and don't benefit from this handout? I have to declare a personal interest here as my car is seven years old. But I am going to look at a replacement next week and provide my own stimulus to the economy.

At the end of the day it's going to come down to individuals and their confidence in the economy rather than government gimmicks and declarations from the G-20. That confidence is not going to be easy to restore. David Cameron is going to inherit a poisoned chalice and is going to have to make some very tough decisions.

I don't envy him his task and it will be interesting to see how the new influx of Conservative MPs is likely to shape up such as Chris White who is odds on to win Warwick and Leamington. Chris, of course, has motor industry experience and getting that industry going again will be one of the biggest challenges.

The harsh fact is that there is overcapacity in the industry. General Motors have been going round with their begging bowl threatening to close plants and playing one European government off against another. It's all very reminiscent of the game that Chrysler played in the 1970s, allowing them to walk away with a large pile of public money, leaving a business that was far from viable. Whether we learn from past mistakes is open to question.