"The state is back" proclaimed Scottish Secretary Jim Murphy last night as he told legal and economic experts how Scotland and the UK would survive the current global economic crisis and prosper in the future.

Speaking to the David Hume Institute at the Royal Society of Edinburgh, Mr Murphy said regulation was the key to ensuring the freedom of the financial markets but also prevent them from destabilising economies.

He stated his commitment to free and open markets but said that international efforts were required to ensure global governance of the "shadow banking system of financial institutions".

He said the unregulated excesses need to be curbed, which was a failure of the deregulation of the 1980s, and that would be the role of the state in the future, to provide not more but better rules.

Mr Murphy said: "We will always be a pro-enterprise party but we must make sure that excessive and irresponsible risk taking is not rewarded.

"As we lead international efforts to build the necessary protections against free market meltdown, it is clear that the state is back.

"It's not the discredited corporate state of the 1970s but a strategically agile state, a state that celebrates free trade but acts in the public interest in the face of market failure.

"For to do nothing in the face of what has been described by the Bank of England Governor as the biggest financial crisis since the Great War is the ultimate irresponsibility."

Mr Murphy said that Scotland's financial sector will recover and be a world leader, educating those in the new and emerging financial powers.

He added: "Without doubt financial services, including banking, insurance and funds management are the jewels in the crown of Scotland's recent growth.

"Despite going through a very difficult time at present there will always be a demand for high quality financial services, and with a return to global growth in the medium term, that demand will inflate." He concluded by telling the audience that there was a major role for business and academics to shape the future.

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