by Jonathan Todd
When the global financial crisis struck, as John Kay recently noted:
“The political left offered no diagnosis or new ideas, and it gained no electoral advantage. Instead, across Europe, the parties that had waited a century for capitalism to collapse under its own contradictions congratulated themselves that such collapse had been averted by the injection of incredible amounts – trillions of dollars – of taxpayer funds into the banking system”.
Gordon Brown and Alistair Darling were right to bring us back from the brink. The left’s failure is the dearth of explanation as to how we came to be in this position or prescription as to where we go next. The explanation is a precondition of the prescription. If you can’t say how the crisis came about, then you can’t say how repetition should be averted.
The left’s explanations have tended to be personalised (e.g. “greedy bankers”), in spite of the left’s historic mission being to identify and correct structural explanations. We don’t think people are born wretched (even “Fred the shed”); we think that injustice and circumstance makes them so. The left’s explanation, therefore, shouldn’t be the banker’s greed but the structures that create and sustain this greed.
The left, for the most part, was no more analysing these structures than anyone else in 2008. Such analysis would have revealed a paradox: what we thought was high capitalism was anything but. Well functioning markets wouldn’t have allowed the banker to be so greedy. Effective competition would have restrained wages to merit-based levels.
That wages went well beyond this has been confirmed by the high pay commission. The decoupling of executive pay from performance is seen in their finding that in the past 10 years, the average annual bonus for FTSE 350 directors went up by 187 per cent and the average year-end share price declined by 71 per cent.
Another paradox: competition is invariably championed by the right but, at core, is concerned with a concept that used to occupy the left, power. Lack of competition gives the senior banker power over colleagues and customers. Some on the right argue that the discipline of competition was foregone when the banks were bailed out; some on the hard left that this was moment when the chance to move beyond the market system itself was passed up.
This response from the left is wrong because it denies the potential of markets (and the reality that experiments with non-market systems, e.g. the Soviet Union, have not been happy). Properly functioning markets shatter concentrations of power and deliver improved outcomes. Dysfunctional markets allow the few to hoard power to the detriment of the many.
It wasn’t competition, pace free marketers, that was lost when the banks were bailed out; it was Armageddon that was avoided. Competition was sacrificed to the interests of big businesses long before the bank bailouts. The point should have been, and remains, to move from the bailouts to a recovery of genuine competition and plurality.
The complacency of George Osborne leads to a final paradox: it falls to the left to save capitalism. This system has been through many mutations – some for the better; some for the worse – and must continue to evolve to survive. It can do so in ways that serve the goals of the left.
But this requires that the left understand how markets work. That understanding isn’t demonstrated by “greedy banker” posturing or by the conceit that issuing a government target is the same thing as efficiently delivering upon it. Contained within this understanding is an appreciation of the distinction between the interests of big business and competition and, thus, contemporary power dynamics. The left needs to reacquaint itself with these dynamics, but without doing so in such a shrill fashion as to appear anti-business.
Labour needs to show this appreciation in responding to the final report of the banking commission. We must also force our way into a debate that threatens, as per the NHS Bill, to become too much about the governing parties. The Liberal Democrats want to position themselves as leading the resistance to any Conservative heel-dragging on implementation of the commission’s recommendations, and both are happy to squeeze Labour out of this debate.
We need to be interesting enough to matter. Given that the Liberal Democrat position is likely to be for implementing the commission’s recommendations in full immediately, definition requires us to advocate sensible proposals that go beyond the commission. Ed Miliband’s call for a banker disciplinary code can be part of this. We should build upon this by advancing the case for a banking sector sufficiently competitive to restrain executive pay to merit-based levels, which puts first the interests of hard-working households and companies, not big business. Only within this framework will capitalism not eat itself. Markets need morals and institutions that ensure genuine competition. It cannot be for Vince Cable to provide this; it must be for Labour.
Jonathan Todd is Labour Uncut’s economic columnist.
Tags: Banking Commission, capitalism, Jonathan Todd
I started reading but gave up when you mentioned Gordon Brown and Alistair Darling as they were part of the problem.
A Bankers Disciplinary code is a waste of time.
Who decides what is acceptable behavior especially when the rules promote cheating.
Looting takes place because the system allows looting.
If the game is crooked, then no amount of competition, will solve the problem.
Competition is not a panacea.
The Soviet Union argument is a strawman.
Corporatism is the status quo ante.
Have a nice day !
This is a fine kettle of fish where the Tories are championing the deserving poor as opposed to the undeserving ferral underclass, and Labour are championing capitalism as opposed to consructive socialism. I miust have stepped into a parallel universe.
It may come as a surprise to the readers of this blog but there is already a disciplinary code for bankers. The FSA authorises bankers to act in the market (there are different categories). This was introduced as part of the introduction of the FSA, when Ed M was a Gordon BRown adviser….. Breach of the FSA principles can lead to loss of licence for a banker preventing them being able to work… Arguably you need stricter enforcement of what’s already there, not new legislation. Alternatively, Ed is looking for a cheap headline.