by Jonathan Todd
Is the national scandal David Cameron’s lack of inclination to implement Leveson or his failure to facilitate a similarly forensic investigation and debate on the culture, practices and ethics of the financial sector?
The central reality of Britain in 2012 is that our national wealth remains more than 3 percent below its pre-crisis peak. The Autumn statement should tell us precisely how far George Osborne’s debt and deficit targets are off track. But the core truth is obvious: our anaemic growth makes it ever harder for us to sustain the public services and quality of life we would like.
We have not been through a deeper and longer growth contraction than the notoriously grim 1930s because of Rupert Murdoch. Labour rightly insists that if Leveson is implemented then the indignities and injustices of the press will be reduced. But we have little to offer in terms of policies that will provide comparable certainty that the financial crisis of 2008 will either not happen again or not precipitate such a deleterious effect upon the wider economy if it does.
Labour has made much of Cameron’s reluctance to provide a statutory underpinning to press regulation but the call made by Michael Jacobs and Tony Wright for a judicial inquiry into the financial crash on the lines of Leveson went unheeded. Instead we had the Vickers Report, which Osborne managed to get away with partially implementing, in spite of Sir John’s insistence throughout that his recommendations will only work as a complete package.
Douglas Alexander lamented at a recent Policy Network event that most Labour politicians could say something on Vickers but then what we want from the financial sector becomes vague. The logical way to begin to improve upon this is to ask what functions the wider economy requires the financial sector to fulfil. John Kay did this at a policy review seminar last week.
The list that he came up with had commonality with lists that I have previously helped to draw up: operating the payments system, which is as fundamental to the operation of the economy as electricity and broadband; transferring money from savers to investors, whether households investing in property or businesses investing in new facilities; facilitating lifetime consumption smoothing (e.g. borrowing to not starve as a young student, cashing in pensions to not work until the grave); and risk management, which extends from relatively vanilla insurance products to exotic forms of financial innovation.
Kay made two observations on this list. First, many of these functions, while vital, are not highly complex. For example, few in the network of building society managers, who competently administered mortgage provision until the 1980s, would have known what a derivative is, never mind hold a PhD in Physics. Second, a relatively small proportion of what the city does is concerned with activities that the real economy of the UK needs it to fulfil.
We did not build up the second largest financial centre in the world by ceaselessly serving the needs of the British real economy. Indeed, these needs have been so underserved that the British Chamber of Commerce – that leading mouthpiece not for smashing the system but for the real economy – argues for substantial and state-backed intervention in the form of a British Investment Bank.
It is curious that our country can host such a major financial centre and be in need of such significant intervention to support our real economy. It is even more curious that this paradox is so under acknowledged and debated.
What has to be explained – according to Wilhelm Reich – is not the fact that the man who is hungry steals or the fact that the man who is exploited strikes, but why the majority of those who are hungry do not steal and why the majority of those who are exploited do not strike.
Half a decade since the nakedness of the “masters of the universe” was first exposed and we remain stupefied. I am not arguing for the storming of the city of London. London’s pre-eminence in global finance supports jobs and growth in many related sectors, such as business and legal services. And the GVA of financial services alone in London exceeds that of the whole of the North East.
It would be preferable, though, if this GVA from financial services in London could be grown or at least retained alongside more GVA in the North East. We should consider the extent to which and how such Geordie GVA can be reconciled with London retaining global leadership in the cross-border transaction of services that have little relevance to much of the British real economy.
This week Ed Balls will tell us that we need to change the medicine or change the doctor. Prevention, nonetheless, is better than the cure and this involves a more mature assessment of the relationship between financial services and the real economy.
We need this to be as complementary as possible. As it is hard to believe that the status quo of press regulation is perfect, it is hard to believe that this is what we now have.
Jonathan Todd is Labour Uncut’s economic columnist