Tackling the 'money octopus': the financial sector and the One Nation tradition.

Author:Carr, Richard
 
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In the 1930s the then Labour Party leader George Lansbury regularly thundered against the so-called 'bankers' ramp.' To those of this view, in 1931 high finance had dictated to the previous Labour Cabinet a programme of public expenditure cuts that were simply impossible for a government of the left to countenance. A democratically elected British government was thus forced to resign at the whims of international finance: 'the most shameful and shameless episode in the life of our nation' (Lansbury, 1934). This story was a familiar refrain on the left as British politicians pondered a seemingly insoluble Morbid Age of economic depression and social anxiety (Overy, 2009).

Yet Lansbury's views went deeper than this famous calamity. According to him, for decades Britain had been engulfed by a 'money octopus' whose tentacles spread over all areas of our public life. The financial sector not only infringed on the legitimate activities of government in times of economic strife, it also served no useful social function even when things were going a good deal better. In his oeuvre My England, Lansbury claimed he was unable to 'see any difference' between the activities of the City of London 'and that of a bookmaker who assists some people to lose and some to win money by backing losers or winner at the dog races.... On the Stock Exchange men back their fancy in stocks and shares instead of horses' (Lansbury, 1934).

The major difference, of course, was and is that financial gambling has the potential to affect the lives of millions if the markets collapse. When the stock exchange loses its historic function as the raiser of capital for real economy investment, it thereby jettisons its very rationale, and this can have severely adverse consequences. As John Maynard Keynes wrote in The General Theory, 'speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation' (Keynes, 1936). To borrow today's phraseology, Wall Street can indeed imperil Main Street. Financial markets do not become too big to fail, but they can become too big for politicians to contemplate their failure. The required action does not always arrive in time, if at all.

The broad parallels between the crashes of 1929 and 2008 have been well rehearsed. Both involve a Labour government falling from office, severe cuts subsequently introduced by a Tory-Liberal dominated coalition and finally cheap money and low interest rates eventually producing a regionally-specific economic pick-up good enough to return the Tories to power. 1931 and 1979 serve as examples where, if the narrative can be embedded that Labour are economically incompetent, it can be hard to shift within one, two or even more electoral cycles. Ed Miliband will be hoping history does not repeat itself in this regard.

This essay therefore explores how to take on Lansbury's 'money octopus' whilst not engaging in the politics of envy. Clearly the parallels with the 1930s are not exact. 2008 has not seen a new bankers' ramp thesis take widespread hold--mostly due to Labour falling from office whilst still in the Keynesian 'pump-prime' phase of their dealing with the crash (the cuts, in other words, were still to come), but also because Alistair Darling's final March 2010 budget targeted eliminating half the deficit by 2015. Contemporary disagreements between the Coalition and Labour have been over the scale and pace of cuts, not their overall necessity or the need, broadly, to appease the bond markets. Unless Labour plans to drastically cut public spending after 2015 the need to borrow money--principally through such bond markets--will remain until at least 2017/18.

And yet this does not mean that no action should be taken to tackle the systemic flaws in market capitalism, for the need to tackle the excesses of the financial sector is obvious. Forget One Nation for a moment--within a couple of miles or so of Threadneedle Street lies Tower Hamlets. According to the Metropolitan Police, 45 per cent of this Borough's population is welfare borderline (four times the London average), a quarter of the population are on benefits, and the amount of residents living in a household with 8 people or more is six times the London average (Met. Police, 2013). Inequalities in contemporary Britain are rife, and exacerbated by elements of the City. Wealth is not even trickling down the Commercial Road, let alone across the country.

With a general election fast approaching, new thinking is therefore needed on financial sector reform. So far Labour has piggy-backed on public anger with bankers' bonuses to pledge the restoration of Alistair Darling's levy on this form of remuneration. They have agreed to extend the Coalition's bank levy--despite criticising it earlier in the parliament for underperforming--on financial sector balance sheets. And they have talked of reversing George Osborne's relatively small scale (in cash terms) exemptions on stamp duty on shares, with some additional attention to the activities of hedge funds announced at the 2014 party conference. The issue with these reforms is not so much that they are necessarily disastrous, but more that they do not go far enough beyond papering over the cracks. These are reforms triangulated in the corridors of Whitehall to fit into some nominal 35 per cent or 40 per cent election strategy rather than representing a fundamental rethink of the way we do capitalism in this country.

As Jonathan Davis has noted in this publication, 'the [Labour P]arty's ethical traditions can help it to create a genuine alternative to neo-liberalism and end the crisis that democracy is now in' (Davis, 2013). As part of that, he suggests that 'Labour will ... have to have a "reckoning" with financial capital.' Both are astute points, and this agenda can be extended beyond the labour tradition. Equally though, any 'reckoning' needs to be forensically targeted if 'Ed' is not to be viewed as too 'Red.' Labour have sometimes had the worst of both worlds in this parliament--ranting about Old Etonian Tories has opened them up to charges of class warfare whilst their actual policies--related to the rich or otherwise--have arrived at a snail's pace.

Using the One Nation prism outlined by Ed Miliband in his 2012 party conference speech, this article interrogates what One Nation reform of the City may look like, and argues there is greater cross-party 'cover' for a bolder approach than sometimes acknowledged. Though the One Nation ideal is often drawn rather vaguely, the Tory 'wet' Ian Gilmour proffered four useful guiding totems in the early 1980s: '(1) partnership with Europe, (2) "the importance of the social services", (3) concern for "the wellbeing of the entire population", and (4) a "continuing view that neo-liberal economic doctrine is alien to [it]"' (Walsha, 2003). Some of the solutions outlined here, not least the Financial Transaction Tax pursued by leading European partners, may well fit this definition. If Gilmour's points one and four can help fund promises with regard to his second and third suggestions...

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