The City is no golden goose
Jonathan Edwards
Following the Great Recession of 2008, Gordon Brown reinvented himself as the saviour of the global economy.
He was praised by one of my favourite economists Paul Krugman in the New York Times on October 12 2008 as having “defined the character of the worldwide rescue effort…”.
The Labour Party naturally jumped on this as a narrative to preserve Brown’s reputation while neglecting to highlight that the policy effectively meant throwing the kitchen sink at stopping the banks from going under in the shape of public loans, grants and guarantees equating 100% of GDP – around £1.4 trillion at the time.
It also failed to mention the role that the New Labour philosophy of light touch regulation of the City played in creating the conditions for why the UK population found themselves having to bail out the bankers.
Brown’s strategy was to let the City run rip in the hope that it would generate sufficient revenues that could then be redistributed. The City ballooned in its relative importance to the UK economy, resulting in gross sectoral and geographical imbalances.
Disastrous
It was a disastrous approach which effectively meant that people in poor performing economic areas such as Wales didn’t enjoy the bounty years and ended up paying the price of the recklessness of the bankers.
George Osborne briefly flirted with a suggestion I offered in the Commons, of Icelandic style prosecutions against bankers and politicians responsible for the crash. However in reality Westminster did little to curb the excesses of the bankers.
Gradually as the years went by and restrictions, such as those on bonuses, were removed.
Chancellor Reeves was a Central Banker before becoming an MP, and you would hope she would understand the need to avoid the moral hazard of private financial enterprises thinking they can act with impunity.
Of concern therefore is the way that she has gone even further than the reforms introduced by the previous Tory administration in December 2023, which removed all protections put in place following the 2008 crash.
Rationality
It could be argued that the Brown strategy had an element of rationality behind it and generated annual GDP growth of around 3%.
Compared to today’s stagnant economy, the Chancellor would give her right arm for such a performance, even if it was as geographically concentrated as under Brown in the south east of England.
If Brown can be excused for being taken in by the hype of the self-proclaimed masters of the universe, the current Chancellor has no similar defence.
Her decision to change the remit of the financial regulator (the Financial Conduct Authority) to promote financial sector growth, as opposed to solely protecting consumers, is a worrying development.
Fifty prominent economists, including another rock star economist Joseph Stiglitz, have warned that history repeatedly shows that the financial sector can only grow beyond a certain point by taking ever more risks.
They also argue that an over emphasis on the banking sector sucks talent away from potentially more productive enterprises as well as directing finance at assets such as houses inflating their value as opposed to investing in meaningful business activity.
DJ Davies, my political hero, made a similar warning in his masterpiece The Economics of Welsh Self Government, written in 1931.
Turbo charges
Even if the Chancellor managed to place turbo charges under the financial sector, it would likely lead to increasing wealth inequalities on a geographical and personal basis.
The Labour strategy of fiscal transfers to poor performing areas failed during the New Labour “boom” years. There is no reason to think it will work now. Inequalities within the UK is one of the reasons that the far right are in the ascendancy. How does the UK Government expect the left behind to react?
Regrettably, Westminster is hooked on high finance. The City is no golden goose as it likes to see itself. However they do hold a golden gun to the collective head of the UK population due to the cowardice of Westminster.
What did Marx say about history repeating itself?
Jonathan Edwards was the MP for Carmarthen East and Dinefwr, 2010-2024
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.
Excellent article by Jonathan yet again
Excellent article, spot on
Head lines such as the ‘ biggest exit since the global financial crisis’ and the ‘ stark reality of the LSE exodus’ are starting to appear in our press.
The recent trend of companies delisting for the London stock exchange and moving to the USA to me fits in with your arguement. The only difference is that the effect on the nations and regions in the UK is now begining to be felt in the Square Mile.
Gordon Brown gave away our gold.
“….in reality Westminster did little to curb the excesses of the bankers.” I’d say that they did nothing. Brown’s tenure and the Tory/LibDem regime were both guilty of colluding with greedy banks and their senior executives in protecting them from their own gaffes and earlier poor policy decisions while inflicting the costs on the general public. Oh say their apologists it set up a long period of low borrowing costs. So it did but that benefitted big business, the institutions and government borrowing far more than poor old Joe and Jane Public who still paid eye watering rates on unsecured… Read more »
This is truly thought-provoking. I’m deeply concerned about the Republic of Ireland 🇮🇪 now that it has caught the “English disease,” allowing property prices to spiral out of control even after the painful experience of bailing out the banks in 2008. It’s the same story: nationalise the losses, privatise the profits. Meanwhile, Britain remains far too dependent on the City of London, with Thatcher’s policies having decimated our manufacturing base. As for JE, it’s clear he’s seeking a platform where his considerable talent and experience can make a real impact. Couldn’t he take the reins at YesCymru, at least temporarily,… Read more »
The financial/professional services sector generates well over 10% of tax revenue for the UK treasury. If it declines significantly, it’s demise will be felt in Wales. The question is why can’t you have a strong city of London, and productive regions. Other countries have managed it. In my view, the two are largely unrelated. 30 years ago you wouldn’t have complained that Aberdeenshire was creating unproductive regions, just because it was similarly economically successful. I don’t think we should be looking to demise of other sectors/regions for improved quality of life in Wales. We should be thinking why private investment… Read more »
Fair point except that it ignores banks growing preference for investing in their own sector or in projects that have a public sector and/or international corporate input. Banks and City institutions have a massive presence in green energy for instance but there is little or no trickle down or splash over onto those areas where the wind turbines are sited. There is huge affinity between the City and big international corporations which suggests a comfort zone for banks to avoid risks.
No sure about your first point, it’s not my experience and I don’t see any evidence of growing change there.
Community benefits packages made by developers of green energy projects to local communities but these are voluntary in the UK. Scotland has some guidelines, which are actually well followed. I’ve never heard a welsh politician demand that they should be compulsory, though this will be a more worthy cause than some of the nonsense they’re seem to pursue.