When all the political parties agree on something, you just know there’s something fishy going on. Miliband and Cameron, Livingstone and Johnson, they all love the City of London. What a jewel it is, how vital it is to the British economy. But the reverse is true.
The City squats on Britain like a toad, flicking out its tongue from time to time to snaffle titbits. It has turned parasitism into an art. It takes our money, swirls it round, skims it off and lo, the money has gone. Its role as an engine to raise money to finance industry is long gone.
Note how all its admirers talk about the City as a “global” centre. The fact that London is the capital of Britain is downplayed, a geographical anomaly. The City does not serve Britain, nor does it aim to serve Britain – it serves “the world”. But “the world” is a comfortably vague concept: actually, the City serves itself. As they say in the best Mafia films, it’s nothing personal, just business.
Last year Aditya Chakrabortty reported in The Guardian on how little of financial lending goes towards production. Citing figures from the Manchester-based Centre for Research on Socio-Cultural Change – funded by the Economic and Social Research Council – he wrote: “In March 2008, just over three-quarters – 76.2% – of [the value of] all bank and building-society loans went either to other financial firms or on property for mortgages. Less than a quarter – 23.8% – went to what you might call the productive part of the economy – non-financial businesses.” And of that 23.8 per cent, how much went to manufacturing industry?
In December, a report by the TUC provided more evidence about the real effect of the City of London on Britain’s wider economy. Despite the increase in financial services in the past 30 years the wages share of national income has fallen from 59 per cent to 53 per cent, whereas the share of profits has risen from 25 per cent to 29 per cent – a massive redistribution of wealth.
The report’s authors put this down to the decline in manufacturing (where more organised workers managed to make inroads into the value they created). They also found that the financial services share of total profits has risen from 1 per cent in 1980 to 15 per cent now, while research and development has fallen in the same period.
So rising profits for the City have benefited only a small number of investors and not the wider economy, while starving industry of investment.
The banks played a big part in causing the economic crash and even now are resisting any reforms. Given the huge bail-outs the banks have had, Britain clearly can’t afford them. It’s not even obvious that we need capitalist banks like these to finance the economy.
Given the urgent need to overcome the influence of the finance sector and rebalance the economy towards manufacturing and engineering, why are we pumping yet more money into their maws in the shape of quantitative easing? Instead, a sensible, rational government would be investing directly in real production through a bank run and controlled by the state. ■