To start a fashion you have to be willing to look ridiculous. So here goes. I think Mark Carney (yes, the man who has single-handedly saved the UK economy just by taking up his job) made a rather superficial speech a couple of weeks ago.
I can’t pretend even to understand every word of the offending oration. In parts it is quite a technical account of the things that are happening and need to happen in order to provide a firm foundation for the UK to continue to be a global centre for financial services.
Indeed, in his speech the Governor of the Bank of England goes further than the search for stability. He told a Financial Times event to mark the paper’s 125th anniversary:
Suppose, for example, that UK-owned banks’ share of global banking activity remains the same and that financial deepening in foreign economies increases in line with historical norms. By 2050, UK banks’ assets could exceed nine times GDP, and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking based in London.
For Carney the benefits of such a growth are obvious:
… if organised properly, a vibrant financial sector brings substantial benefits. Today financial services account for a tenth of UK GDP and are the source of over 1 million jobs.
Two thirds of those are outside London…. Being at the heart of the global financial system also broadens the investment opportunities for the institutions that look after British savings, and reinforces the ability of UK manufacturing and creative industries to compete globally. Not to mention that financial services represent one of the UK’s largest exports.
More broadly, London’s markets serve a vital global role. London acts as Europe’s window to global capital; is a centre of emerging market finance; and can play an important role in the financial opening of China.
Carney thus rejects both the prioritisation and implicit trade-off contained in Peter Mandelson’s assertion post credit crunch that we need ‘less financial engineering and more real engineering’. The Bank of England Governor believes that a dynamic and growing financial services sector is perfectly compatible with one which behaves responsibly.
These two brilliant articles by John Lanchester offer an alternative view of things
Lanchester’s pieces were written in the summer but still there is a steady flow of new scandals. Indeed, as he argues, the big question - given the terrible impact on so many people of the banks’ behaviour - is how the public has become insouciant in the face of ever more evidence of venality and incompetence at the very heart of finance capitalism. In a sane world the recent rate swap scandal would be a cause celebre but so inured have we become that it has only bubbled under as a story. Every week it seems there are now allegations about rogue traders such as last week’s about currency speculation.
On a more systemic level much of the activity that makes the world of financial capitalism go round and which makes millionaires of its most accomplished practitioners is of questionable value. According to a recent World Development Movement report speculation on food prices by the world’s largest investment bank increased global food prices over the last decade while generating more than £2 billion in rent seeking profits for the banks.
There are two questions to which I would need to hear satisfactory layman’s answers before I could feel the faintest enthusiasm for Mark Carney’s vision of a UK economy even more reliant on global financial capitalism.
First, what is the evidence that all this activity – particularly that in the so called ‘shadow banking’ sector – actually contributes to improving the lives of the world's citizens, particularly its most disadvantaged? This is partly an ethical question but also one about national interest; to be dependent on a category of activity of minimal substantive value must be risky.
Second, is it really - as Carney asserts - possible to have a dynamic, speculative, financial capitalist sector that also behaves responsibly and consumes its own risks?
Arguably, the high flyers of finance capitalism are as obsessed with making money as sex addicts are with having sex. We wouldn't expect a sex addict to be very good at fidelity or treating other people (particularly the objects of their desire) respectfully. So why would we expect financial speculators ever to be much good at behaving responsibly or in anyone's interest than their own? The reason regulation in this sector has such a poor record is that those who run it have an obsessive drive to circumvent anything which gets in the way of money making.
In offering us a future of powerful, but also responsible and effectively regulated, finance capitalism dominating the UK economy isn't Mr Carney ignoring history and putting hope above expectation?