2013 is tipped, if not as the Year of the Dragon, then as the Year of UKIP, which only goes to show how disoriented and dysfunctional the UK political system has now become. Their philosophy – the country’s going down the drain, immigration and gay marriage show how far it’s been torn from its solid traditions, and the real answer is complete exit from the EU (a non-sequitur if ever there was one) – illustrates how far the national debate has been capsized by marginalities that distract from the real fundamentals. Those centre round the catastrophic collapse of the West’s business model and the unwillingness of any political parties to face up to the hard imperative of implementing an alternative that works.
How do you regulate the casino? The Tories and the Orange Liberals around Clegg have no intention whatsoever of doing any such thing – they exist after all to defend it and in return are funded by it. But is Labour up to the radical reform of the banks that is needed? Not on its showing so far, and admittedly it is a very challenging objective.
Thatcher’s marketisation of finance went far further than merely Big Bang in 1986. Its abolition of exchange controls in 1979 brought about a vast outflow of capital from pension funds and insurance firms, whilst also expanding the hedge funds and private equity that promoted short-term investments to maximise ‘shareholder value’. Big Bang pushed the banking sector into stock markets, leading to the growth of speculative high-risk investment arms in the big retail banks.
The 1980s Tories also de-mutualised the building societies, transforming them into retail banks able to borrow on the wholesale markets with disastrous consequences (Northern Rock). The culture of banks changed radically, with a focus for banks and ex-mutuals on short-term profitability epitomised by the ever-shorter duration of equity holdings (from 5 years in the 1960s to 7 months by 2007) and the churning of portfolios with huge bonuses for fund managers but little value to UK industry.
This is power structure that has done huge long-term damage to Britain. It needs to be reversed by a 4-part programme for the City:
- Build a publicly owned banking sector (and re-built mutual sector) to switch the balance of investment steadily towards infrastructure and industrial re-industrialisation,
- Use regulation and taxes to drive down the speculative excesses of the City, especially in offshoring and tax havens, and to generate revenue instead for public investment in the UK, particularly via a Financial Transactions Tax,
- Reform pension funds to make them transparent and accountable to scheme members and direct their investments to promote the UK national interest, not overseas speculation,
- Use capital and exchange controls where necessary, but no more than necessary, to counter de-stabilisation of the economy by the finance sector.
This is no more than is strictly necessary to reverse the enormous damage inflicted on the British economy by 3 decades of reckless and self-interested neoliberal markets. Is Labour up for it?