Labour and the City
I am an admirer of Chuka Umunna: he is one of the brightest of the younger MPs, and has an “electability” factor that far exceeds that of many of his colleagues. So (after a Twitter exchange in which I unfairly relied on a reported summary of his views) it grieves me to read a speech he gave today at Canary Wharf on The importance of the City to British business.
Labour, as we know (and as Mr Umunna acknowledges in an elegant reformulation of Peter Mandelson’s famous remark), has had a schizophrenic relationship with the City, and we want to believe that the same mistakes won’t be made again when they return to power. Just as Margaret Thatcher took on the unions a generation ago, the time is now right for politicians to take on the City. We need to be sure that the next government will be up to the job.
I don’t propose to take the speech apart in detail when my main thrust will be clear, but it is in some of this detail that our confidence in Mr Umunna’s authority may founder. (Incidentally it isn’t acceptable for texts like this to contain numerous spelling or grammatical errors: call me old fashioned, but so are many of the electorate.) So let me look at a few of the statements in the speech.
It [financial services – the City] is a sector which we look to [sic] pump oxygen into the rest of the economy, helping businesses in other sectors expand and grow.
This sits oddly with what must by now have become blindingly obvious to most progressive thinkers: the financial services sector includes a tiny utility function whose purpose is indeed to assist the rest of the economy, dominated by a far larger activity which has nothing to do with that function – except insofar as it sucks the oxygen out of the real economy and causes periodic explosions that destroy vast quantities of that gas.
Like water and electricity, our banks are essential to everyday life, safeguarding our deposits, providing a payment system and so on.
Absolutely: but where is Mr Umunna when Parliament is introducing measures that will undermine the safety of our deposits such as clause 9 of the Banking Reform Bill?
And now his central point: what is to be done to effect the real cultural change required? As he puts it,
Given the collective hit the sector has sustained through all these scandals, is it not time for there to be a very visible coming together of the principle [sic] players in the sector to address the ongoing reputational crisis the sector faces – a public summit of the key industry leaders where action points can be agreed and then implemented?
No, Mr Umunna, it is long past that time. In the words of the tennis player, you cannot be serious.
Now the point that sparked the Twitter exchange:
Is not the prospect of jail for gross wrongdoing one of the best ways we can affect a culture change?
It seems again that Mr Umunna has not kept up with the previous posts on this blog – nor indeed with the far more authoritative analyses by other commentators. It is not simply a matter of the cognitive error common amongst many bankers – that they will not get caught, so the rattling the handcuffs will have limited impact – but, more seriously, that even if one or two individuals were deterred in that way, they would soon be replaced by those who were not. That is the point which has escaped Mr Umunna: the systemic roots of the behaviour we have seen are so deep that pruning a few of the weeds above the surface will have no impact whatsoever.
Mr Umunna then resumes:
This brings me to my third point: if our banks are to rebuild trust, we need to see a change in culture in the sector and our banks must be made safe.
Really? While Mr Umunna goes on perfectly reasonably to say “never again must we be in a situation where they have the potential to bring down our entire economy”, thinking (from Vickers’s Independent Commission on Banking on) has moved far beyond the idea that this is achieved by trying to make banks safe. Banks will never be safe (although sabotaging them with clause 9 is not a strategy any sensible person would recommend or condone): we have to find ways in which their inevitable default has less impact on the real economy. And as for the ICB’s recommendations,
We are clear: if the letter and spirit of the ICB’s proposals are not delivered and we do not see cultural change in our banks, we think full separation will be necessary.
Again, Mr Umunna, you will be too late. The Vickers proposals are now widely recognised as too timid (see my original evidence for why). They will not effect any real improvement in the safety of the banking system before the next crash. Labour needs now to be saying loudly that full separation must happen immediately.
As I have repeatedly pointed out, the only way to fix the banking system is to align market forces with what society needs. You do that by complete separation, so that the voting equity is attached to smaller, discrete businesses, so that it is shareholders who decide whether to allocate capital to zero-sum trading businesses. It shouldn’t take too much intelligence for shareholders to work out who is paying City bonuses when they own both sides of the trade.
Mr Umunna needs to ditch his feeble speechwriters and start making points of real weight if he is to win our support. There is every need for him to do so.