In the context of UK’s indebtedness, it might seem that any morsels in the new budget to benefit the real economy, for start-ups, small businesses, for technology and innovation, should be thankfully received. But the real opportunity, the one the now toothless Vince Cable made so much noise about, has been totally ignored. For the financial sector, it really is business as usual. Its rape of the real economy can continue for another year at least without fear of interference.
George Osborne ignores the main problem – the speculative element in the UK economy. If more UK start-ups are to survive and small businesses grow big, and UK technology be exploited by UK firms, they need the true support of the real banking sector on a permanent basis. Throwing occasional goodies to help them survive a basically hostile environment is not good enough. It is the hostile environment which must be addressed.
That hostility is raised by the investment bankers, hedgers, private equity funds and the like, which are not just permitted, but encouraged, by the current regime to exploit, strip and destroy real economy companies. In other jurisdictions, such firms are protected against the predatory attentions of speculators. In Japan the keiretsu groupings of interlocked shareholdings, including main banks, are virtually impregnable. In Germany, employees hold half the supervisory board positions and their agreement is essential to any merger or acquisition. In China and India, state shareholdings are still more than sufficient to prevent extensive predation by speculative opportunists.
But in the UK financial predation has been encouraged till the sector has come to dominate the economy, and is seen as far too big to be allowed to fail. So it continues to invent speculative investment bubbles whenever the opportunity arises. Hostile mergers and acquisitions are a major component, but socially ruinous bubbles have also been created out of oil, carbon credits and food. Even water is not immune. The potential list of future bubbles continues to grow as critical resources in finite supply continue to be consumed at an unsustainable rate.
Cable was right to insist that so called investment banking had to be separated from real banking. Only then could real banks return to their traditional role supporting real economy firms. And only then could the speculative sector be slowed down and its profitability reduced. But Cable did nothing. Gordon Brown was said to have favoured a Tobin tax on financial transactions which might have had some effect. But he also did nothing. Now, the current government is doing nothing. Is it naiveté? Or a deep ideological commitment to the free market fundamentalist dream? Or is it fear of bankers? Whatever it is, it is hugely damaging to UK’s real economy. But Bob Diamond and colleagues will be content.