British Prime Ministers and their Chancellors are clearly in the pocket of the City of London, as regularly demonstrated by their red faced compliance at the Lord Mayor’s fancy dress functions. The politicians dutifully swear their allegiance. And they mean it, as Cameron recently showed by vetoing the Franco-German proposal for a timorous financial transaction tax. It might have put some friction into the City’s speculative finance machine and offered a chance of slowing it down and ultimately of reducing its size. Like all his predecessors over the past three decades, Cameron would contemplate no such challenge to the City.
That appears to be the only certain position he holds as he attends the EU summit The rest of his pre-Summit statements appear to be incoherent bluster, largely aimed at placating the emerging Tea Party element of his own party. And specifically not aimed at what he himself previously referred to as ‘rebalancing’ the UK economy.
British manufacturing has been attacked, and much of it destroyed, by the speculative financial sector enthusiastically supported by its parliamentary clients in successive governments. Whole industries have been stripped and sold for the short term gain of investment banks, private equity, hedgers and financial opportunists of all kinds. The details are too extensive to repeat here – several postings on this site have focused on particular situations.
Over the past thirty years progressive deregulation has freed the financial sector to desert its former role which was supportive of real economy activity such as manufacturing, and to pursue the more profitable, but previously thought to be risky, speculative role, extracting value from the real economy. Now that the politicians have largely freed the speculators from the consequences of their failure, using the tax payers’ money, there is nothing to hold back the terrible growth of that socially useless and already dominant activity.
The inevitable result will be that the bubbles multiply in size and frequency. So will the damage done as they inflate and, more dramatically, when they burst. Encouraging speculative finance to grow further is clearly attractive to modern politicians over their short time horizon, but it only ensures the increase in long term damage and the cost of its ultimate sorting.
It would have been good for Cameron, as he participates in the EU Summit, to give some thought to that longer term damage. Rather than simply stopping the German-French transaction tax initiative, he might have argued to seek President Obama’s participation in throwing some sand in the speculative machine. In the end it will only be with international co-ordination, that economies will be genuinely rebalanced, creating real jobs for real people. A co-ordinated US-EU initiative would have been a good starting point.
But Cameron, with his millionaire dominated cabinet, and economic advice from a committee comprising bankers, asset strippers and tax-avoiders, will be unlikely ever to challenge the City’s short-termist attacks against the people.