The Financial Services Authority’s report on the collapse of the Royal Bank of Scotland is published this morning and this afternoon the Prime Minister will explain to parliament the reasons for last week opting out of some of the EU decision processes. The FSA report is an examination of disastrous failing in the financial sector. Cameron’s speech is an explicit defence of that sector’s right to continue such failing.
Successive deregulatory initiatives by both Conservative and New Labour administrations have led to the conflation of traditional banking activities with those exploiting the open access and free market in financial speculation. That is what encouraged Fred Goodwin to bully the traditional RBS into its unintelligent acquisition of ABN Amro. It’s a mistake that, despite Cameron, we don’t need to continue making.
There is a stark distinction to be made between traditional financial services and a hedge fund running a group of young traders driven by the desire to make some quick money before getting out. The one is part of the essential support system for the real economy activities in science and technology, manufacturing and distribution. The other is not just ‘socially useless’, but actually hugely dangerous to the real economy and to the millions it employs. That distinction will have to be made at some stage, as speculative bubbles become ever bigger and the damage from the failure of institutions deemed too big to fail becomes completely unsustainable. The traditional activity must continue to be supported, while speculative activity must be effectively constrained.
Successive governments have been in thrall to the ‘free trade and open markets’ mantra on which Cameron bases his approach. It was proclaimed by then Transport Secretary Philip Hammond when he confirmed the award of the £1.4billion Thameslink rail contract to the German Siemens company, rather than to the last British based rail works in Derby. Coincidentally with today’s announcements, it was also made public that current Transport Secretary, Justine Greening, is following the Thameslink precedent regarding the financing of the £1bn Crossrail contract, with the consequence that the Derby plant will be at risk of closure after 170 years of rail manufacture, following completion of its current workload.
Far from rebalancing the British economy, as Cameron claims he seeks to do, manufacturing is continuing to be sacrificed on the altar of economic dogma. The result is that our gross domestic product is ever more reliant on the nefarious activities of the City. At some stage the economy will have to be rebalanced; there are too many real people in the UK for it to become simply an off-shore tax haven. But that appears to be the direction in which we are currently headed under the coalition’s direction.
It’s difficult to understand how the Lib-Dems in general, and Secretary for Business, Innovation and Skills, Vince Cable in particular, can square what they claim to stand for with what they are agreeing to in government.