The City of London isn't a national interest – it's a class interest
In their resistance even to a Tobin tax, captive British politicians ignore the havoc unleashed by overweening finance
Seumas Milne
guardian.co.uk, Wednesday 16 November 2011 22.20 GMT
Britain's jobs crisis has now turned critical. Official unemployment has reached 2.6 million and, for the first time since the 1980s, there are more than a million young people out of work. The Bank of England is slashing growth forecasts yet again. The eurozone is tipping over a financial precipice and Europe is on the brink of a new slump.
But for British ministers, there are some issues that take precedence whatever dangers their country is facing – and the interests of the City of London are one of them. As speculative contagion spread across the continent and technocratic placemen were imposed on Italy and Greece, David Cameron and George Osborne clashed with the German chancellor over the mortal threat of a 0.01% EU-wide tax on financial transactions.
Angela Merkel's backing for a "Robin Hood tax" – on bonds, securities and derivatives traded between financial institutions – was described by Osborne as a "bullet aimed at the heart of London". Cameron complained that the City was a "key national interest" under "constant attack through Brussels directives".
They were loyally supported by the one-time bankers' scourge, Vince Cable, who declared yesterday that the German position was "completely unjustified" and would simply divert revenues from Britain to the EU. But it's not just the Conservatives and their coalition allies fighting the financiers' corner.
Labour's Ed Balls, while hammering the government for choking off recovery, warned we must be careful not to throw the City "baby out with the bathwater" and that a transactions tax risked "real damage to the City"; while shadow foreign secretary Douglas Alexander insisted there was a risk to "the City in particular" of the eurozone's members acting "in concert" to disadvantage Britain.
It's almost as if the politicians have been asleep for the past three years. It was after all the City and its reckless speculation that brought us to this pass. A US-triggered crisis had a savagely disproportionate impact in Britain precisely because of the deregulated financial free-for-all nurtured by both main parties in the City.
The price being paid in wasted lives and broken public services is the direct result of the City's uncontrolled derivatives trading and monumental debts – far outweighing the public debt run up to clear their wreckage – that sparked the 2008 crash. The eurozone crisis reflects the aftershocks of that breakdown and the attempt to protect banks and bondholders across the continent.
A transactions tax would not only raise cash but help to calm the speculative frenzy in financial markets that led to meltdown in the first place. As the US economist James Tobin, who dreamed up the tax put it, the idea was to "throw some sand in the wheels of our excessively efficient international money markets" – because of the damage they inflicted on the real economy.
If the government's problem with the EU's Tobin tax is the diversion of revenues, there's nothing to stop it imposing one of its own: Merkel has made clear that the eurozone states will press ahead with a tax if Britain blocks it at the EU level.
But the British political class insists any transactions tax that isn't adopted globally would lead to a haemorrhage of business to New York and the Far East, lose tax receipts and damage prospects for renewed growth. The evidence suggests the loss would be far less dramatic than ministers claim. The more important question is whether the defection of mobile hedge funds and derivative trades is any real loss at all. Even Adair Turner, chairman of the Financial Services Authority, has described much of the City's activity as "socially useless", and backed the idea of a transactions tax to reduce the City's "swollen" size.
Yet politicians are locked into the City's own mythology. Volker Kauder, Merkel's parliamentary leader, claimed it was no surprise the British were hostile as the City accounted for "almost 30% of their GDP". Actually, finance and insurance are worth about 9%. Nor is the sector effective at generating jobs: employing less than 4% of the workforce – about the same number as Britain's young unemployed.
It does generate significant profits and tax revenues. But then those have to be set against the colossal bailouts the City has had because of its own catastrophic failures, courtesy of the public purse. On top of the hundreds of billions pumped into the City in state funds, guarantees and quantitative easing since 2008, it's estimated the banks are still being subsidised to the tune of £46bn a year.
Meanwhile, they suck highly skilled people out of the wider economy, are the main motor of ballooning wealth for the top 1% and continue to fail to play their central economic role of providing affordable credit for productive investment: once again, the banks have failed to meet lending targets to small and medium-sized businesses.
But their government champions never flinch from lobbying to protect destabilising City business from even modest international regulation: not just a Tobin tax, but also from a ban on naked short-selling, clampdowns on tax havens and US-standard regulation of commodity trading.
Kauder claimed Cameron and Osborne were defending British against EU interests by opposing a transactions tax. But the City isn't a national interest. It's a class interest and a sectional interest that has the political elite and the regulators in its pocket – and has brought the economy to its knees. The interest of most people in Britain by contrast is in a financial sector focused on domestic lending and investment for recovery and sustainable growth.
That has never been the City's priority. It has historically favoured international dealing, trading and short-term lending, rather than long-term local investment. Over the past generation that has developed, as in the US, into a parasitic financialisation of services and households, while the industrial economy has been disastrously hollowed out.
Turning that round will take a lot more than a Tobin tax. To rebuild a productive economy and shift its centre of gravity from finance demands decisive public intervention: a core of publicly owned and remutualised banks to drive investment in transport, energy and housebuilding, for a start. That would be fiercely resisted by the City and its patrons – but crisis and necessity may yet force a change in the terms of political trade.
The City of London isn't a national interest ? it's a class interest | Seumas Milne | Comment is free | The Guardian
The City of London isn't a national interest – it's a class interest
... except for the ban on short sells. Like that's helping the Italian/Greek bonds...
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