The respected UK-based Centre for Research on Socio-Cultural Change (CRESC) has published a new and meticulously researched report entitled City State against national settlement: UK economic policy and politics after the financial crisis. It’s hard to summarise it in a soundbite; perhaps one of the most important statements is this one:
The political outcome of financial crisis in the UK has paradoxically consolidated the power of London as a kind of ‘City State’ within the national economy and with its own internal inequality.
Larry Elliot in the Guardian summarises this nicely:
(the report) compares the City to a mediaeval Italian city-state – an economy within the economy. . . . the City has grown bigger and immensely more powerful politically
which is rather like what I describe in Treasure Islands. (The report does reference my book, but its analysis and research is very, very much its own.) It adds that although there has been some redistribution of wealth to other parts of the country and the economy,
“this settlement has not been as substantial as the banks would have us believe. It has also not been enough to compensate for the hollowing out of industry and, crucially, it is now coming to an end as a result of the government’s austerity programme.”
Some shockers, for starters: between 1979 and 2011 the employment base in UK manufacturing fell from 6 million to just under 2.5 million; the value of financial services output trebled over that time frame while that of manufacturing grew by precisely zero percent. And now look at this CRESC graph, to illustrate what’s been happening since the crisis erupted:
Click to enlarge: that’s a damning picture. Those in other parts of the UK already had reason to feel hard done by as a result of the City’s dominance before 2007 – this makes matters much worse, of course. (And there are of course massive numbers of losers in London too: “the high wage beneficiaries of London finance could probably be fitted into a couple of football stadia.”) From pictures like this come the CRESC conclusion that the “unholy deal” I describe in Treasure Islands – to let finance do what it wants and simply take the tax benefit – has come undone.
Next, it explores the political capture of the country by Big Finance – something that I reveal in Treasure Islands to be very much a phenomenon of Offshore Finance. The report notes:
in the new phase after 2008, London finance had the disruptive power to resist any reform intended to help make finance safe, as well as to vigorously support a politics of austerity.
. . . .
we may now see a new kind of relation between city state and host nation because, as we argue below, London both benefits from (and contributes to) the weakening of such larger national entities.
There’s the problem of the dominant narrative, in finance’s favour – we have had:
the defensive elaboration of an ideology legitimising London’s pre-eminence in finance. This was done through a classic trade narrative which counted the many ways in which the London-based finance sector activity benefited the national economy (and passed over the many disconnects and negative outcomes).
. . .
Intellectual support and academic respectability was provided by the best consultancy that money could buy
. . .
the main PR effort went into placing event-related stories in broadsheet newspapers, which regularly updated a few key factoids about the tax contribution of the financial services sector
. . .
London’s success after 1979 was partly secured by the centralisation of everything as well as finance in an increasingly London centric politics, media and culture which was fed by the relative decline of the provinces. Finance was then an active agent of increasing division and inequality within the London area and outside.
Note the particularly important role of the accountants PWC in elaborating this mythology through its “Total Tax Contribution” framework of spin – something that’s been described as ‘taxwash‘ elsewhere and involves taking every single tax they can think of (such as air passenger duty) that has some claim to the financial sector, then claiming it as its own. The financial sector ends up, the report adds, accounting for just 7.5% of government tax revenues – an astonishingly low figure given the profits of the sector. Why so low? Well, an important part of the reason is the character of Big Finance in London:
Tax avoidance was embedded in the character of the financial markets built as instruments of regulatory circumvention and tolerated in the governing of the City state after Big Bang.
There’s a nice section of the City of London Corporation, which it notes has
“reorganised into a systematic lobby for London finance.. . . London finance thus entered the crisis of 2007-8 with a lobbying operation which, in its professionalism and command of resources, was vastly superior to that commanded in similar earlier crises, such as the secondary banking crisis of the 1970s.”
There’s lots of discussion of the neutering of radical reform proposals, the expanding role of the UK Treasury (something I didn’t significantly document in Treasure Islands) and things such as the creation of UK Financial Investments, which its founding chief executive John Kingman described as being an ‘arm’s length’ institution:
that is, an institution operating at arm’s length from the democratic state.
There’s plenty on “the rise of a financial nexus between the leading parties and City interests,” the neutering of opposition to the City even inside the supposedly left-wing Labour party, and particularly on the Conservative Party, whose traditional financial reliance on grassroots contributions has withered while finance now accounts for over half its funding.
And then, of course, there is a further conclusion – dovetailing closely with my analysis:
the entrepôt trade in money has created something rather like an offshore financial centre which just happens to be located not on a sandy Caribbean island but on the banks of the muddy Thames; unlike Caribbean offshore centres, London imported migrant labour to fill low-pay, low-skill jobs, as well as well-paid expats for executive positions in and around finance.
And after all this damage wreaked in London – let’s not forget the harm caused to the citizens of other countries by “light-touch London” (something that Tim Geithner recently called ‘tragic’)
A fascinating and urgently important report, adding a trove of detail and academic research to the material presented in Treasure Islands. The conclusion? There are many, but I’ll select this one:
The idea of acting against plutocracy becomes increasingly politically unthinkable for the interconnected reasons described above.
Which is of grave concern for the citizens of the world as a whole.