If you have not yet read Too Big to Fail, by Andrew Ross Sorkin, buy it now. The book – an account of the downfall of Bear Sterns and Lehman Brothers – explains the credit crunch in a clear way and reads like a thriller. It’s the best business book since Liar’s Poker or Barbarians at the Gate.
I’m reading it at the moment and it is a stark account of how unfettered casino capitalism nearly brought the financial system to its knees. It’s also a reminder of why politicians are so keen to rebalance the UK economy away from the City of London and towards regional industries.
Vince Cable was the most outspoken when – in his conference speech – he decried City workers as “spivs and gamblers“. Other ministers have followed suit in more moderate language.
The only problems with this admirable desire is that a] The City still accounts for a huge proportion of UK GDP (and jobs and tax take), b] Labour spent a decade trying and failing to revive industry, with manufacturing declining faster than it did under the previous Tory administration and c] There is little or no money left to subsidise ailing or fledgling industries in the regions.
It is a circle which will be very difficult to square.
Mark Field, the Tory MP for Cities of London and Westminster, will tomorrow make a speech insisting that financial services is Britain’s most successful industry and ministers are therefore making a grave mistake by making frequent criticisms of the City. He will warn that his own colleagues are “fooling ourselves that a miraculous rebalancing of economy will occur by default.” The word “rebalancing” is being used as a code for banker-bashing, he will say.
His message to the government: “It is not for the government to pick winners and losers or indeed to prop up losers and penalise winners.”
The speech is likely to irritate David Cameron, who only last week was making his pro-business pitch to the CBI and the airwaves, promising to “unleash a new economic dynamism“. The prime minister wants Britain’s economic growth to entail wind turbine factories and high-tech incubators; not more of the same old banking.
In fact he used his first major speech as prime minister to make the point, in late May:
Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East. This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.
We are determined that should change. That doesn’t mean picking winners but it does mean supporting growing industries – aerospace, pharmaceuticals, high-value manufacturing, hi-tech engineering, low carbon technology. And all the knowledge-based businesses including the creative industries…it does mean having a plan to breathe economic life into the towns and cities outside the M25.
The prime minister asked: was it was possible to “rebalance economic power across our regions, across different industries“? Now one of his more articulate backbenchers is saying: maybe not.
Here are the key extracts from the Field speech, to be made in Westminster Hall tomorrow:
Amidst feverish analysis of the size, scope and impact of the government’s chosen spending cuts, a fresh debate is emerging about the desirable blueprint for Britain’s economic future.
Such is the near universal distaste reserved for financial services that a determination no longer to rely on its economic contribution seems one of the only certainties in these discussions.
As a result, ‘rebalancing’ is the new economic watchword. For sure, the financial crisis painfully highlighted the UK’s dependence on the City and our collective exposure to the risks taken by the global banking fraternity. My worry is that it is being used as code – even by Conservative coalition ministers – for a playing to the gallery as part of the general banker bashing sentiment.”
The confused strategy we are taking towards the financial services sector is of no benefit to the government, the banks or the public. In essence we are penalising our most competitive sector while fooling ourselves that a miraculous rebalancing of economy will occur by default.
We should not assume that developing countries will start to spend their savings as the Western world weans itself off debt and consumption. Britain is just one nation that has been pinning some of its hopes on export-led growth. But despite the 20% depreciation of the pound, the UK’s trade deficit has continued to widen. Meanwhile, with uncertainty infecting the financial system, British corporations have shown little appetite for expansion any time soon as they accumulate cash cushions instead of investing.
It is not for the government to pick winners and losers or indeed to prop up losers and penalise winners. The continuing attacks on our financial services sector no longer serve any purpose. Four-and-a-half years from the next General Election, the government should have the confidence to say so.