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Brown's Triumph Over Brown (October 2008)

This article was first published on The Guardian's Comment is Free

Scotland will not thank the prime minister for his efforts to 'save' its banking system


In 1975 two books came from the Scottish universities. The Red Paper on Scotland would establish the radical reputation of the student rector of Edinburgh, Gordon Brown; The Crime Industry by the Glasgow sociologist John Mack and his German co-author, Hans Juergen Kerner, would remain for specialists, with its argument that computers, tax havens and globalisation would blur the line between tough business practice and outright crime.

Thirty years later, little remained of Brown's radicalism, but the Mack-Kerner thesis bobbed, iceberg-like, ahead of his economy, powered not by industry but by the speculation of the United Kingdom of London.

‘Light-touch regulation’ stemmed from the Big Bang of 1986, codified by Brown's ‘liberation’ of the Bank of England in 1997. From it followed the noughties boom in the City. This was driven by American investment bankers, ‘Sarbanes-Oxley refugees’ on the loose from a Wall Street increasingly regulated after the Enron fraud. They were able to operate unchecked by competing British regulators who rarely got their acts together.

Investment banking shifted from handling the financing of industrial concerns to trading in ‘derivatives’ and ‘instruments’. Translated, this meant bundles of capital, some legitimate, some which had been inflated by loans to people who could never pay them off. Much of the last sort of finance had murky origins in the $1.3 trillion (and counting) returns of international crime. Bernard Shaw in Mrs Warren's Profession talked of the Church of England living on the profits of Mrs Warren's brothels. Brown was roughly in the same position, and for years he did little to remedy matters.

In his study of money-laundering, The Washing Machine, Nick Kochan wrote:

London increasingly looks like an offshore centre serving many dubious financiers while at the same time claiming to have regulations which put it among the world's top onshore jurisdictions …

Government has failed to invest in sufficient skilled law enforcement officers or regulators to curb its sprawling financial system. But this is no accident. The UK's economy cannot afford to curb its income from the ‘invisible’ financial sector while its industrial sector becomes anorexic.

The Tories haven't dissented, much of their funding coming from treasurer Michael Ashcroft's Belize ventures and various spread-betting wheezes. Nice Mr Cameron has been the PR front man of fringe finance, no more than that. The winners have long cleared off to their tax havens. Look at the City matadors of the late Thatcher or Major age. Where are they now? Nowhere near the place.

This was a culture in which fortunes were made selling packets of securities that only one or two nerds in a big bank could actually analyse. While the boom continued, happiness; when it failed – when actual houses in Phoenix or Greater Chicago couldn't be afforded and ground their 'owners' down – the derivative merchants clawed at one another in ‘shorting’ the stocks of troubled firms.

In September 2006 the Observer's Bill Keegan, last of the Keynesians, wrote:

All I can say is that at the World Bank/IMF annual meetings in Singapore last month, one needed several hands to count the number of people who were concerned about the possibility/probability of a great Regulatory Failure!

A year later, Northern Rock broke. The remedy: state intervention. In autumn 2007 Chancellor Alistair Darling threw a sum of money at the Rock that would have bought over the entire British railway system. He and Brown were therefore relatively practised when Wall Street hit its own iceberg and first Bear Stearns and then Lehman went down. The anticipation of slump spread from property to the entire economy and ‘cut and run’ pervaded the dealers, to whom property had become a burden. So Halifax, the UK got hit.

Brown thought he could do a deal with Lloyds TSB as Eric Daniels, its CEO (whose connections to Pinochet's Chile were as well-hidden as Brown's brother Andrew's position as chief PRO to Electricité de France, now owners of British Energy). But the City now tasted blood in the waters, like millions of potential house buyers in the suburbs who waited for their neighbour to drop the price of his place.

Result: UK investment banking followed its American counterpart into palliative care. Brown intervened with some aplomb, having nothing to lose. Further, by smashing the Scottish banking system, he might turn humiliation at the hands of the Scottish nationalists into a personal triumph. Alex Salmond needed his old employer, the Royal Bank, as an ersatz foreign office, powering his Economic Advisory Council under Sir George Mathewson.

So here we are in mid-October. Brown still fronts an economy in which only 14% comes from manufacturing, much lower than in Europe. Contributing little or nothing to renewable energy or sustainable transport, it is henceforth likely to contribute even less. Germany or France, with more invested in industry, and watching their market for Porsches, watches and cruise liners shrivel up, are still in the wings.

The whole thing might look – and the London press will make it look – like Scotland's second Darien disaster. But London's flawed financial elite stays in place – Stephen Hester, the new boss of RBS, is an iconic Tory Bourbon – and the condition of England has not improved. Industrial capital, however, remains powerful in Europe: the Norwegian oil fund, the manufacturing interests of the German regional banks. They must be appraising the offshore islands, matching decrepit infrastructure and disgraced management to energy potential.

Brown didn't take the Scots with him in his City commitments, and their banks were done down by a capitalism all too close to the Mack-Kerner model. His solution, "I value the Scottish banking tradition. I believe we can rebuild these banks' is shown up by Magnus Linklater's Times article as a lie: "They are now British, not Scottish, banks and their future strategy will be determined from the City of London, not Edinburgh." And the City whose credulity, greed and incompetence got us into this? After Brown's intervention, and in the light of his past policies, the Scots owe neither him nor the UK any loyalty – and the bank layoffs and surrounding depression haven't even begun.

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