It’s been a crazy week for international relations, with a whole series of important meetings and agreements. Some of them are real breakthroughs, like China’s new ambitions on climate change. Others are less noble, in particular the US and the UK objecting to reforms of the banking system. The sight of our government standing in defence of big bonuses and hedge fund deregulation is pretty dispiriting.
The reason for it is fairly simple though: Britain is hugely dependent on the City. Financial services have become increasingly important to the economy, at the cost of other things. We talk about the decline of industry, but it’s not so much that our industrial output has shrunk. It’s more that it’s stayed roughly the same while finance ballooned, and traditional industry is now a smaller percentage of the overall economy. The discovery of oil in the North Sea created a large flow of money into the economy, and that new wealth was put to work in investment. Huge programmes of deregulation were then driven through to make the most of the trading/gambling, spinning that cash injection out into derivatives. Thirty years down the line, 30% of our economy is now made up of insurance, currency trading, accounting, futures and commodities.
This makes us very vulnerable. Unlike factories and farms, banking services are pretty mobile. It takes decades to build up the expertise and credibility to run a major service economy, but it can be destroyed in a matter of hours. All it takes is enough people to lose confidence and move their money, and you’re left with nothing.
Since we’re in a recession, everyone is working flat out to restore growth, that old habit. Right before the wheels came off in the summer 2007, half of the economy’s growth was in financial services. In order to end the recession therefore, Gordon Brown has to do everything he can to smooth the City’s operations. No matter how unpalatable it may seem, to regulate the City and ban bonuses would be to bite the hand that feeds us.
That’s the dilemma of the British economy in its current state. The same reckless, greedy, arrogant behaviour that nearly destroyed us is also our only hope for recovery. Brown will take the political flak for it, but David Cameron or Nick Clegg would be doing the same thing. We have no choice, as long as the economy is configured this way. Anything that threatens money-making in the City, no matter how reckless it might be, threatens the whole economy. Our politicians will continue to fight the corner for greed and inequality, because that’s the only option open to them. It will mean more debt, more instability, more social fragmentation, and more enviromental destruction, and only speed the inevitable undoing of our unsustainable way of life.
We urgently need to break this dependence, or it will empoverish us all. We should be diversifying the economy. We need apprenticeship schemes that will rebuild our national skill base. A local farm outside Luton has to employ Kiwis or South Africans, as there are no young people in the area who can handle cattle. We must grow more of our own food, and build resilience in local area. Tied to so much debt and speculation, our currency is very vulnerable. We need to reclaim the money supply with local currencies, smaller banks, co-ops and credit unions. And above all, we need to let go of the whole idea of endless economic growth.