The days of panic last September as HBOS and RBS imploded are still vivid in the mind; as is the floundering of policy makers, politicians, regulators and bankers when the intellectual roadmap that had guided them for 30 years disintegrated in the unforgiving wind of global deleveraging.
A year on, the impact on workers, firms and communities is manifest. The real economy had been suffering since the credit crunch began in late summer 2007 but the events of last autumn accelerated and intensified the downturn. ILO unemployment has risen by 75,000 in Scotland over the year to June. In some local areas the rise in youth unemployment is of a rapidity and scale to justify fears that a repeat of the social calamity of the 1980s recession is imminent.
In a meeting with the first minister, secretary of state and CBI this week, I described the STUC’s current outlook as “reluctant pessimism”. With bank lending to business unchanged on a year ago, historically weak business investment, wage and debt deflation and the full impact of the unwinding of consumer debt yet to be felt, it was impossible to share the “cautious optimism” of others round the table.
I’m also sceptical that the others share the STUC’s impatience at the lack of progress on regulating the banks. Indeed, the timidity and credulity of the political class in the face of bankers’ special pleading continues to depress. Grandiloquent denouncement of “spivs and speculators” and of casting traders into “the hellfire” did not, unfortunately, presage a coherent political challenge to the conventional wisdom which, incredibly, still dictates that what is good for the City is good for Britain. Every emerging green shoot is seized on as if to say – don’t regulate; leave the banks alone!
Only Adair Turner has grasped the mettle with sufficient vigour. The hysterical reaction to his call for a Tobin tax on financial transactions and description of much City activity as socially valueless may have been predictable but it was revealing nonetheless. Wholly unabashed by the events of the last year, Angela Knight of the British Bankers’ Association claims that a Tobin tax would be tantamount to saying that “we do not want to have an international, competitive, industry here”. She went on to argue that “we will do to financial services what we have done to manufacturing and engineering in the past and that is have it as a minor industry and lose it to others”.
The failure of the UK financial sector to support manufacturing with the patient, committed capital it requires to flourish is of course shamelessly overlooked. You have to admire the chutzpah.
Nothing reveals the reticence of government and the arrogance of bankers more than the thorny issue of pay and bonuses. John Varley, Barclays’s CEO, and others have invoked the football analogy to justify massive rewards: like Alex Ferguson, Varley must be able to attract and retain the best talent or his team will fail and we, the supporters, will ultimately lose out.
In this, as in so much else, the bankers take us for fools. Let us for a moment ignore the immediate objection that we’re still in the midst of a severe recession caused by the best talent and interrogate the analogy.
When I pay to see a game of football, I am able to judge the quality of the contribution made by individual players by the evidence of my own eyes. My assessment may be subjective but the process by which it is arrived at is utterly transparent. If I witness our centre forward score a hat-trick, I can be pretty sure he has contributed significantly to the team’s performance because the objective of the game is simple – to score more goals than the opposition.
A banker, however, can receive gargantuan bonuses on the basis of goals scored which are subsequently revealed to have been against his own side. When a football club struggles to pay its bills, the impact on other teams is limited. When things go wrong in the banking sector spectators have to pay a wad of cash to exit the stadium – even if their team wasn’t playing.
Hope remains that the plethora of ongoing consultative activity at Scottish, UK, European and global level will result in transformative change in the way remuneration is handled and banks regulated.
The STUC will set out in detail the principles we believe should underpin a new regulatory settlement in our submissions to current consultations. Fortunately, the Scottish parliament’s economy committee has wisely chosen to focus its inquiry on the future and in particular on those areas where devolved responsibilities can make a difference. Simply revisiting ground already extensively covered by the Treasury select committee would not have been fruitful.
Whatever a new regulatory settlement looks like at UK, European and global level, it will fail unless government and regulators adopt a more sceptical line. The group think which led to the credit and housing bubbles must be resisted. Therefore it should be recognised that regulation overseen only by technocrats and industry insiders simply invites industry capture. Is it too radical to expect trade unions and civic society interests to have a place on the boards of regulatory institutions? Or is it too dangerous to keep them out?
Stephen Boyd is assistant secretary of the STUC
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