meIt has been a week of firsts in British politics. The country has rightly celebrated having its first Hindu Prime Minister of Asian heritage. A rather less prominent milestone, however, is that Britain also has its first investment prime minister.
Rishi Sunak’s first job was at US investment bank Goldman Sachs. He spent 14 years in the sector before becoming an MP. In many ways, his unelected appointment marks the peak of the takeover by big finance of Britain’s political and economic system: a quiet infiltration of Westminster and Whitehall that has been going on for several decades and has not been largely observed.
Historically, the square mile played an important role in British politics, economy and empire. It is well known that Thatcherism later broke the corporatist model of economic management. The role of trade unions, British industrialists and the UK state was to be significantly reduced. What was not clear was what would replace them. Looking back now, it’s clear that big finance was involved.
This was because many of the key players in the Conservative cabinets of the 1980s came from the financial sector. Norman Lamont spent years at the investment bank NM Rothschild and Sons. Cecil Parkinson, who engineered the “Big Bang” that paved the way for the great expansion of the London Stock Exchange in the 1980s, had been a chartered accountant in the square mile. And Nigel Lawson cut his teeth as a financial journalist at the Sunday Telegraph and the Financial Times. Each has spoken of their careers in the City as more significant influences on their thinking than any academic economist. Many other Conservative ministers also moved from finance careers to the Treasury or the Department of Trade and Industry.
This was a key reason why most nationalized industries were not simply sold to the private sector, but were listed on the London Stock Exchange and transferred into the hands of City investors. It also explains why a series of tax changes and financial regulations favored big finance over manufacturing, and changes in corporate governance privileged “shareholder value” over everything else. Tax breaks and support were removed from industry and used to reduce taxes on dividends, sales of stocks and bonds.
When New Labor arrived, it didn’t have the same old financial networks to fall back on. But Gordon Brown and co also realized how crucial the city’s lucrative taxable income was to funding their spending plans. They also needed their knowledge to continue privatizing and of course promulgating PFI contracts. Thus, “light touch” regulation was implemented to keep the sector expanding. A steady trickle of financiers was drawn into government to facilitate all of this.
As for the coalition government, all the senior figures who managed the Treasury’s economic policy (George Osborne, Danny Alexander, David Cameron, Rupert Harrison, John Kingman and Nick Macpherson) later obtained well-paid positions in the financial sector. And three of the last five rectors have come from the sector. All of Jeremy Hunt’s current advisers come from investment banking.
This is important because investment bankers have very little to do with the real economy that ordinary people inhabit. They don’t do business. They do not deal with real product markets and customers. Their work is limited to the financial markets, assisting the financial maneuvering of companies and trading and managing their own financial assets. Their primary goal is to make a profit from these activities, regardless of how it affects the real economy, the national interest, or employees. If that means cutting the pound or breaking up a successful company for a quick profit, so be it.
In other words, what benefits big finance often hurts business and manufacturing in general. Consequently, since the 1980s, Britain’s industrial decline and its financial expansion have been as pronounced as in any leading economy. Productivity and levels of R&D spending also compare very poorly, because investors demand quick returns and rising share prices over long-term investment. Regional and class inequalities have grown more and more.
And a dominated financial sector has certainly not been conducive to good governance either. There is nothing democratic about using huge cuts in public services to pay to save the private banking sector, as after the crash of 2008, or bond markets determining the credibility of governments, or the fact that bankers and hedge funds are the most important. single source of Conservative party donations. Nor is confidence in British democracy likely to be improved by a super-rich prime minister who has allegedly avoided tax and made his fortune as a financier at the nation’s expense.
During Liz Truss’s brief tenure there was much talk of the power and influence of Tufton Street’s network of opaque right-wing think tanks. But in reality the long-term driving force behind UK economic policy, right there in front of us all this time, has been the City of London. It’s time to open your eyes and take a closer look.
Aeron Davis is Professor of Political Communication at Victoria University of Wellington in New Zealand. His new book, Bankruptcy, Bubbles and Bailouts: The Inside Story of the Treasury Since 1976, is available now.