Labour needs to take a lead on the ‘socially useless’ parts of finance

By Peter Barnard

Lord Turner, Chairman of the FSA, despatched a cat towards some plump pigeons in the City of London this last week when he was quoted from a seminar with Prospect magazine as thinking that some of the activities in the City of London were ‘socially useless’ and, furthermore, proposed a tax on financial transactions in London.

I’m not so sure about the tax proposal but I am certain that a substantial part of what occurs in the City of London, by way of ‘business’, is indeed ‘socially useless.’

Labour, so far, has pussy-footed around as far as ‘the City’ is concerned: fine-tune a regulation here and there; try to (ridiculously) cap bankers’ bonuses; Lord Turner (albeit not government but head of a government agency) proposing a tax, when what is actually required is an axe swathing through all the ‘socially useless’ activities; prohibition within these shores of deposit-taking and retail institutions, eg Life Assurance companies; engaging in all the derivatives nonsense, CDOs, CDOs (squared), CDSs and whatever else ‘rocket scientists’ in the investment banks can come up with.

One of the myths surrounding the City of London is that it is ‘wealth creating.’ Nonsense – it takes money in at one end, discharges money at the other end and takes its ‘croupier’s cut’ in between.

Let me provide an example. Oil is traded in ‘lots’ of 1,000 barrels, i.e. one contract is a ‘lot’ of 1,000 barrels. A number of years ago, there was a story on the front page of the Financial Times where one ‘lot’ of Brent crude had gone through more than 140 ‘trades’ between the producer and end user. Not one of those ‘traders’ in the ‘Brent crude market’ had added a penny of wealth to the 1,000 barrels – the wealth was created by the labour and capital employed (itself a product of labour) in producing the oil out of the ground in the first place. Not a Joule of energy was added, by the traders, to the original 1,000 barrels – but they all ‘made money’ from their activities. Well, if that’s ‘wealth creating’, I expect a pig with wings to land on my lawn in the morning.

Of course, Labour in the United Kingdom, on its own, cannot straighten out the ‘masters of the universe.’ The Americans will have to be brought on board, but President Obama and Federal Reserve Board Chairman Bernanke will find plenty of sympathy on Main Street if they get their act together. However, now that Lord Turner has mentioned the unmentionable, Labour should not miss the opportunity to run with the idea of ‘socially useless’ activities.

There is a wonderful extract from a book called Where are the Customers’ Yachts, first published in 1940:

“A man’s funds are only less important to him than his health and his rights. For their protection he can hire the services of a doctor and lawyer, and he can be assured of some reasonably competent assistance…For his plumbing problems he can hire a plumber and be certain of help. Why can’t he, through the device of the investment trust, hire a little competence on the money problem?” My own guess is that he can’t, simply because there is practically no competence to be hired.”