“Black Monday” must remind Labour’s would-be leader that when the world stops trusting you, it can ruin you

When a delegation of RBS executives visited the Treasury in October 2008 to reveal how precarious their liquidity position was, chief executive Sir Fred Goodwin was said to have been struck into silence for hours, alone and palely loitering. The man who had been known across the banking sector as one of its most strident and outspoken figures – with the salary and status to match – was struck dumb by the brutal verdict of world markets on his institution. A last-minute attempt to raise £7 billion worth of capital on the wholesale markets failed because the world’s markets were no longer interested. They had stopped listening.

“Black Monday” and the crisis of investor confidence in China reminds us, as in October 2008, that the power of financial market forces to pass the swiftest and most damaging judgement on global institutions, governments and the most powerful individuals is undeniable. It is no exaggeration to say that in a globalised world – which we as Labour Party members must surely support – any government can live or die based on that judgement.

The Kent Brockman-esque prophecies of doom from Damian McBride notwithstanding, it is worth remembering that it is not quite the time to start smashing windows and hoarding grain. The Black Monday of 2015 is a far cry from its catastrophic namesake in 1987. The long-term effects are of course still unknown, but markets are recovering capital almost as quickly as they were losing it. Yet crucially, the mighty People’s Bank of China stands humbled in the eyes of the world.
Those four who seek to lead our party from the nowhereland of opposition back into relevance must remember these market forces are not something to be debated away or ignored. When over $5 trillion per day is changing hands on foreign exchange markets alone, your feelings or mine on the evils or otherwise of flexible, global capital ceases to matter. The world’s vote of confidence in a government’s policies is vital. It was that confidence that enabled a Labour Government to recapitalise our own failing institutions and to save us from a potential disaster over 2008-09.

If our next leader is to be seen as a credible potential Prime Minister, leading an alternative government in waiting, these lessons from history must not be forgotten. As party members we have the right to demand high standards from our would-be leaders, and the country has the right to expect any economic policy put forward by a Leader of the Opposition to be one that would withstand this toughest of tests. Sadly we have not been well-served over the last three months.

In particular, the failure of two former Chief Secretaries to the Treasury of all people to set out consistent and credible positions on where they stand on fiscal consolidation, or on what effect they believe next year’s probable interest rate rise will have, is indicative of a cowardice that would not serve either well in the leadership. Similarly, the proposal of a “People’s Quantitative Easing” programme would inevitably be rejected by the same markets that would need to be used to fund and secure it; such a break in a central bank’s responsibility of restraint would ensure that this rinky-dink solution would be run aground before it even began.

On 12 September, when the Labour Party elects the 18^th man or first woman to lead it, we must make it clear that we are not going to have a bar of any rinky-dink solution. Whether we like it or not, Black Monday reminds us that in today’s globalised world, it doesn’t matter how good your intentions are or how pure your ideology is. If the world decides that it doesn’t trust you, then it can ruin you.

Sam Mannion is an adviser in the City of London on capital and wholesale markets, derivatives trading, and infrastructure, and has been a member of the Labour Party since 2008