Let’s tackle the unfinished business of the global financial crisis, a Consensus activist writes


Consensus Labour

Banks have never had the best of reputations, and the 2008 global financial crisis felt to many like the very last straw. But nine years later, the situation remains largely unchanged: people feel their very existence is at the mercy of banks, while in turn, banks’ profitability continues to be largely unaffected. Attitudes amongst the 99 per cent range from dissatisfaction to outright fury and hatred. Is our relationship with banking condemned to continue in this vein?

When a political party has lost two elections in a row, it is time to hit a reset button, take a step back from policy-as-usual, and consider carefully the full spectrum of existing policy options. This is also an ideal time to investigate the fundamental values underlying the status quo. So with banking — particularly as the crash has exposed the far right’s advocacy of extreme deregulation as an untenable position. But conversely, the far left’s demonisation of banking practice, while justified in sentiment, has not yet succeeded in bringing the responsible actors to account or creating a better-regulated and more responsible investment environment.

Moving towards the political centre, we find the Conservatives’ policy of moderate regulation — always slightly more concerned about disrupting a sector’s “competitiveness” on the global stage than with ensuring that the financial system truly works for everyone. And Labour’s position, last revised in 2015 under Ed Miliband, has historically fallen under the radar — either because Labour is not currently trusted on economic and financial policy, or because it remains too wedded to an us-versus-them narrative that obscures by moralising. The challenge for Labour today is not only to prove it has learned the lessons from the crash; it also needs to show it can penetrate the intricacies of global finance and communicate distinctive solutions. In the first instance, these solutions need to take account of the existing regulatory landscape.

Post-crisis regulatory measures have seen the establishment of the Financial Conduct Authority (FCA), a regulatory agency independent of the Treasury, which scrutinises the integrity of financial service providers. There are new liquidity requirements that prevent banks from borrowing money from volatile sources and then passing the risk on to its customers in long-term loans. And soon, banks will be required to ring-fence their public-facing retail operations from the riskier investment business they may be engaging in.

But the fear amongst voters and leading economists alike is that these regulatory measures were a bone thrown to appease the 99 per cent and divert media attention from a banking culture that remains largely unchanged. Ann Pettifor of Prime Economics, one of the few people to correctly predict the global crash, is already predicting the next one: “The liberalised global financial system remains intact and unregulated, if a little battered”. The subtitle of Professor Steve Keen’s blog “Debtwatch” tells us its ongoing mission: “Analysing the Collapse of the Global Debt Bubble”. And Sir John Vickers, who led the coalition government’s Independent Commission on Banking (ICB), recently expressed his dissatisfaction at the Bank of England’s capital buffers requirements, which he considers unambitious.

Meanwhile, experts eye the UK’s soaring personal debt, the predictable backlash of state-sponsored austerity measures, warily. The fintech industry boom, in turn, deepens concerns about shadow banking, whose interconnection with traditional lending risks a spillover of problems. Information remains asymmetric between finance providers, especially those developing new products, and consumers. There is an asymmetry, too, between agile financial innovators and central banks, feared to be too unwieldy to cope with rapid change in the sector. The problem of where financial responsibility lies, within this triad of business, consumer, and regulator, has not been resolved; if anything, the global crash has exposed the inadequacy of pre-existing categories like ‘public’ and ‘private’. Sector experts pass through revolving doors from working for regulators to regulatees and back again; and new regulation often only serves to inspire innovative ways of circumventing it.

Then there is the global level to consider: the very nature of global financial capitalism means that single countries, even single central banks, are restricted in how well they can protect their publics. In a time when unspeakable sums of money can be moved at the click of a mouse, very few are capable of understanding the complexities of the system, let alone controlling it. These factors combine with the cyclical nature of the financial sector to produce the perfect storm of volatility and risk.

Because the financial crisis occurred on Labour’s ‘watch’, and the Miliband leadership didn’t repel the Conservative-led narrative of negligence, Labour appears doomed in its relationship to the financial sector. But it doesn’t need to revisit the narratives of the past to shape the terms of the future.

The key questions remaining unresolved since the crisis are the very same questions that Labour could be best placed to answer. They look at where responsibility for financial decision-making lies; who should assume the risks of speculation before, not after, things go awry; what drives behaviour within financial institutions; and how this can be brought into line with the common good. Labour has been forced, by the desertion of its historical core vote, into taking steps towards fundamentally rethinking the way the economy works. In this, it is alone amongst the parties of government.

Since the crisis, politicians have increasingly been held accountable for the consequences of financial decisions, even if they are outside of their remit. As a result, banking regulation is one of the rare cases in which it would not be altogether bad for Labour to advocate intervening more strongly. Labour must shy away from the vices of the far ends of the spectrum — cosmetic and moralistic regulation respectively — and instead home in on the very purpose of financial market activity. In a sector that has proven the doctrine of pure self-regulation fantastically wrong, there is scope for politicians to assume the mantle of responsibility and reach a consensus about the sector’s relationship with the public good. This consensus would safeguard the UK’s leading position in the global financial industry, recognise the importance of financial services to economic growth and productivity, and at the same time ensure that the focus is always on people over profits.

Consensus will be exploring these questions over the coming months, beginning with tonight’s event on lessons from the global crash, featuring Professor Anastasia Nesvetailova, a specialist in the subject and a member of Jeremy Corbyn’s Economic Advisory Committee, and Peter Edwards, Editor of LabourList, ex-City A.M. journalist and former staffer on shadow Treasury team. In Professor Nesvetailova’s words, there is a sense of unresolved legacy to the global financial crash. And who better to tackle the consequences of the crash than the party which steered us through it in the first place.

Stefanie Lehmann is a founding member of Consensus and works in political and media consulting.

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