It has been a week of firsts in British politics. The country has rightly celebrated the fact that it has its first Asian-heritage and Hindu prime minister. A rather less noted milestone, however, is that Britain also has its first investment banker PM.
Rishi Sunak’s first job was at the US investment bank Goldman Sachs. He went on to spend 14 years in the sector before becoming an MP. In many ways, his unelected appointment marks the highpoint of big finance’s takeover of Britain’s political and economic system – a quiet infiltration of Westminster and Whitehall has been taking place over several decades and gone largely unremarked.
Historically, the Square Mile played a big part in British politics, economics and empire. It’s well known that Thatcherism later tore up the corporatist model of economic management. The role of unions, British industrialists and the UK state was to be significantly rolled back. What was unclear was what would replace them. Looking back now, it’s clear that big finance stepped in.
This was because many of the key players in 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 huge 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 City careers as being more significant influences on their thinking than any academic economists. Many other Conservative ministers also went from finance careers to either the Treasury or the Department of Trade and Industry.
This was a key reason why most nationalised industries weren’t simply sold off to the private sector but floated 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 favoured big finance over manufacturing, and changes to corporate governance privileged “shareholder value” over all else. Tax breaks and support were removed from industry and used to cut taxes on dividends, share and bond sales.
When New Labour arrived, it didn’t have the same former financial networks to call upon. But Gordon Brown and co also realised how fundamental the lucrative taxable income of the City was for funding its spending plans. They also needed its nous to continue privatising and, of course, enacting PFI contracts. Thus, “light-touch” regulation was rolled out to keep the sector expanding. A steady trickle of financiers were lured into government to facilitate all of this.
Looking at the coalition government, every senior figure who managed Treasury economic policy – George Osborne, Danny Alexander, David Cameron, Rupert Harrison, John Kingman and Nick Macpherson – later gained well-paid positions in the financial sector. And three of the last five chancellors have come from the sector. Jeremy Hunt’s current advisers all come from investment banking.
This matters because investment bankers have very little to do with the real economy that ordinary people inhabit. They don’t run businesses. They don’t deal with actual product and customer markets. Their work is confined to financial markets, aiding corporate financial manoeuvres, and trading and managing their own financial assets. Their primary aim is to make profits from such activities, regardless of how it affects the real economy, the national interest or employees. If that means shorting the pound or breaking up a successful company for quick profits, then so be it.
In other words, what benefits big finance often hinders business and manufacturing generally. 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 compare very poorly, too, because investors demand quick returns and rising share prices over long-term investment. Regional and class inequalities have grown ever-larger.
And an overpowered financial sector has certainly not been conducive to good governance, either. There’s nothing democratic about extensive public service cuts being used to pay for saving the private banking sector, as in the aftermath of the 2008 crash, or the bond markets determining the credibility of governments, or the fact that the bankers and hedge funds are the biggest single source of Conservative party donations. Nor is trust in British democracy likely to be enhanced by a super-rich PM who has allegedly avoided taxes and made a fortune as a financier at the nation’s cost.
During Liz Truss’s short premiership, there was much talk about the power and influence of the Tufton Street network of opaque rightwing thinktanks. But actually, the longer-term driving force of UK economic policy, there in front of us all this time, has been the City of London. It’s time to open our eyes and look more closely.
Aeron Davis is professor of political communication at Victoria University of Wellington in New Zealand. His new book, Bankruptcy, Bubbles and Bailouts: The Inside History of the Treasury Since 1976, is available
at guardianbookshop.co.uk
