Stop banker-bashing and focus on growth

In: Uncategorized

13 Jul 2009

The following comment by me appeared in the latest Fund Strategy (13 July).

The government’s white paper on financial regulation is a dangerous distraction from the real challenges facing the economy. It is more an exercise in scapegoating bankers than getting to grips with Britain’s economic problems.

Nearly one year since the collapse of Lehman Brothers the government is persisting with the line that bankers were the main culprits in causing the ­crisis. Such an argument is convenient for politicians of all stripes, since it helps absolve them of responsibility, but it is far removed from reality.
Banks may have benefited from the financial game played until last year but the state authorities set the rules. In a desperate attempt to maintain economic momentum the authorities kept interest rates artificially low and therefore encouraged the consumer boom. New Labour also constantly lauded the City of London because it was desperate for the financial revenue the financial centre provided.

But the underlying problem was economic atrophy. Weak sectors of the economy were buoyed by state spending while new sectors were not encouraged. The virtues of growth were constantly called into question with the attachment to dogmas such as green initiatives and sustainability. What such concepts really meant, despite the confusing rhetoric, was that limits should be placed on economic growth.

This weak dynamic towards genuine growth was the true cause of the crisis. To the extent that there was growth, it was based on a consumer boom rather than real organic development.

The measures proposed in the white paper do nothing to tackle this problem. For instance, setting up a tripartite financial stability committee of representatives from the Bank of England, Financial Services Authority and Treasury cannot remedy the fundamental problem. Economic weakness cannot be resolved by slightly rejigging state institutions.

Indeed, the government is failing to recognise the gravity of the economic challenge. Recent figures show that Britain is facing its sharpest economic contraction in half a century, yet the government is still preoccupied with stabilising the banking system.

Eventually a recovery will come, but it is likely to be anaemic. The government must stop hissing at bankers and start tackling the urgent problem of ­economic restructuring.