Corbyn ought to recruit City bankers to serve the Red Flag
Hats off to Jeremy Corbyn for confronting his critics head on. His cheeky little video lambasting the City as “speculators and gamblers who crashed our economy” brought a smile to my breakfast of Tory porridge (with Kentish honey and walnuts).
Some politicians would have ducked for cover after Morgan Stanley warned that a radical Left-wing lurch under Red Labour is “much more scary from an equity perspective than Brexit”. Corbyn seized on it.
“When they say we’re a threat, they’re right. We’re a threat to a damaging and failed system that’s rigged for the few,” he said. We are coming after your casino and your bonuses, and we are going to break your cartel. How refreshing.
As it happens, Corbyn was responding to a news story that I wrote earlier this week after having breakfast with Morgan Stanley at Canary Wharf, so let me add my thruppence to the debate – bearing in mind that the UK is not my brief (I cover the world economy).
In fairness to Morgan Stanley, we were just chewing the cud. There was no conspiracy by the American bank. Several of its key analysts are German. Labour’s own Alistair Darling is on the bank’s board. Over the last two years political events have led to drastic moves in stocks, bonds and currencies around the world. Every financial institution in the City is crunching the numbers on Corbynista political risk. They have to.
Most of the City banks are not British. They are American, Canadian, Japanese, Chinese, Saudi, Russian, Brazilian, or French, German and Spanish. They can decamp frighteningly fast – with their share of the £72bn of annual tax revenues from the sector – to hubs that love them more.
Like it or not, pre-corbyn capital flight is already under way. The sterling exchange rate no longer tracks the oscillations of optimism and pessimism over Brexit as it did before the calamitous elections in June. These days it also tracks the ups and downs of Corbynism, and the odds of Theresa May’s survival. This is what I meant in evoking the “red scare” that gripped French investors before Leon Blum’s Front Populaire swept to victory in 1936 and overthrew the reactionary order (rightly so in his case, since he broke free of the deflationary Gold Standard).
Supporters of Corbyn may protest at such a suggestion, but if you open your ears at Sweetings in the Square Mile, or Café Brera at Canary Wharf for that matter, you will hear these lamentations sotto voce. Will there be capital controls? Will there be outright wealth confiscation? That is what people are talking about.
Yet Corbyn is right about a lot of things. Austerity was pushed too far by George Osborne, our own Wolfgang Schäuble. Fiscal contraction went beyond the therapeutic dose. It was therefore self-defeating in macroeconomic terms – i.e. the public debt ratio would have stabilised faster with fewer cuts to public spending. The paradox is too subtle for some minds to grasp. But the Keynesian Left is broadly correct on this point.
Austerity overkill was of course far worse in the southern eurozone where Schäublerism was imposed with ferocity (and two Eu-orchestrated coups d’état), without the monetary offset of quantitative easing (until 2015). But that is no excuse.
We are a sovereign country and not constrained by the primitive idiocies of Europe’s monetary union. It was clear by 2012 that the debt markets were willing to tolerate higher public spending. The Osborne cuts hit the public investment so needed to raise productivity and lift the British economy off the reefs.
The Corbynista plan for a radically different economic vision has merit. Some call it the Venezuelan model, but you could equally call it the Chinese model, and then the laughing stops.
It makes perfect sense to create a public investment bank for infrastructure projects that pay for themselves over time, and can issue bonds that soak up excess capital
‘My advice to Jeremy Corbyn is to turn the City into an ally, or at least a tool of his larger purposes’
looking for a home. We should build our own nuclear power plants as a rejuvenating national endeavour rather than farming it out in a defeatist fashion, and at exorbitant cost.
If we find ourselves in another global recession with a Keynesian liquidity trap, we should certainly encourage the Bank of England to buy these infrastructure bonds as a form of “people’s QE”. Let us inject the stimulus directly into the veins of the real economy rather than stoking asset prices and widening inequality. Trickle-down QE has run its course. Not enough trickled.
But people’s QE is for emergencies. It should not be used in the late-cycle phase of an ageing economic expansion, with unemployment at the lowest levels in half a century and capacity limits all over the place. That way lies overheating and the Seventies disease. The shadow chancellor must clarify his timing.
My problem with Corbynism is that the good is mixed with the crazy, and fears of the crazy will overwhelm all else. It is facile rhetoric to bash bankers. They did not “cause” the global crisis in 2007 and 2008. That is a fiction created by self-interested parties: the central banks who created the imbalances over 20 years of Wicksellian abuses (the BIS critique); the regulators who allowed foolish pathologies to run unchecked; bodies like the International Monetary Fund that were asleep at the wheel; etc, etc.
They all have a vested interest in finding a scapegoat, and scapegoating is an unpleasant reflex in the hands of populist politicians. It should always be condemned.
What is true is that certain bankers, private equity groups and assorted miscreants behaved very badly. They misused leverage in a dangerous fashion, just as they are doing right now. But in a systemic sense they were merely agents of larger forces. This is what happens when you have excess global liquidity, ultra-low interest rates and the exogenous monster known in global-macro as the “Asian savings glut”.
Most people in the City behaved and behave today as well as the population at large – no better, but no worse either. They do their jobs. They come from all over the world, brimming with talent, and they butter a lot of turnips just when we are short of butter. We lose the City at our peril. It may or may not survive a Tory Brexit unscathed but it will certainly not survive a Corbynista version of Brexit with surtaxes, Tobin taxes, capital flight, and stuffed dungeons in the Tower of London.
My advice to Corbyn is to turn the City into an ally, or at least into a tool of his larger purposes. Bankers with global reach are precisely what he needs to make his dreams possible.
So cut out the nonsense and fix on the essential. By all means nationalise any particular water, rail or power company that has abused public trust and failed to invest – if that is genuinely the case – but do not terrify the capital markets by going after everybody with a sledgehammer.
Behave like a national leader, not like a bomb-throwing backbencher with the perennial urges to tear down the system. If he acts like Nelson Mandela – rather than Robert Mugabe – we may all calm down and learn to love the Red Flag.