Now, I’m no economist. I can’t claim to have studied either the science of money or the economic machines of the world. But I am, I like to think, blessed with common sense and a basic understanding of how free market capitalism is supposed to work.
As the EU works towards creating laws to limit bankers bonuses and ring-fence the banks, once again we hear the cry of how unthinkable it is to regulate the this industry. How that without constant and guaranteed bonuses for those at the top, regardless of merit or success, those who run our banks will flee to other countries without these rules, and leave us helpless. Bigwigs from the City, and those politicians who rely on them, seem certain that any change to the current system will lead to the destruction of our already broken economy.
But that’s just it, isn’t it? Our economy is already broken. The fact that the global economy went into the worst crash since the Great Depression, causing our country to go into a double-dip recession, and the banks that caused it had to be saved with public money to save the whole thing from getting evening worse, must surely be a fact that those people making all the noise about regulation are people who have demonstrated that they cannot run an economy. Why would we listen to these people when discussing how to fix one?
And frankly, if these people are truly willing to move another continent because of a law that limits how much money they can personally skim off the top, then I don’t want them to be handling my money. The so called “Top Talent” that politicians seem terrified will leave us are the people who oversaw the biggest market crash and economic downturn in living history. To put it bluntly; they failed.
If the new regulations that come into force are too much for them, let them run to New York or Hong Kong. Let other countries gloat that their financial capitals surpass London for a short while. In ten or fifteen years time, when the next economic bubble bursts and millions in those countries are thrown straight back into the poverty they were so precariously floating over, we can gaze smugly at them from our secure, regulated economy and ask them how their laissez-faire policies have worked for them.
And if they all leave, running to the promised lands of lower tax and fewer regulations, are there not people really and willing to step up and take over? Doesn’t the financial industry have a lower rung of people eager for promotion, and likely more than willing to accept new regulations in exchange for the chance to step over the fallen careers of those who came before? When you picture people who go into banking, it does not conjure up images of sentimentalists willing to sacrifice their own prospects to stay loyal to a former boss.
Part of the problem is a tendency towards hidebound opinions. Boris Johnson’s wonderfully antique attack on attempts at regulation being “the worst since Diocletian” is the perfect example of the sort of people who are so stuck in the classical mindset and unable to accept new ways of thinking. He epitomises what it wrong with the top echelons of an industry and culture that refuses to accept a necessary change, as they are personally doing so well out of the old way..
Sometimes, when you are so deeply immersed in a subject it can be almost impossible to see a wider picture. Change is hard, but sometimes you just have to face up to it and what we need now is a change in the political mindset.
I am not, in principle, against free market capitalism. Unfortunately the very nature of capitalism is to beat the free market, otherwise we wouldn’t have a need for such things as monopoly laws. In any system where the absolute mark of success is measured in profits, the making of said profits trumps all other concerns.
When a company is so badly run that it collapses, as our banks have been, then it should be allowed to collapse. This simply makes sense, as it will be a demonstration for future generation on how not to run a business. However some industries are vital for the running of society, and therefore should not be allowed to be left to the whims of those who have an interest in risking all in the name of profit. This is what government regulation should be aimed at doing; identifying which services cannot be allowed to fail, and removing them from the free market completely.
There are certain things in life that are not optional; basic utilities and services such as water, power, transport and banking are a necessity in modern life, and if we lost these then society would in affect collapse. Often, there is little choice about where we get these amenities from. I have no choice where my water comes from; I can’t judge by water supplier by switching to a different set of pipes. If I want to take a train I can’t choose from several that all travel the same journey. I don’t have the choice to boycott a back water or rail company, I cannot use my money to express my opinion, and therefore they are immune to the free market. In cases like this, there must be government regulation to protect me. I am not saying that those companies should not be allowed to make profits, but there should be a legal mandatory level of service they have to provide before they can, and I should be safe from having my services cut below that standard just so the company can increase their profit level.
The banks need to be run this way. They can make their huge profit, which of course was the original intent when modern banking was invented back in the sixteenth century, but only once the economic safety of the country is ensured to a level set by the government to protect the people they were elected to serve.
Basically, if your company is “Too Big To Fail” then it is too big for the free market.