The real Balls-up in the British economy
So what if Ed Balls didn’t directly okay Libor-fiddling at Barclays. He, with others, definitely helped screw up both the economy and society.
UK shadow chancellor Ed Balls’ fist-shaking denial of involvement in the Libor rate-fixing scandal will surely go down as the least convincing plea of innocence in parliamentary history. For while it may be true that Balls, while he was City minister in the Gordon Brown Labour government of 2007 to 2010, didn’t give an explicit nod of approval to Libor-fiddling, it is undeniable that he and other politicians helped create the climate of financialisation and easy credit in which such fiddling became commonplace. For Balls now to claim that he had nothing to do with Libor tweaking is a bit like a pyromaniac saying, ‘Yes, I burnt down the house, but I didn’t burn down the dog’s kennel’.
The Libor row captures beautifully (or rather scarily) how narrow and unenlightened the debate about the British economy has become. After the US and UK authorities fined Barclays Bank £290million for manipulating the London Interbank Offered Rate (Libor) between 2005 and 2009, the debate has focused on which politicians knew about this instance of reality-manipulation, this attempt to create ‘an illusion of stability’, and which did not. In this week’s Spectator, Conservative chancellor George Osborne says Balls, his Labour counterpart, knew all about Libor tweaking, while Balls says this is a lie that has ‘impugned his integrity’. Both the Conservative and Labour parties are now trying to distance themselves from the Barclays debacle by issuing back-of-a-fag-packet policies for how to ‘tame’ the out-of-control banking sector.
The media and radical activists are going along with this ‘politicians shamed by bankers’ script, where the bankers are depicted as greed-driven destroyers of both Britain’s economy and reputation while politicians are let off as, at best, being ignorant of the bankers’ misdeeds or, at worst, being foolishly tolerant of them. What this overlooks is the key role played by the political class over the past 30 years in the creation of our increasingly financialised economy, in the creation of an economy based on easy credit and financial speculation over anything more substantial. Indeed, it is far more accurate to attribute the rise of this ‘casino economy’ to the extreme short-term opportunism of the likes of Balls and many other Labour and Tory politicians than to attribute it to the avarice of red braces-wearing rich boys.
The reporting of the Libor scandal has been squeezed into the same ol’ morality tale that has been wheeled out again and again by both mainstream and radical commentators to explain the economic crisis – namely that it springs from our failure to restrain free-market fundamentalism and the subsequent rise of ‘neoliberalism’. So one commentator says the Libor scandal is yet further evidence of the continued existence of the ‘neoliberal ideas that sank the nation over 30 years ago’. What this political fairytale conveniently – some might say madly – overlooks is the fact that neoliberalism in Britain is a myth; the idea that the free market ran wild over the past 30 years is a fallacy. In truth, state expenditure played an enormous role in the British economy, and in other Western economies, from the 1980s through to today, and the state expanded hugely during this period.
It is a strange ‘neoliberal era’ in which state expenditure rises from £103.9 billion to £703.4 billion. That is what happened in Britain between 1980 and 2012. If Britain really had experienced a period of unleashed free-market fundamentalism from the Thatcher era onwards, you would expect that the percentage of its gross domestic product that went on state expenditure would decline. But in fact it has remained remarkably high from 1980 through to today. By 2007, state expenditure accounted for almost 45 per cent of GDP. The reason that the Thatcherite deregulation of the finance and banking sectors could for the past 30 years coexist very neatly with the expansion of the state is because these two things were intimately related – it was the political elite’s cynical, self-serving deregulation of the financial sector that allowed it to boost public expenditure.
From Thatcher’s deregulation of the financial realm to the Blair and Brown Labour governments’ fawning over the City (Brown publicly congratulated bankers in 2007 for creating ‘a new golden age for the City of London’), successive governments okayed and flattered the behaviour of the financial sectors because they benefited enormously from it. The explosion in credit allowed governments to indulge in huge-scale borrowing and also provided them with tax revenues, permitting the extension of public expenditure. Britain’s recent era of living like parasites off borrowed wealth was as much down to decisions taken by various politicians and parties as it was to any ferociousness on the part of the market. To lay the blame for the expansion and subsequent collapse of cheap credit at the feet of avaricious, Bolly-swigging financiers is to overlook the key way in which the political class and the public sector sustained themselves through the borrowing and revenues afforded by that credit over three decades.
So what we saw alongside the financialisation of the economy was the growth of various state activities, including, naturally, increased state interventions into our lives. There were huge increases in spending on health and welfare in particular. Healthcare spending rose from £11.8 billion in 1980 to £29.3 billion in 1990 to £118.3 billion in 2010, while welfare spending rose from £24.4 billion in 1980 to £52.8 billion in 1990 to £106.7 billion in 2010.
It is important to note that this increased spending on the ‘welfare’ of the public was not simply about meeting the needs of the poorest and weakest, as all civilised societies ought to do, but also about expanding the culture of welfarism into more and more areas of everyday people’s lives, from our parenting habits to our therapeutic wellbeing. Hungry to expand the state, and with the financial means to do so, the political class pushed further and further into the minutiae of our communities and our daily existences. Such high levels of state expansion would not have been possible without the deregulation of the finance sectors and the political green-lighting of the heightened flow of easy credit.
What this means is that alongside deregulation there was the creation of very well-funded, very cushioned public-sector clique. The beneficiaries of the era of easy credit were not only bankers but also the political class and a vast swathe of the middle classes, those huge numbers who came to be employed by and representative of the state. This means that today’s anti-cuts campaigning is not nearly as politically uncomplicated as observers would have us believe. It is presented to us as a straightforward case of left-leaning public-sector bosses and workers fighting against an evil Tory government’s axe-wielding desire to cut, cut, cut. But in truth, Britain’s massive public sector, the expansion of the state into both the market and life, is itself a product of the political elite’s cynical living off of borrowed credit. So the current public-sector fightback against the Cameron government’s cuts often comes across less like a radical stand against government, and more like an attempt to protect the privileged public-sector patch, to preserve this well-oiled part of the state and its mission to govern and nudge Joe Public’s life. This is not necessarily a desirable thing, both because much of this part of the state is built on nothing, on revenues from easy credit, and because much of its raison d’être is to extend into more and more areas of twenty-first-century life in order to justify its existence.
This is not to say that loads of public-sector workers should be thrown on to the dole. It is simply to point out that the current script for explaining everything from the crisis itself to something like the Libor scandal as the workings of greedy bankers is insufficient to say the least. Britain has been screwed over not only by financiers and traders, but by the political class that promoted financialisation for short-term gain and by the beast of a public sector, much of it unnecessary, that grew from this process. It isn’t only the bankers that we the people should be railing against in our struggle to understand and potentially remedy the recession.
Brendan O’Neill is editor of spiked. Visit his personal website here.