Banker-bashing makes you go blind
Five reasons why it's wrong, and dangerous, to blame bankers for the crisis.
There is at least one area where mainstream politicians can legitimately claim considerable success: they have offloaded much of the blame for the economic crisis from themselves and on to banks and other financial institutions.
Much of the public has accepted the premise that greedy bankers were largely responsible for the economic turmoil that emerged in 2007-8. There is little discussion of the government’s role in creating the conditions for the financial crash, let alone any examination of the economy’s underlying weaknesses.
Criticism of the government’s economic policy is usually confined to it being heartless or ill thought out. Often the two are combined, in the accusation that the government is obeying the diktat of its banker friends by imposing cuts. Campaigners also often allege that a shady global financial network is the real power in the world. In this conspiratorial worldview, a labyrinth of offshore tax havens helps the rootless rich evade the power of national authorities.
This is the backdrop to the protests being organised by UK Uncut at several HSBC branches in Britain this weekend. In a self-styled ‘national day of action’, the protesters will call for the banks’ branches to be transformed into food banks for the poor.
UK Uncut operates from the premise that the government is going the wrong way about balancing its books. Rather than cutting public services, the government should raise more tax revenue from corporations and the rich, it says.
It also suggests that an another way to cut the fiscal deficit – the amount the government borrows each year – would be to end the state’s implicit subsidy for the banking industry. In other words, the banks should pay for the government’s willingness to bail them out if they get into trouble. UK Uncut argues – correctly – that in effect the government is providing free insurance to the banks.
None of this is to suggest that UK Uncut is a substantial campaign. According to its own press release, as of Tuesday it was only planning actions against HSBC in 12 towns and cities. It is hard to imagine the total number of people involved running to more than a few hundred.
Nevertheless, it is worth examining the campaign’s claims in more detail because it articulates preconceptions that have become widely held. It is also striking that its arguments, to a much greater extent than is generally understood, closely track the views propagated by mainstream politicians.
The list of UK Uncut misconceptions is lengthy; here are just five of the main ones.
1) The banks caused the crisis
UK Uncut’s publicity material for its day of action explicitly blames the banks for Britain’s economic predicament. It says ‘the banks caused this mess’ and it describes bankers as ‘the people who caused the crisis’.
Such a view serves politicians well. It accepts that they were not to blame for the crisis in the first place, even if it goes on to claim they have not handled it competently.
But in truth, politicians on both sides of the Atlantic bear a large share of the blame for the crisis. To understand their culpability, it is necessary to go back at least to the early 1980s rather than just to 2007. For decades it was clear that investment and innovation were insufficient. Yet rather than tackle these underlying problems, the authorities pursued policies that ended up creating a credit bubble.
Public spending was kept high and interest rates artificially low. Often, governments also used additional measures to ease the supply of credit, such as reforming the financial markets. The hope was that such moves would keep the market ticking over in the short term and the economy would somehow correct itself in the longer term.
This was the backdrop to the financial crisis that emerged in 2007-8. Bankers certainly played a role, but governments created the conditions for the credit bubble to emerge. Underlying this development was the failure of politicians to tackle or even recognise structural economic weaknesses.
2) The government’s books have to balance
In accepting that the government’s key task should be to reduce the deficit, UK Uncut starts from the same premise as all the main parties. Like the Conservatives, Liberal Democrats and Labour, its obsession is with balancing the books.
This is the perspective of the accountant rather than of genuine political debate. It reduces politics to a technical quibble about how best to make the figures add up.
The alternative is to take a dynamic view of the economy. That is, to work out how to achieve economic growth through investment and innovation. This means striving to achieve prosperity for all rather than quibbling about how best to manipulate the figures on an Excel spreadsheet.
3) Criticism of tax avoidance is somehow radical
Perhaps the most bizarre contention of all is that campaigners are somehow expressing a radical alternative to the government’s views. Owen Jones, who has become a poster boy for some left-wing groups in Britain, made this error when he congratulated UK Uncut (founded in late 2010) for having ‘driven tax avoidance on to the agenda’.
Anyone who follows British diplomacy or economic policy closely will recognise that such a claim is, at best, breathtakingly naive. At summit after summit, the British government has emphasised the need to tackle both tax evasion (that is, essentially breaking the law by hiding some of your income from the tax authorities) and what it calls ‘aggressive’ tax avoidance (that is, pursuing legal means to reduce your tax bill).
The G8 summit of world leaders last month in Northern Ireland was, in that respect, the culmination of many years of diplomatic activity. David Cameron, as host of the summit, ensured that tax was a key theme. The final communiqué included several measures ostensibly designed to tackle both tax evasion and tax avoidance.
Nor are politicians averse to high-profile public statements on the issue. Cameron worked himself into a moral outrage by publicly criticising Jimmy Carr, a popular comedian, for using an entirely legal Jersey-based avoidance scheme. George Osborne, the chancellor of the exchequer, used his 2012 budget speech to condemn aggressive tax avoidance as morally repugnant.
On the opposition side, the chair of the Commons Public Accounts Committee, Margaret Hodge, has argued that Britain needs ‘a major crackdown on tax havens – the bedrock of global tax avoidance’. No doubt she feels more comfortable working up indignation against business leaders than examining the responsibility of the last Labour government, in which she held several ministerial posts, for the crisis. Meanwhile, Stella Creasy, the MP for Walthamstow, has made a name for herself by condemning payday loans.
No doubt such political pronouncements from all sides can be largely put down to grandstanding. The main goal is not to have a practical political impact; instead it is to give the impression that politicians are taking positive action while at the same time distancing themselves from any culpability for problems.
However, to the extent that this obsession with tax avoidance has a practical impact, it tends to be a negative one. All the recent talk of tax avoidance, and the related discussion of money laundering, has provided a pretext for greater state surveillance of individuals. Monitoring an individual’s financial affairs provides a way for the authorities to collect a lot of private information from people.
This year, matters have gone even further, with tax avoidance – by definition a legal activity – providing a pretext for making people pay more tax than is required by statute. This shift is clearly spelt out in the General Anti-Abuse Rule (GAAR) published in April. According to a guidance note from HMRC, the tax-collecting authority, this new rule ‘rejects the approach taken by the courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position’.
This overturns, among other precedents, the 1936 Duke of Westminster case that for decades provided a key underpinning of tax law. The ruling in that case was essentially that no one could be compelled to pay more tax than is required by statute.
The government claims that the new approach is simply designed to tackle schemes that it considers ‘abusive’. But it creates a dangerous precedent in allowing the state to penalise people who have not broken any law. It also helps absolve politicians of responsibility for drafting suitable laws and subjecting them to proper debate.
4) Financial institutions are part of a giant global conspiracy
Underlying anti-banking campaigns is the common assumption that financial institutions are part of a giant global conspiracy to undermine nation states.
This view was most vividly put forward by Matt Taibbi, a campaigning American journalist, in a 2009 article in Rolling Stone magazine and in a subsequent book. He famously condemned Goldman Sachs, a top Wall Street investment bank, as ‘a giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’. In the UK, the New Economics Foundation, a think tank, adopted the image with a short video entitled Taming the Vampire Squid: Take Back Our Banks.
There are several reasons to object to such imagery and the conspiratorial worldview that underlies it. For one thing it is strongly reminiscent of Nazi imagery of Jews as central to an international financial conspiracy. For example, in Mein Kampf, Adolf Hitler talked of Jews as being ‘like leeches… they were slowly sucking the blood from the pores of the national body’.
No doubt present-day campaigners would completely reject such anti-Semitic conclusions. Their description of a ‘vampire squid’ is meant in good faith to convey how they see the pernicious role of the banks.
Nevertheless, conspiracy theories, even when shorn of negative associations for any particular group, can only increase a sense of popular powerlessness. Rather than attempting a rigorous examination of how the world works, campaigners simply blame shady forces that are apparently beyond national control.
This relates to another problem with seeing the banks as a global conspiracy. It underestimates the vast power and reach of national states. Take the British state’s role in the economy. According to the government’s own budget report for 2013, total state spending is forecast to fall from 45.5 per cent of GDP in 2011-12 to 40.5 per cent in 2017-18. Even assuming the government is successful in achieving this reduction – and it is far from certain – it would still leave state spending equivalent to over 40 per cent of economic activity.
The idea that the banks are pressuring the government to pursue a free-market agenda of cutting state spending to a minimum is fanciful. Although it is true that public spending will be cut in some areas, and some people will no doubt suffer as a result, the overall economic role of the state will remain huge.
The problem with British economic policy is not a weak state or inadequate spending in total. It is that the authorities are reluctant to use the state to rejuvenate economic activity and promote growth.
5) Ordinary people are simply victims
Anti-bank campaigners typically have a simplistic view of how the world operates. There are the rootless banks who are part of a shadowy network that dominates nation states. Then there are the servile politicians who are in hock to the bankers. At the bottom of the pile is the public, which, in this worldview, has been duped into accepting the power of the banks.
In this scheme, members of the public are also the actual and potential victims of this international conspiracy. This helps explain why UK Uncut is calling for HSBC branches to be turned into food banks. This conveys the simplistic view that banks themselves are directly responsible for the increase in poverty in recent years.
Such a focus puts the campaigners in the almost messianic position of saving ‘the victims’ – that is, the public – from their fate. They seem to see themselves as bearers of moral indignation rather than engaging in a project of social transformation.
There’s an alternative to all this, which is to start a proper discussion about the roots of the economic malaise, including the role of the state. This means challenging the anti-growth and anti-consumerist preconceptions that are prevalent in many contemporary campaigns. Blaming bankers and tax-avoiders for Britain’s economic plight can only lead in a negative direction.
Daniel Ben-Ami is a writer based in London. Visit his website here. An expanded version of Ferraris for All, his book defending economic prosperity, is available in paperback (Buy this book from Amazon (UK)).