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The Labour party’s City problem


5:01 pm - December 24th 2011

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contribution by Robin Ramsay

Sitting in the pub, a friend of mine said he couldn’t understand what was going on in the Labour Party at the moment. I said something to the effect that they had a problem: almost everything they believed about economic policy for the past 25 years was wrong; and imagine how difficult this makes things for the current leadership.

They cannot say, “We’re terribly sorry: we’ve been wrong for the last 25 years. We plumped for the City and ignored the manufacturing base.”

Politicians don’t do this.

Political parties not seeking election – e.g. the Communist Party of Great Britain – can say such things (and the CPGB did circa 1990). But for parties engaged in electoral politics this is impossible. Or is perceived as impossible.

They are forced to change their policies while pretending all was well when they were in office. (Or almost well: they may acknowledge little things they did get wrong…) Not that this problem is unique to Labour.

As the coalition government talks about ‘rebalancing the economy’, away from the City towards manufacturing, they have the same problem. They also chose to bank on the City. The British political class and its attendant media made a huge mistake in the 1980s when, with North Sea oil revenues to spend, they chose to copy America and not Germany or Sweden.

The last glimpse of a mainstream political party not assuming that Britain’s future lay in ‘the service economy’ (in general) and the City (in particular) was in 1988 when the Labour Party was doing its policy review after the defeat of 1987. The economic part of that review was done by a committee chaired by Bryan Gould MP. Gould represented a current within the Labour Party and wider labour movement at the time which was hostile to the bankers.

It had concluded that the key structural conflict in Britain wasn’t between the classes, the Marxist view, but between the interests of the domestic and overseas sections of the economy; which in shorthand boiled down to the City on the one hand and manufacturing on the other.

This group included Neil Kinnock, as his 1986 book, Making Our Way, shows, and Bryan Gould, who was appointed by Kinnock to chair the committee on economic policy. Gould’s committee duly produced a detailed analysis of why the bankers had too much power and how to reduce it.

But the Gould committee report was rejected by Neil Kinnock as soon as it was finished. Gould tells us that, just before the report was due to be published, a group of Labour MPs came to see him to try to get it stopped or modified. One of them was the then rising star of the back-benches, Tony Blair. This was 1988.

Gould went on to stand against John Smith for the leadership of the party in 1992 and lost heavily. New Labour – at its core the capitulation to the financial sector – could be said to have begun there.

We still don’t know why the Gould report was dumped. My guess would be that the group around Kinnock wanted to get elected more than they cared about the state of the British economy or the fate of its citizens; and having lost two general elections, decided that the bankers were too powerful to challenge.

By this time – 1988/9 – the City had been largely sold off to American banks in the so-called big bang of 1986 and was well on its way to being an extension of Wall Street; and thus to be anti-City of London increasingly meant being perceived as anti-American. But for a while a Labour Party which was explicitly an anti-City of London party did seem a real prospect.

For whatever reason, the policy review document on the economy was abandoned and Labour began the long process of making itself acceptable to the City of London – even though the City then was only about 2% of the British economy.

The exaggerated notion of the UK’s dependence on ‘financialisation’ has spread as far as the German Chancellor. The Guardian (16 November) quoted Angela Merkel as saying that the UK generates ‘almost 30% of their gross domestic product from financial-market business in the City of London.’

By ‘financial-market business’ I presume she means the financial services sector, which is actually about 7% of GDP. But no wonder Merkel would find a 30% figure plausible. Only a big figure explains the British state’s obsession with defending the City’s position.

All the effort spent and enmity generated for 7% would make no sense. And that’s right: it makes no sense.


A longer version of this piece by Robin Ramsay was published in Lobster Magazine here.

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Reader comments


I have been saying exactly this for years. The Labour Party rewarded the bankers, city slickers and spivs like no other government in history:-

Knighthoods – James Crosby, George Matthewson, Keith Whitson, Peter Burt, Mervyn Pedelty, Philip Hampton and John Bond and Fred Goodwin.
Life Peers – Lord Turner Shiriti Valdera, Lord Leitch, Lord Mynors, Lord Acton, Baroness Cohen and Lord Mervyn Davies
OBE – John White, Lindsay Tomlinson, Dennis Licence and Michael Ellis
CBE – Helen Weir, Adrian Montague, Chris Lenchin, Susan Rice, Michael Morris and Philip Williamson
MBE – Andrew Robinson, John Brown, Paulette West and Gary Lumby

Perhaps those of a left leaning inclination should read Matthew Paris and his column in The Times today regarding Socialism and a way forward for Labour because without a radical shift in policy and dumping their hapless leader they are finished which does not bode well for government opposition in this country….

‘They cannot say, “We’re terribly sorry: we’ve been wrong for the last 25 years. We plumped for the City and ignored the manufacturing base.”’

Ultimately, the party is going to have to admit precisely that. The whole revisionist project (what we’ve been taught to call “making the party electable”) was a mistake.

“All the effort spent and enmity generated for 7% would make no sense. And that’s right: it makes no sense.”

Are you high? The entire recession involved only a 6% contraction in output. Are you saying that is not worth “effort spent and emnity”? That is enough for more than 1 million extra people to be out of work and the whole country to be struggling. 7% of our entire output is definitely worth fighting over.

If Angela Merkel thought 30% of our GDP came from financial services that only demonstrates how utterly economically illiterate she must be. Which considering how her policies are quite quickly bankrupting most of Europe I don’t find that surprising.

There’s some rather bizarre and simplistic rubbish in this thread.

Firstly, Labour hardly turned its back on all other sectors beyond the city. In the late 90s the zeal was for high-tech and small scale manufacturing – recognising rightly that we could not compete for mass production with countries like China and Slovakia. (chasing that market would have impoverished us far sooner)

Likewise, the failure of the financial services sector recently has triggered a recession – much as past collapses in manufacturing or past collapses in the housing market have done. And even while things are pretty horrendous now (not least because the tories are slashing at the public sector with such glee) it is worth keeping in mind that context. We still have relatively high levels of employment, and, ironically, the financial service sector returned to growth sooner than many sectors (not least because government cuts don’t hurt it the way it hurts consumer spending and such like)

None of this is a defence of Labour more generally – they, like the tories before them – failed utterly to invest in the infrastructure that can foster the growth of new industries – though unlike the Tories, they did at least invest in the education and training needed to support growth in software development and pharmaceuticals – the first of which is close to flight because of the present government’s antipathy towards it.

But they are in a position to admit to having got a lot wrong, and to not doing enough to invest in the infrastructure of our economy so as to ensure wider sectors could grow.

And to do that they could do relatively simple things like unambiguously back Lord Foster’s hub, the development of High Speed 2 to Edinburgh and Glasgo, and they could begin drawing up plans for a new infrastructure programme for the north.

That would hurt the tories and offer a strong message that the UK can become more than a centre for financial services.

After all – the government’s plans to cut corporation tax means nothing to engineers and programmers – turbine manufacturers or ports operators. It just means lots to firms who need generically trained staff in generic office space doing tasks that could be moved across borders easilly with little need for infrastructure. the prime example of such a sector is banking.

The Labour Party should now have Rachel Reeves as their leader of the Labour Party.

At least they could then go into the next general election with someone that knows something about banking and economics.

In addition to this a women would attract an enormous amount of female voters. Also I believe that a women would also appeal and reach out to the younger voters/youth.

Unlike Labours last cabinet and this Tory led Coalition Rachel Reeves would have the necessary experience and knowledge to know what she was talking about.

The Labour Party needs a change from the top to the bottom with people that have REAL experience and REAL expertise to do the job that they are posted in.

The Opposition benches are stacked full of the same mediocre politicians that dumbly followed Blair and Brown as long as they turned a blind eye to their greed, self interest and property speculation at the tax payers’ expense.
They were returned to Westminster either by a corrupted ballot or voters of a staggering complacency.
My great grandparents worked to elect Keir Hardie as MP for Merthyr and Aberdare in 1900, today, there is not a single member of my family who will ever again vote Labour. Never.
As an ex member of the Labour Party and ex trade unionist I see not an ounce of difference between them and the Parties in government.
That is the hill that Milliband and Co’ have to climb

Hindsight is marvellous. Unless, like myself you watched the city grasp Labour’s heart and squeeze it, draining the lifeforce of ordinary people, as we knew it would.

I see Mickey Mouse has found another site to troll to fill all that idle time he has thanks to his sponging off the working taxpayer.

No Stephen W, what’s he’s saying is that its not worth fighting over so much to the excusion of all else. And apparently that was this government’s policy, to rebalance away from our current dependence on too few sectors in order to diversify, but that seems to have gone out of the window too along with a host of other electioneering pledges.

“and, ironically, the financial service sector returned to growth sooner than many sectors (not least because government cuts don’t hurt it the way it hurts consumer spending and such like) ”

Er no. Try a little Margin4Error such as a £1trn bailout, something never ever afforded to our manufacturing industry.

11. Charles Wheeler

Another way to frame it:

“In the last 25 years we have allowed banks to balloon in size. Until the 1970s, banks’ assets as a percentage of UK GDP remained steady at approximately 50%. By 2006, after decades of deregulation, banks’ assets as a percentage of UK GDP were more than 500%. These large interconnected institutions dwarf the rest of the UK’s economic activity …”
Lydia Prieg: http://goo.gl/HXkBf

Does encouraging manufacturing entail destroying Services then ?Switzerland has strong high tech manufacturing sector as well as a well known banking tradition and it has survived without having an artificially low currency like Germany.
We have in this country subsidised manufacturing before and all we got was unionised dead beat Companies like British Leyland.

l

Richard

For reference, other industries benefited from government largess too, under Labour.

The car industry was subsidised in the downturn by Labour thanks to the scrappage schemes.

The solar and other renewable sector was supported through the renewables obligation and the feed in tarrif.

The construction industry was supported through a programme to state fund the kick-starting of stalled projects.

The software development industry was granted a special tax break to support its development and retain it in the UK rather than lose it to Canada.

The present government got rid of most of that – but that can all add to Labour’s message when they have people at the top adequate to tell it. (they don’t as of yet).

oh, and don’t forget the port expansion programme for Sunderland designed to attract turbine manufacturers to the region – worked brilliantly too – Siemans are building their facility now.

@14:

There’s a key difference between investment in infrastructure and other developments to enable businesses which actually produce something tangible and create jobs thereby, and a huge subsidy to already-large financial corporations to enable their executives, croupiers and shareholders (e.g., other similar organisations) to avoid the consequences of their reckless and criminal behaviour and to continue to live in the style to which they have become all too accustomed.

Until and unless Nu-Blu-Labour state clearly that their first act on coming into office will be the implementation of laws on the lines of the old US Glass-Steagall Act, and that there will be a thorough criminal investigation into the conduct of the financial centres – along with the removal of the unmerited privileges of the City Of London by abolishing that entity and making it politically a part of Greater London – then I can see no reason for taking Labour remotely seriously on this issue. Or on any other.

16. Anon E Mouse

@8 – Richard

Which bit of what I said wasn’t true?

At some point the useful idiots that follow Labour are going to realise that to get lifelong party supporters like myself back they need to represent the working man.

When their most successful leader was sucking up to Gadaffi and godparent to a child of Rupert Murdoch’s, it is time to start listening Richard.

You are wrong about Labour and this post is right and the polls show it.

Keep doing what you’re doing with your unpleasantness and the current government will be laughing at the next election because with their current shadow cabinet Labour are utterly unfit for government.

Even the Tory David Davis said how good Rachael Reeves was but guess what. Yep Labour are going to stick with the dud the union dinosaurs forced on the party. It isn’t 1976 and Labour need to move on.

Dump Miliband ASAP and stop helping Cameron and Co Richard…..

Margin 4 Error, but due to the fiscal irresponsibility of the Labour Party we spent far less in kick start infra structure projects than comparable countries. We did not have the cash.
The feed in tarrif is National Joke and I say that as someone with two large clients reliant on the state spend bubble. When it is gone ( as it nearly was in the last month) the Companies will be gone , there is no future in entirely artificial business
You might also have mentioned the fantastically wasteful and pointless regional development agencies whose corruption was epic and achievements negligible.
The state supports nothing it only takes money from working parts of the Economy to throw at those parts that are not. You may think it clever to suggest that New Labour threw money at everyone but it is exactly what no-one is interested in listening to.

Many people seem to think that in order to support manufacturing industries, you should make life hard for service industries and particularly banking.

That is a silly idea. They support each other. As Paul Newman says quite rightly in #12.

9. Richard

“No Stephen W, what’s he’s saying is that its not worth fighting over so much to the excusion of all else.”

I see no reason to think that is their policy. You don’t help manufacturing by crapping on financial services, or allowing the EU to do it for you. It’s not a zero sum game. Precisely the opposite. You especially don’t do that when you’re £130 billion in the red anyway. I would expect the government to kick up just as much of a stink if the EU or anyone else was taking specific aim at damaging our manufacturing industry. I see no reason so far to think they wouldn’t.

20. Anon E Mouse

@8 – Richard

And as if to prove my point about your beloved Ed Miliband, we now have a Guardian poll putting the weirdo’s ratings below both David Cameron and Nick Clegg.

How long will it be before the Labour Party dump this unpopular buffoon?

The facts speak for themselves and irrespective of the party and it’s love of the city and big business, as long as the wrong Miliband “leads” the party it is doomed.

The party members and the Parliamentary Labour Party were right about him and if it hadn’t been for the flawed election system where some individuals like the countess toff Harriet Harman got more than one vote his brother would rightly be leading the party….

Anon E Mouse @

What the Labour Party needs is a Radical BIG Bold change to prove that they are changing.

My personal feeling is that a women such as Rachel Reeves that was born in South London and is No Toff would be best suited to take Labour into the next general election.

A women would attract an enormous amount of female votes. In addition to this I believe that a women such as Rachel Reeves would also be able to connect with the younger voters/youth of Britain.

I also believe that Rachel Reeves understands people from all walks of life and would certainly open up the eyes of many of the so called floating voters that we always appear to have at every general election.

If you are interested you can look up on her profile under Rachel Reeves on http://www.wikipedia.

David Miliband will never be Victorious in leading the Labour Party into Government in a billion years. People need to wake up to this fact. You would never enter a three legged horse into a race !

Slight correction : Ed Miliband will never be Victorious in leading the Labour Party into Government in a billion years.

23. Frances_coppola

This post makes no sense at all. It amounts to “if I were you I wouldn’t start from here”. It is all very well being nostalgic for the UK’s former manufacturing glory, but it is time to face reality. The big unionised manufacturing industries of the past are GONE. They will not come back.

We should be looking forward, not back. Our future does not lie in heavy manufacturing industry staffed with whole towns of unskilled workers. To be frank we would not want to pay our workers the sort of wages that China and India pay theirs. If we wish to compete effectively in manufacturing we have to be smarter. We need to invest in new skills and new technologies so that we can find and dominate high-tech niches. At present we don’t have sufficient people with the skills we need – as companies are finding when they try to recruit people with specialist engineering skills, for example – and we don’t invest enough in R&D for longer-term technological development.So rebalancing our economy away from financial services and towards industry can only be a long-term aim.

The OP seems to think that if we kill off the City, somehow manufacturing will magically appear to fill the gap. That is frankly just as much nonsense as the right wing’s bonkers idea that clobbering the public sector will cause private sector jobs magically to appear. Where is the money going to come from to fund investment in manufacturing industry for the longer-term if the income from financial services disappears? Whether the true figure is 7% or 30%, the financial services industry is a significant contributor to the UK’s GDP. Trashing the finance industry isn’t going to help us in the LEAST. On the contrary, it will make it even more difficult for us to rebalance our economy in the longer term.

two observations:

1) the OP could have added that, shortly after the CPGB announced it had been wrong for the last x years, it ceased to exist

2) Rachel Reeves seems to have free wifi and a lot of time on her hands


Reactions: Twitter, blogs
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  8. Mark Appleby

    @markhive The Labour party’s City problem http://t.co/pPR8XFJl @libcon interesting walk through some 80s and 90s political history

  9. Dad Who Writes

    Oh New Labour. So much to answer for. http://t.co/Cs3KkXb1

  10. andrew

    The Labour party's City problem | Liberal Conspiracy: contribution by Robin Ramsay. Sitting in the pub, a friend… http://t.co/bMIuq2Qd

  11. AntennaRed

    UKPOL | The Labour Party's 'City problem' http://t.co/2eNjUu0r #LabourParty #Blair #EdMiliband #class #capitalism #equality #equity #capital

  12. Voodoo polling, Clegg’s ratings recover amongst Lib Dems, and Miliband the managerialist: round up of political blogs for 24 – 30 December | British Politics and Policy at LSE

    […] outward to re-engage with the electorate, as Robin Ramsay at Liberal Conspiracy looks at Labour’s city problem. Guido Fawkes reckons that Labour’s membership has flat-lined under Ed Miliband (while Sean […]

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    http://t.co/irl8mBsb The Labour party’s City problem





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