Money and society

 

New maps of hell

 

Christopher Harvie

 

I Le Trahison des Clercs

No-one foresaw the Pinstripe Darien of 2008: a banking establishment spinning out its debt book by a factor of 13 times world GDP, then sticking this on its customers and shareholders. Not just in known tax havens, but in small nations or subordinate jurisdictions which lacked the power and experience to intervene.
     To have 'customers' systematically drugged by the media as a segment of public relations was also new; furthered by the miasma of 'celebrity' or 'sport' patronage which conferred glamour on moneymaking. A form of 'illegalism' was sustained by gross inequalities, the marriage of law and wealth, and the disempowerment of citizens.
     Could Scotland have created a politics of co-operation to fight this? Or do we have, effectively, a fifth column in the state apparatus: a well-salaried elite intended to help which has gone over to the enemy?
     My own gesture 'Broonland' seems to have sold out – at least at the Kirkcaldy Waterstones, against the competition of remaindered copies of Broon's 'Beyond the Crash' at six quid, 30% under my price. John Kay's review is now out in Scottish Affairs – for flattery much thanks. But I take issue with one element of his critique, after near-daily reading of the Financial Times and surveying material accumulated in parliament as part of a project on the Scottish black economy, sidelined alas by the Scottish Futures Forum.
     I stressed in 'Broonland' the penetration of financial services by ‘illegalism’, drawing on a report to the Council of Europe by John A Mack of Glasgow University and my Tuebingen colleague Hans-Juergen Kerner back in 'Red Paper', year 1975. The crime industry argued that the 'grey areas' of tax havens, computers and globalisation blurred the distinction between 'buccaneering business' and outright criminality.
     Kay differentiated between the hoods running 'boiler rooms', carousel frauds, etc, and the 'hit-and-run drivers' in 'moral hazard' areas of financial services where a host of lesser infringements might be admitted. But have matters not altered in the period since the 2007-8 crisis – as Kay in a subsequent conversation thought they would? The bankers' escape with a 'slap-on-the wrist' from the regulators affords them even greater scope for imaginative manoeuvre as we head towards the double-dip.

 

II New maps of hell

It seems that partial and seemingly unenforceable regulation has, in the absence of global policy enforcement, made things worse by:
     (a) the creation of new tax havens and the greater sophistication of old ones;
     (b) corporate defence measures against increased state- or international regulation;
    (c) 'wild capitalist' and sovereign wealth expansion in areas with primitive oversight and enforcement;
     (d) new forms of enterprise stemming from fundamental illegalism: literal piracy – forget CDs, think ships – is now a £12 billion-odd business;
     (e) frauds in European carbon-trading, and other untried environmental legislation;
     (f) bank-driven innovations in financial services undertaken without any reference to legal frameworks (embracing most if not all of special investment vehicles and shadow banking);
     (g) 'regulatory capture', by any of the above, of national, European or world police and supervisory authorities;
     (h) 'cuts'-driven dismantling of legal and police machinery to suppress
finance fraud and taxation fraud;
     (i) the effective end of high-value investigative journalism: the Sunday
Times decline from 'Insight' to 'Rich List'.
      What is at issue is not only the quantity of possible crime. Cash figures for 'criminal activity' are difficult to recalculate to give a percentage for the infection of a 'legitimate' economic branch. So the rate of growth of 'illegalism' seems – in general and in terms of international comparison – completely up in the air.
     Surveying the Financial Times – and capitalism's house journal still has, like military history, to tell things straight – it's apparent that the eastward shift of enterprise has also increased the dynamism of financial centres whose regulation has always been at best sketchy where not prone to political breakdown. Hence the ability of Multi-National Enterprises (MNEs) to subvert supervision and increase profit with little prospect of interrogation, let alone apprehension. Although the impact of this on Western states and their regulated welfare and pensions is considerable, their lawyers and accountants can distance themselves from the consequences; particularly in such branches as the arms industry and civil engineering.
     Connoisseurs of the genre can marvel at the use of the law by BAe Systems to secure its aircraft carrier contracts through penalty clauses: master-bribers and merchants of death morphing into injured parties. The cartelised nature of the public works business (with an £8 billion annual turnover in the UK alone) disclosed by a 2006 OFT inquiry only led to a couple of hundred million in fines. This suggests in key areas state intervention to remedy 'market failure' is meaningless because there's never been a market in the first place.
     Civil engineers, oil companies, computer/telephone businesses are the key transnational links, and in all cases the divide seems to be between sovereign wealth (questionable in autocracies or oligarchies) or civil cartels, which often have an interest in propping up corrupt regimes. Linked to this, and even more disturbing, are two factors:
     The physical threat of violence to financial centres. One more IRA attack on London in the mid-1990s could, according to Christopher Andrew's Defence of the Realm on MI5, have killed it as a financial centre. Arguably New York's backwards walk into 2008 could have been one result of jangled nerves (clean up and clear out) after 9/11 as well as 'irrational exuberance'. Osama Bin Laden was from a Jiddah trading family: more like Liverpool's Booths or London’s MacAlpines than a product of the souk, and this suggests a further refinement.
     Terrorist organisations and rogue states can and will finance their activities by co-ordinated attacks on the market: the terror strike as a shorting dodge: bringing down shares, setting up a later killing. The principle goes back at least as far as Alexandre Dumas' 'Count of Monte Cristo' (1844), much discussed in rather paranoid anti-bank circles – like Tom Johnston's Forward in the inter-war years – and embodied in hefty semi-documentary novels like Harvey Allen's 'Anthony Adverse' (1933).
     In the present Irish meltdown it becomes difficult to distinguish degrees of criminality. Take the Provisional IRA and Sinn Fein, with some massive bank robberies and money-laundering on their record, and the entrepreneurs around Fianna Fail and the Anglo-Irish Bank who cooked the books throughout the property boom. The first bought indemnity through an internationally-sanctioned political deal; the second arguably used such precedents to collude with government to rig markets in its favour. But one key question goes further.
     Where did this end? Stephen Hester, appointed to 'rescue' RBS, assured the Scottish Parliament that the scarcity of industrial finance was due to the withdrawal of foreign banks (ie. Irish and Icelandic) from the British scene. We now know that RBS was keeping much Irish banking going. In fact, the internationality of the system during the credit boom meant that the bankers were allowed to run an overarching rigged market for as long as they could. From this Sir Fred Goodwin's superinjunction, aimed at protecting him from further investigation, is logical – though it may also be the proverbial 'last straw' for the rest of us.

 

III The Guardians

Six months ago Sir Angus Grossart said that breaking Goodwin's windows in autumn 2008 was like Hitler's Reichskristallnacht in 1938. Vandalism isn't pleasant, but it's not the same as a planned act of destruction against a racial minority. The failure of the state to bring the beneficiaries of financial chicanery to justice is closer to 1938, and seems to open up the complicity of the public sector in the organisation of the looting. Only in the closing months of my career as MSP has it begun to dawn on me what the knock-on effects of the 'easy money' episode have been for Scotland.
     Take Transport Initiatives Edinburgh (TIE), which has been in charge of the Edinburgh tram project: Europe's most disastrous transport scheme. TIE's previous record in carrying out the Alloa railway contract was poor; its directors were not. But they had the Fraser enquiry into the costs of Holyrood as a precedent to go on, simply magicking responsibility into thin air. A sum of about £ 120,000 (pension pot attached) was reckoned optimal to bring its executives into the banker bracket, not to make construction more efficient.      TIE is almost a self-caricature, but the same promotion of structure, prestige and personal income over efficiency has largely been true of Scotland's state sector: embracing the enterprise agencies, the Scottish Executive and the Scotland Office, local authority or NHS administrators, most recently university principals.
     An incoming SNP government, made extravagantly welcome by this establishment, took time to realise what was going on. Only now, when as in the old Catholic ceremonial of Tenebrae, the celebrants and their candles desert the chancel until only a single one remains, do we comprehend the end of Edinburgh as a financial centre: the humble migrated to 'back office' jobs, the wealthy off to London or to their grand New Town flats or restored Border farms and manses. Fifty miles west something similar has been done, in much cruder fashion, through the driver of Glasgow's 'rest and recreation economy' and its relationship to drugs and money-laundering.
     In a culture where law isn't an absolute but is used to promote the comparative advantage of interest groups, civic rights are not constitutionally entrenched. Without a manufacturing order with its own controls and union opposition, advantage lies with every group that has 'got something on' someone else: classically demonstrated in the MPs’ expenses scandal, in which the press discovered people even more untrustworthy than them. If politics means devising vote-winners appealing to interest-groups, unprepared to defer enjoyment in favour of long-term investment, it will have problems with justice, and bankers, indifferent to anything but personal gain, surrounded by a Maginot Line of superinjunctions, will flourish like the green bay tree.
     The answer ought to be a constitution that includes a duty of care to the economic and environmental rights of the citizen, together with the co-operative institutions that flow from the egalitarianism of new communications. But this will take time. A senior Scottish policeman noted in conversation that getting an anti-crime programme under way took months even to arrange a preliminary committee. 'Crooks could do a policy switch in a week'. Ditto for bankers. I sense however a real and increasing sense of fury on the part of the injured – the vast majority of us – and somehow what comes to mind is the unmistakeable voice of Edith Piaf belting out
     'Ca ira!'
     Ah! ça ira, ça ira, ça ira
      Les aristocrates à la lanterne!
     Ah! ça ira, ça ira, ça ira
     Les aristocrates on les pendra!
     Not literally, of course, but the need to bring home to the financially intoxicated the sense that they have done wrong and owe reparation. As John Kay noted in a recent FT of Hester's sneer about 'Hovis banking': people sentimental about real food want a system for real money: our money.

 

Professor Christopher Harvie is SNP MSP for Mid Scotland and Fife and has held senior academic posts in both Germany and Scotland