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John Rentoul: Clegg and the banks, part 2

Posted by Eagle Eye
  • Thursday, 11 March 2010 at 01:14 pm

I seem to have confused everyone by taking issue with Nick Clegg's seeing a parallel between the conduct of the banks today and that of the trade unions before the 1980s reforms. Clegg told The Spectator that the British economy

has gone belly-up because, once again, we have allowed a vested interest to run riot. [The banks] represent a vested interest ... A real liberal believes in genuine competition, a genuine level playing field and he is unremittingly hostile to vested interests ... What I find so striking is that the spirit — dare I say it — of the battle against the dominance of one vested interest, the trade unions, is exactly the same spirit we need now. 

I thought this was self-evident nonsense, but it sounds all right to Iain Martin and Ben Chu, so I am obviously wrong. Allow me to explain.

You do not have to have read Das Kapital to know that there is a difference between capital and labour. The unions were trying to use political muscle to defend the sectional interests of their members. The banks were pursuing profit within a regulatory framework set by government. There is no economic or moral similarity between the two. I need to add this example to my series, "It's as if Margaret Thatcher never existed."

The unions were a sectional interest that had a vested interest as institutions in the systems of collective bargaining that dominated pay-setting until Margaret Thatcher changed the law. The banks are not sectional interests; that is why it was, rightly, considered necessary to rescue themwhen the credit system collapsed. The banks are corporate players in a competitive system, whose unusual activities are central to the functioning of a modern money economy. They are not a vested interest just because someone says they are. (It is not even as if City regulation were framed under pressure from the banks in order to suit the interests of their shareholders, which was true of trade union law before 1980;the credit crisis arose from opportunistic gaming of regulations that failed to keep up with banking innovation.)  

As for Chu's complaint that both were "undemocratic", that is again a confusion of categories. The unions were undemocratic in that some of them sought to challenge the authority of the elected government, either to promote the sectional interest of their members or to foment socialist revolution. The banks are non-democratic in that they are economic actors seeking to maximise profit. They are powerfulin that they represent the laws of supply and demand.

The comparison of unions then and banks now is, therefore, almost completely useless. Banks are not a vested interest, or a sectional interest, or anti-democratic, nor are they monopolistic (except in that the public sector now holds a majority stake in the sector). As I quoted Fraser Nelson saying in my original post, "Personally, I can't quite see the equivalence." To model the technical rules needed to prevent a repeat of the credit crunch on Mrs Thatcher's warrior-crusade against Arthur Scargill and his brothers is either meaningless or dangerous.


Huge private firms are sectional interests
duncanmcfarlane wrote:
Tuesday, 23 March 2010 at 04:29 pm (UTC)
Huge private companies operating an oligopoly (informal price fixing by a few large players in one sector of the economy), whose lobbying and donations to political parties got themselves deregulated in the first place are most certainly a vested and sectional interest.

If they'd been properly regulated on either side of the Atlantic by Conservatives, Labour, Democrats or Republicans - and if the Clinton administration had just built some publicly funded housing instead of trying their disastrous 'third way' plan of passing a law to make lending institutions give mortgages to people who couldn't afford to repay them , then everyone else wouldn't have had to bail the banks out.

Your argument is blindly ideological here John - worthy of Margaret Thatcher herself. Conservative MP Ian Gilmour didn't call his book on her period as Prime Minister 'Dancing with Dogma' for nothing.


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