Labour will pay at the next election for its inability to wrest accountability from vested interests in the financial sector
When the credit crunch struck once more in the autumn and threatened to bring every major financial institution in London and New York to its knees, there was wonderment at Gordon Brown’s reaction. From being a prime minister who had disappeared into his own manmade black hole and a chancellor who had been wedded to neoliberalism and all its economic wares, he suddenly displayed a nimbleness of foot and an openness of mind which had previously been alien to him. In contrast to the huge bail-out of the banks proposed by George Bush and Hank Paulson – with nothing in return for the taxpayer – the plan proposed by Brown and Alistair Darling at least gave the public a stake in RBS and Lloyds-HBOS in exchange for the huge sums of taxpayers’ money they received. Not surprisingly, its boldness was widely admired and copied, as was the decision to engage in major counter-cyclical public spending programme. That was then.
And now? These measures have been revealed to be grossly inadequate, such is the gravity of the financial crisis. So the government limped to package two, with further promises of using public money to shore up the banks. From being bold the government is now exposed for its weakness and, should it continue in this manner, it will pay the highest price, namely defeat at the next election. But perhaps all this is only to have been expected. Brown made the absurd claim in the early days of the credit crunch that Britain was better placed than other developed nations to deal with it; in fact, as the IMF‘s latest forecasts for economic growth demonstrate, exactly the opposite was the case, with the outlook for Britain said to be bleaker than for any other developed nation. Furthermore, Brown, as chancellor, was, more than anyone else, the architect of the mess that Britain now finds itself in – stoking an unsustainable boom in house prices; turning a blind eye to the enormous bonuses paid to top bankers on the grounds that they were a just reward for risk-taking; promoting a huge expansion in the role of the City and financial services which was unsustainable and had a seriously detrimental effect via the exchange rate on manufacturing industry; and an advocate of soft-touch regulation involving implicit collusion with virtually whatever the bankers wanted to do.
Brown has made no attempt to admit his culpability for the biggest crisis since the 1930s. The absence of such an admission must inevitably cast doubt on the extent to which he understands the causes of the crisis. If he really thinks what he did was right then he must believe that the crisis is the result of global factors beyond his control, plus a few cowboys masquerading as bankers that behaved irresponsibly, rather than a huge systemic failure that he, the Thatcherites and neoliberalism are responsible for.
The timidity of this government, its inability to face up to the size of the crisis and its refusal to take on those who are responsible for it is revealed, above all else, in its failure to nationalise the high street banks. The government will pay dearly for this. Sooner or later, one suspects this will be inevitable and the government will look weak because it has resisted it for so long. The fact that it has given such huge quantities of public money to the banks without any effective controls or transparency – that it has socialised the risks while allowing those responsible for the calamity to dispense public money as they see fit, running the banks according to their own and their shareholders’ interests – leaves it condemned as having subsidised the very people who caused the disaster in the first place. New Labour was always spineless in the face of powerful vested interests; and even when the neoliberal system has come tumbling down, it remains as weak-kneed as ever. This crisis marks the end of Thatcherism and of New Labour; but Brown is still clinging to the wreckage, and if he continues with that course, he too will in due course make his exit.