One of the most nauseatingly repetitive drones to come out of the No campaign has been economic risk. If we go independent everything’s at risk. Nobody knows the future, but we know that independence would be different and that that’s a big risk. Risk, risk risk.
Earlier this week I saw, in what I can only assume is punishment for misdeeds in a former life, a debate between Murdo Fraser (CON) and John Mason (SNP) in Bishopbriggs. It’s hard to know whether the answers or questions are more stultifying sometimes, but something Murdo Fraser said really got me thinking. Paraphrasing a bit Murdo’s point was:
“Standard Life are a big financial services firm in Edinburgh and they’re really worried about independence. If they are, you should be too-they’re in financial services, and financial services is a big thing which although you can’t understand it, and I can’t understand it, people in financial services do, and can, and they’re right, because they’re big and involved in financial services.”
He followed it up with another, slightly paraphrased spiel about RBS:
“You’re absolutely right, moron audience member, RBS would’ve been Scotland’s responsibility because they’re based in Edinburgh. Only in the UK can we support unforeseeable, unavoidable acts of god like the financial crisis. Even financial services companies sometimes, inexplicably, get it wrong. But when they do the only option is grinding austerity, so belt up.”
John Mason did his best to refute the points without calling anyone a moron or holding up a copy of ‘What is to be Done?’ but still didn’t quite capture the real problem. The basic unionist message on financial matters is this: “This stuff is huge, too huge for you to contend with but very real, and the only way to keep it contained is to go along with the UK’s line on finance (don’t trouble yourself trying to learn what that is, just vote with it.)”
It misses the point about how complex finance is, so here’s a bit to clear some points up.
Firstly talking about ‘Financial Services’ is like talking about ‘Sport’ or ‘the Arts.’ Standard Life is a financial services firm, and so is RBS. In the same way that Celtic and Ferrari are both sports teams, or Opera and Ballet are both arts. Fine to talk about as a broad class of things in contrast to another broad class of things, but not great for differentiating between themselves. It’s the same with Financial Services-Standard Life do Pensions, Savings and Investments and Insurance, according to their website. RBS does Personal Banking, Private Banking, Business Banking and Corporate Banking according to its website. The two are about as unrelated as they could be without one of them specialising in agriculture.
So when Standard Life comes out and says it’s worried about the prospect of independence, and might consider moving its HQ for tax reasons, or whatever gloss it put on it, it’s really doing 2 things. First it shows its hand to other companies as a fairweather firm whose operations are primarily to do with managing money, not making it. Secondly it puts public pressure on the government to make it worth staying, usually in the form of financial incentives. Note the difference between Standard Life and, say, Aberdeen Asset Management (again, people who make money rather than manage it) whose stance on independence is summed up by their Chief Exec saying they already work in 30 countries and “one more’s not going to make any difference.”
Standard Life are worried they’ll have to pay a decent amount of tax in an independent Scotland, whereas Aberdeen are accustomed to making money wherever and however they can. Aberdeen’s point should be more worrying to anyone interested in legitimately restructuring our financial sector though, as anyone who’s for independence should be (even if they’re not as nerdishly excited by the prospect as some of us.)
What is regulation and why does it need reformed?
Regulation is the set of laws we have to dictate how financial services companies carry out their business. We need it to be reformed because it isn’t doing its job. Politicians are often happy to talk about the GFC because it lets them be a part of everybody’s pretence that they know what they’re talking about, and to simultaneously play on their mistrust of other sections of society. What they ignore is that while the GFC was extremely complex it can be talked about and understood in broad, if unpleasant terms. Regulation used to be a lot tighter than it is now-after the Great Depression in the 1930s began with a stock crash there were a number of rules implemented to stop the exploitative practices which had caused the crisis. Although there’s debate about exactly how long each part of the package was useful for the major portions were repealed towards the end of the 20th century. The most symbolic was the divide between retail and investment banks (high street banks you get your savings account from vs serious investment firms previously the domain of people with significant money to put into making more of it), which was repealed by Bill Clinton just before he left office in 2000.
People talk about firewalls or ring fences or partitions between retail and investment operations, and they’re important. As things stand there’s nothing to stop a single company from having extensive retail operations, providing things like current accounts and savings accounts to ordinary citizens, and then investment operations to maximise returns for shareholders, investors and high-wealth clients. The problem is that it’s tempting to use your retail outlet to prop up your more lucrative investment work. That’s exactly what happened with the GFC: high-level companies, RBS rather than Standard Life, went about making huge amounts of money essentially betting on packages of worthless mortgages. Betting on riskier bets they’d made through selling people mortgages they couldn’t afford.
Leaving aside the valid discussion about capitalism and its tendency to encourage people to spend what they can’t afford, it’s clear to anyone who isn’t an investment mogul that suggesting cultural changes in their organisations is never going to be a substitute for preventing organisations from doing both things at once (even investment moguls would probably concede that it’s a good thing for society as a whole, ignoring for a moment their own needs and those of their high-wealth clients.) Fortunately we’re in the UK though, so we have the benefit of rigorous government oversight of a very powerful, potentially very dangerous element of the private sector, right? Wrong. Successive Westminster governments have been cosy with the banking lobby, and either lessened the regulation we have over the sector or avoided putting it in place correctly (the current government is giving banks 7 years to separate their investment and retail operations, conveniently into the next government’s term and a very charitable timeframe given that it took several months to merge operations after the Glass-Steagall act bit the dust in 2000).
Remember what the Aberdeen chief exec said about one more country not making a difference? This is what we need to be thinking about when we set up regulation. Companies at that level exist to make money. They do it very well, with some achieving the mantle of being ‘Too Big to Fail’, that chilling refrain we hear, usually mentioned alongside ‘bailout.’ Westminster’s main parties are all so enamoured of the banking lobby that they can’t be trusted to regulate properly. The same is true of the mainstream political scene in the US, where even Democratic administrations have been complicit in stacking their most important governmental roles with ex-chairmen and former executives of the major banks, who in turn use their positions to secure weaker regulation and a crack at more money.
This is a crisis that plays out worldwide. Better Together or Independent really isn’t important unless you’re determined to sort this stuff out. Countries larger than an Independent Scotland would be, and larger than the UK is, capitulate in the face of pressure from global financial firms. What we’ve seen over the past 15 years or so is the exportation of greed as a commodity. When people talk about RBS being a ‘Scottish’ company they might be referring to the HQ building you see beyond the tramlines at South Gyle, but it’s a misnomer. RBS is global, with a dozen subsidiaries and well over 100,000 employees. Talking about it being in one country is an instance of the kind of small minded nationalism the unionist campaign encapsualtes, but in this instance it allows us not to take it seriously, and to believe two very different things at once-that on the one hand it’s our bank because its HQ is near our capital, and on the other hand that any associated risks can be managed without difficulty by being part of a political entity like the UK. While it’s true that the UK was able to bail out RBS it’s just as true that effective regulation could have prevented the crisis from emerging to begin with-and this is something which, again, has been done in the past (Glass-Steagall) and is being done right now (Iceland.) RBS is bigger than nation states, but with effort and courage on the part of our legislators we can put in place regulation to ensure that our community isn’t one to be exploited by such companies.
The idea that we can do something different is far from being pie-in-the-sky. Iceland did something very similar to what many of us have in mind here, and did it efficiently. The principle is simple; no community should ever have its stability threatened by a private company’s exploitation of the community’s behaviour. Setting up effective regulation is both simpler than you might be led to believe by many in the No camp and vastly more worthwhile. Next time you see Johann Lamont talking about the pound on TV remember it’s a trick, possibly unintentional (she may not realise herself how big a game finance is), to take our minds off what really needs to be done. This stuff matters more to us than most other things, and it’s an area the Union has an atrocious track record in-the opportunity to properly regulate our financial sectors is enough of a reason to vote Yes in itself. We shouldn’t be happy with the SNP either, we need to demand proper regulation and oversight, and to demand it from the outset of independence.