The transaction generating machine

An important new report has emerged from the Centre for Research on Socio Cultural Change at the University of Manchester, looking at how the financial sector has captured British democracy. The report, entitled "An alternative report on UK banking reform," has far too much in here to summarise, but it's full of good stuff, backing up conclusions reached in our major new Mapping the Faultlines project about an unaccountable City of London being at the centre of many of the world's problems.

One of the Cresc report's main conclusions is that

"The primary obstacle to banking reform is not the technical difficulty about what to do but elite political resistance to doing anything radical."

The report, in its own words

"challenges the City’s story about the social value of finance and presents an alternative activity and business model analysis of how shareholder value has promoted banking for itself."

The City, it continues,

"created a new sectoral business model that fused retail and wholesale through securitization and turned banking into a giant ‘transaction generating machine’."

and the report notes, among many other things, that government reviews of the sector have been so narrowly defined that they have removed the possibility of meaningful change:

"None of these other interested non-City groups were consulted in the information gathering, problem defining phase before Bischoff and Wigley told their story about (the benefits of) finance and drew their policy implications. Membership contained no non-financial businesses and their trade associations, no trade unions despite the unionisation of retail finance workers, no NGOs to represent consumers or press social justice agendas, no mainstream economists or heterodox intellectuals, very few politicians or civil servants."

We can confirm, from experience, that this is quite correct. It is full of details like this, about the Bischoff report,

"an officially published report, crown copyrighted and available on the Treasury web site. That might lead readers to expect a report that was drafted by civil servants. In fact the “secretariat” and the “sherpas” were overwhelmingly drawn from the distributive coalition (that is, the City of London and its coalition of supporters). . . . just one civil servant and four employees from Citi plus three from the City of London Corporation which has traditionally acted as a booster for finance . . . These question and answer sessions were a matter of finance speaking to finance."

And the report's authors say, rightly, that

"if we are to reassert democratic influence over finance, it is necessary to raise big questions and suggest imaginative solutions."

while also noting the political power of Big Finance is far out of proportion to its economic importance:

"The tax revenues from the finance sector in recent years are offset by the immediate cost of bank bail-out. In five years up to 2006/7, the finance sector paid and collected £203 billion in taxes, but the upfront costs of the UK bail-out are £289 billion, rising potentially to £1,183 billion. "