Capitalism replaced feudalism: it was defined by Karl Marx as “the dictatorship of the bourgeoisie” because he believed that it was run by the wealthy classes for their own benefit. The small cabal of public school, landed grandees who own, and run, the Conservative Party live in the hope and expectation that they can keep the system going for their own benefit.
Their problem is that they have lost the art of winning General Elections. Until Tony Blair came along the Party would bury its differences and win the necessary votes. In 1997 the seismic change was not the Labour landslide but the liberalisation of monetarism by the giving to the Bank of England free reign. Lord Lamont used to claim credit for this reform but seems to have gone rather quiet on the matter.
With Bill Clinton in the United States deciding that everybody, regardless of status, should have a mortgage and Goldman Sacs discovering the power of ‘independent’ credit agency labelling of their packages of securities a credit spree began. Gordon Brown announced the end of ‘boom and bust’.
Britain’s Middle Class decided that capitalism was for them. Thatcher’s share owning vision had come and gone and energy and transport costs seemed to be rising. Credit was the name of the game. Northern Rock redefined a mortgage as a social contribution to the needy and credit card companies sent out millions of blank cheques. The middle class filled them in and paid them in to their bank accounts. Inflation made everybody feel better off.
The bubble burst in 2008 with the collapse of Lehman Brothers in the United States (so brilliantly depicted by Kevin Spacey in the recent film ‘Margin Call’). The Icelandic banks were unable to continue their support for the purchasing of retail stores in Oxford Street and several football clubs and the Irish discovered that about five property developers had bankrupt their banking system. Alistair Darling had to rescue the Royal Bank of Scotland, Northern Rock and Lloyds Bank.
Then the blame game began. “It’s all Gordon Brown’s fault” cried the Coalition Government but claimed they knew all the answers. Then it was the failure of the rich to pay their taxes, it was the Revenue who was culpable because it did not collect taxes owing, it was the accountants fault for helping the rich avoid the payment of taxes, it’s the welfare benefits claimants who should be working, it’s the immigrants claiming benefits and the Romanians are coming. The tax rates are wrong: sorry about negative interest payments to those with savings.
The most vitriolic attacks have been made on the financial services sector. A regulatory monster has been created with its leaders making Health and Safety Officers seems like children’s puppets. A punitive and accusatory atmosphere now exists. It’s getting somewhere near to the 1950s in the United States when Senator Joe McCarthy convinced millions that the country was full of Russian spies.
The best way to understand the consequences of this situation is to looks at the ‘Recent Issues’ list towards the back of the ‘Companies Section’ in the ‘Financial Times’. The present numbers are the lowest I can remember. In other words the financial services sector has ground to a halt. Brokers are going to wall left, right and centre and there are more to follow. There is no bank debt available and if crowd funding is the answer to the provision of early stage equity then many widows and orphans are about to lose their money.
The solution to the problem is to return to capitalism: reject the politics of envy and return to the belief in the creation of wealth. Let the banks free and rebuild the financial services by telling the Financial Conduct Authority (“FCA”) to repay 50% of the fees taken off their members (it is possible I promise you).
The simple way to control the financial sector is to ensure that on each Board of any financial services company capitalised at over £100 million there are two independent directors, one appointed by the Treasury the second by the FCA. That would have stopped Fred Goodwin, Sir James Crosby and the rest. The FCA can then settle down to provide authorisation and inspection processes.
The Coalition are realising that they cannot reduce the debt. They have to encourage enterprise.
The solution is simple. Return capitalism to the people by allowing enterprise to flourish. This will happen when the financial services sector is set free.