John Tummon argues that the City of London is becoming increasingly detached from the British economy and UK state and is taking on a role more akin to medieval city-states.
LONDON – THE NEW HANSEATIC LEAGUE
Those who like to point to every decimal point increase in unemployment, GDP or productivity as evidence of an upturn, when the government spins figures every month or two, are ignoring the more important indicators about the direction of economic, social and political travel.
I read a couple of articles in Observer, based on a government report by Lord Young and a TUC report for the newspaper –
Putting these together, the clear picture emerging is that Osborne’s “march of the makers”, shortly after the 2010 General Election, was just empty rhetoric, as I think most people would agree. Instead, the City of London is still creating around it a city region which looks more and more like a City State that is, in turn, part of some 21st century version of the medieval Hanseatic League, together with Manhattan, Shanghai, Frankfurt, Singapore and a few others, where nearly all the world’s multi-millionaires live and dominate. The recession has increased this tendency – the poor are being socially cleansed from the British capital by government policies, while on the other hand 4,224 multi-millionaires – classed as individuals with net assets of $30m (£19m) or more excluding their primary residences – and 281,000 dollar millionaires (one in 29 Londoners) are generating a consumer- and housing market-led recovery.
267,000 net new jobs have been created in London since the start of the recession in 2008, many purely out of the spending of this mega rich; yet almost every other part of the country has fewer jobs now than before the crash. UK employees’ average hourly earnings have fallen by 8.5% since 2009 in real terms, adjusting for inflation, according to the Office for National Statistics. Official statistics also show that any potential economic benefits of a recession for new businesses are not being shared across the country – In London, 14.6% of active businesses in 2011 were new, as against 10.4% going out of business whereas no other region shows a surplus in this. The cost of a property in one of central London’s “prime” areas, such as Knightsbridge or Kensington and Chelsea, has jumped 25% in the last year to an average of £1,186,817. Luxury property agents Knight Frank say that London’s housing market is boosted by rich overseas buyers who see a house in the capital as a safe haven for investment. They report that foreign buyers accounted for 52% of all prime central London sales worth more than £2m over the past year.
Boris Johnson claims “London is leading the recovery” but this is just more empty rhetoric – the London ‘recovery’ is clearly of the type that no other region is able to replicate. No – London is monopolising this recovery.
Professor Karel Williams, from the Centre for Research and Socio-Economic Change group of academic researchers, says “The ex-industrial working class are marooned by the lack of cheap housing. For somebody who’s lost a council job in the north of England to come down to London with a family – how would they live?”
Just to ask this question shows the pattern that is emerging – of a City with more and more interests with other comparable cities and with the tax havens of the world – and less and less in common with its hinterland. In fact, London’s hinterland contributes hardly at all to the capital and the obverse is also true, with the sole exception of the commuter belt immediately around it and those who prefer to commute to their London jobs from mainline stations 2 or so hours away.
London, or more exactly London finance, was the initiator and epicentre of the post-2007 economic crisis. As such, the sector and the broader London area could be expected to pay the price in the form of high unemployment, declining property prices and such like, but no, it’s the rest of ‘the country paying. London is the only part of the UK economy that has not experienced job losses in the first phase of the new age of austerity.
In the worst economic downturn since the war, between 2007 and 2010, some 712,500 jobs were lost nationally but more than 85% of that total or some 621,200 were lost in the ex-industrial regions of the West and North with the heaviest proportional losses concentrated in the West Midlands, Wales and Scotland and the number of jobs in London actually increased by just over 5,000. The proportion of publicly funded jobs, which have been the target of post crunch government cuts, is far higher outside London and the South East.
London contributes more to Europe and the world than to Britain and is more connected to international trade than to the rest of us. Of the overall growth in employment in London of 13 per cent, or 388,000 people, between 1997 and 2006, more than 85 per cent of the new jobs went to London residents born outside the UK.
This emergence of London as a capital of international finance increasingly distanced from the rest of Britain has been going on for several decades. From 1979, London, through finance, was drawing away from the rest of the national economy especially the North and West, which had no visible means of job creation to replace lost manufacturing jobs.
Finance presented itself as the leading sector of the London economy, which was creating jobs through trickle down. In reality, Finance was in many ways London’s dividing sector because it concentrated prosperity within London and then within a few small areas of London. London’s success after 1979 was partly secured by the centralisation of everything as well as finance in an increasingly London centric politics, media and culture, fed by the relative decline of the provinces. Finance was then an active agent of increasing division and inequality within the London area and outside.
A small number of working rich, senior bankers and financiers in and around the City of London earned ever-increasing incomes after the de-regulatory Big Bang of 1986. Their lucrative employment was highly concentrated in the local government area covered by the Corporation of the City of London. A small group commuting from a few suburbs of choice to place of work in the old City in the square mile behind St Pauls or to the main new City location in Canary Wharf, with alternative investment colonising a Mayfair village.
The issue of whether London as a whole is doing well is therefore beside the point. London is different because employment is increasing but the high wage beneficiaries of London finance could probably be fitted into a couple of football stadia.
The City has very little connection with the rest of the metropolis except insofar as nondescript middle-class suburbs like Enfield or Beckenham supply PAs and poorer boroughs like Tower Hamlets house immigrant supply office cleaners. There is more private affluence for the privileged in and around finance in the metropolis but still very little trickle down for London’s working poor.
Foreign firms dominated the new City after 1986. Most of the British financial services firms that joined the new competition after the Big Bang in 1986 lost out and were quickly sold on. Barclays Capital is the only successful and surviving large investment Bank which can claim to be British owned; and private equity is the only sub sector of finance where several British firms feature prominently. The UK banking sector originates more cross-border bank lending than any other country – 18% of the world total in June 2010- and around half of European investment banking activity is conducted in London. There were 241 branches and subsidiaries of foreign banks in London in March 2010, more than in any other centre worldwide and a third of these banks were from the euro area. Foreign banks manage over one-half of UK banking sector assets, totalling over £7.6 trillion at the end of 2009, mainly on behalf of foreign customers. Non-UK companies increasingly dominate even the stock exchange.
Front bench politicians from all three main parties all swallowed the line that financial services were the goose that laid the golden eggs. Over the 6 years up to the Credit Crunch, Finance supplied only 6.8% of government tax receipts as against manufacturing’s 13.4%, because it was, ever since the Eurobond, built on tax avoidance.
The abolition of the Greater London Council (GLC) in 1986 coincides with a parallel reconstruction of the government of financial markets. The GLC had, over decades, delivered nearly a million social housing units in flats and garden city estates, a universal school system, an integrated city wide transport network, and a green belt around London; all in an attempt to govern the conurbation in the public interest according to broad strategic principles influenced by a democratically elected institution. Instead, London got an unelected quango – Thatcher’s Docklands Development Corporation – which delivered a very different set of priorities – the Canary Wharf finance district, Surrey Quays shopping centre, ExCel Exhibition centre and infrastructure like London City Airport and the Docklands Light Railway, which carried those with jobs and money in and out of a new district which had very little to do with adjacent deprived working class communities. This has most recently been topped off by the up-market Westfield Shopping Centre in dirt-poor Stratford. In place of the GLC, London also got a complex system of self-regulatory organisations for individual markets presided over by a Securities and Investments Board endowed with some authority but carefully protected from the influence of democratic institutions like Parliament. It also got the Financial Services Authority.
The Corporation of the City of London – has likewise reorganised into a systematic lobby for London finance. The business vote in all other local government systems of the UK had finally been abolished in 1969. The Act of 2002 not only retained the business vote in the City, but greatly expanded the range of the business franchise, so that business vote now actually outnumbers the residential vote in the City. The Corporation has applied its considerable historical endowments to building up its advocacy and economic intelligence capacities: it was the Corporation, for example, which provided much of the research work for the Bischoff Report.
The loud debate on EU membership, like a lot of what passes for public political discussion, serves mainly to hide the reality of what is happening. By getting a bit of old-fashioned nationalism going, Farage and right-wing Tories play an important smoke and mirrors role. Some commentators see UKIP as the revolt of the provinces against the London establishment; insofar as there is anything in this, it is being achieved through sublimating the internal break-up of meaningful national identity via an imagined external threat to the same identity. In short, UKIP have the wrong target.
Unless and until the Left takes this strongly emerging politico-economic configuration seriously, we cannot begin to construct a politics that corresponds to the changing shape of reality and articulate the challenges this poses for people. The rest of the country is to London what the less attractive parts of other continents are to North West European and North American investors. The City of London Corporation and its allies in the financial and arms industries captured the British state some time ago and none of the three main parties has a problem with this; they talk to each other with their backs to the rest of us. This professional political class has come to realise, though not admit, that it has no way of squaring this with any meaningful strategy for reviving the rest of the country – in other words, there is no longer any coherent set of policies – social democratic, centrist or neo-liberal – that can be applied to such a bifurcated polity as the UK, and this would still be true if, the other side of Scottish and Welsh independence, the polity was just England. Unionism in any form is rendered obsolete by the emergence of the City State. Secession is the logical step for those whose existence stands more and more outside the City State.
Unionism needs to be challenged head-on by the Left. We need to work towards the break-up of the UK, in line with the direction of historical development and to counterpose this as the only serious and radical alternative to either the drift of the three main parties and UKIP’s sublimation of it into an anti-Europeanism, the consequences of which even its own supporters are anxious about and only connect to through a vacuous nostalgia. An independent Scotland, which in all probability will be well to the left of the EU norm, could become an alternative pole of attraction to the rump of the UK as the reality of the City State becomes ever clearer.