The failure of an important segment of the British banking system in 2007-09 has led to a crisis of legitimacy for the City and for a distinctively British brand of capitalism in which the financial sector is regarded as the pinnacle. This loss of legitimacy has led to some unusual events such as the Occupy the London Stock Exchange movement and the decision to strip Fred Goodwin of his knighthood. In order to understand recent events it is important to put them into historical context, and that is the purpose of our paper.
The dominance of the financial sector in Britain is a legacy of formal and informal empire. London remains one of the world’s leading financial centres. Though the recent spectacular failures – Northern Rock, RBS, and HBOS – had provincial or Scottish origins, they adopted the ethos of the City and were able to expand so rapidly, in part, because of their access to London capital and human capital markets. Theirs was an ersatz and ultimately brittle form of financial imperialism.
In many critics’ minds the ‘City’ functions as a synecdoche, where the part stands for the whole: London is equated with British finance capital, embodying its contradictions and weaknesses. Ever since the late nineteenth century the British financial establishment has come under periodic attack from those who regard its actions, rightly or wrongly, as detrimental to the overall wellbeing of the British economy. J.A Hobson condemned the City’s alleged involvement in promoting colonial expansion; in the interwar period the City and the commercial banks were attacked for sending capital and jobs abroad, starving SMEs of funds for expansion, and exacerbating or causing economic cycles; during the period of rapid British relative economic decline in the 1960s and 1970s some of the same criticisms about the City’s failure to service the needs of provincial industry recurred, albeit in a milder form. In essence the City was attacked as a privileged enclave, earning high rents regardless of the state of the rest of the economy, and often at the expense of the provinces.
The economic costs and benefits of the British Empire are not the focus of our paper. But it is reasonable to suggest that one of the legacies of the City’s grandeur is a financial sector with excessive power vis-à-vis the rest of the British economy. During the 1920s and 1930s - decades of persistent economic malaise in the eyes of many at the time - the attacks on the City became increasingly intemperate and violent in tone. In the 1920s, for example, Oswald Mosley condemned the City from the left, but in the 1930s he attacked it from the fascist right and singled out Jewish financiers for punishment. The Douglas Social Credit movement followed a similar trajectory. There is a risk that unless the City is reformed, and its place in the British economy reconsidered, the current anti-banker sentiment, which at times borders on hysteria, may turn into something much nastier and more divisive. Perhaps it would be desirable to encourage stronger regional financial institutions and networks that are closer to the financial sector's clientele.