Corona Diary, Day 27

Saturday, 11 April

For light relief, a blog post about Brexit

A review written a year ago by Roch Dunin-Wasowicz (“What explains the City of London’s ineffectiveness at shaping the Brexit negotiations?”, paper by Thomas Warren, Scott James and Hussein Kassem) goes some way towards making my puzzlement on this matter more sophisticated (https://blogs.lse.ac.uk/2019/04/08/how-can-we-explain-the-city-of-londons-ineffectiveness-at-shaping-the-brexit-negotiations). According to the article, the City’s influence “traditionally rested on a system of ‘club governance’ informal and closed institutional networks that existed between the City of London, the Treasury and the Bank of England” and describes how this system was challenged by the Big Bang deregulation in 1986 and the later impact of the economic crisis. This led to “the transformation of the financial sector from one driven by institutions (represented by the older institutional trade associations, like the British Bankers’ Association and the Association of British insurers) to one driven by products and markets (leading to a proliferation of new specialist groups, like the International Swaps and Derivatives Association)….a highly fragmented pattern of business organisation”…. which was relatively weak.

I’d been puzzled because it’s not hard to imagine what would have happened if the popular support for Brexit among the working class and those who benefited less or not at all from globalization had been faced by powerful financial and economic layers that were united in their opposition to Brexit (assuming that the referendum had led to the same result, which is doubtful). Had it done so, both the quality and popular press would have hammered home the message that this was not a good idea and the “unfortunate mistake” would have been corrected by a new referendum producing the desired result.

As we know, none of this happened. The response of the leading financial and economic layers was incoherent and fragmented – with support for Brexit from fund investors and not particularly effective resistance from foreign-owned large manufacturing industry and investment capital.

Everything is, of course, now obscured by Corona, virus ex machina, but there are interesting times ahead when the pandemic has subsided. The British negotiating position on equivalence (wanting longer-term guarantees of the access of third party-banks and financial institutions operating from the UK to the European market) seems to include a good dose of wishful thinking. On the other side, the EU would presumably like to reduce the influence of the City of London in its internal financial affairs but may have difficulties in sourcing elsewhere the deep pools of capital available through London.

And despite the resounding success in the general election, I wonder how effective the Johnson government is going to be in promoting the long-term interests of leading financial layers (or indeed whether these interests are sufficiently coherent to enable a political party to straddle them effectively). And how the unholy alliance between the former red wall voters and the Conservative Party will endure when faced by the brute fact that the smart money is unlikely to be invested in the north and other former industrial regions. The Government can provide the money to improve transport links, open an old railway or two, exile a few government organisations to the wild country beyond Watford but I find it difficult to believe that this is going to produce a transformation which would resolve the UK’s regional problems.

Studying the UK’s financial and economic situation has been my other UK project (along with the rather more peaceful and relaxing Dorset churches). It’s fascinating but involves drudgery. My interest in the world of finance, in hedge funds and derivatives and all the rest of it, is at most lukewarm. But I think that to understand what’s going on around us, one must to try to grasp the view from the top, to read the research papers written by banks and organisations on the state of the economy and finance, which are often freely available. I’m struck by the vagueness of much criticism of the state of the economy and modern UK capitalism; sometimes containing heartrending accounts of the shabby treatment of the less well-resourced but most often the view from the bottom, a more coherent and eloquent account of the experiences of the disadvantaged, but which leaves the driving forces in the background shadowy and obscure. So I swallow my medicine and plod on through my research articles, convinced that it’s good for me, while dreaming of pictures of St Jerome and the west country of my imagination.

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