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Aeron Davis

Herding not only increases the chances of survival; it means the trappings of leadership can be retained. It also means that leaders get to keep their professional legitimacy, networks and options open. Westminster is awash with fast followers and herds. This is particularly the case in political lobby journalism which has a lot in common with the financial world. It was the Tony Dye story that really showed me just how hard leaders run for the safety of the herd in times of crisis. Finally, Tony Dye gave me his own version of the Tony Dye story, while also predicting the 2007–8 crash to come. And that was the final bit of the Tony Dye morality tale. Those people who had done the wrong thing, in finance and politics, had not only survived, they had flourished.

in Reckless opportunists
Aeron Davis

Many of the sources of modern-day elite power have changed. Leaders don't all have exclusive educations, stockpiles of money, established old-boys' clubs and secure jobs. But they do possess alternative resources: secrecy and invisibility, access to expert knowledge, connections with new flexible networks and, above all, mobility. Mobility offers the possibility of leaders leveraging their assets, their contacts, knowledge and wealth. For leaders, can-kicking is a regular temptation. In classic studies of elites in the past, formal board networks were deemed to hold a key role in linking leaders across business. An 'inner circle', or elite of the business elite, sat on a number of executive boards and provided a powerful tool of influence. For some decades, globalisation has been promoted as a positive force by elites everywhere.

in Reckless opportunists
Abstract only
Aeron Davis

Elites have become more vaguely linked by key ideas, norms and practices. The tenets of neoliberalism and globalisation, loosely defined, have been widely accepted in most British leadership sectors. Ideas and practices do not necessarily bring social cohesion across dissimilar sets of leaders. The basic contradictions of neoliberalism itself are further fragmenting elites. Large corporations, markets and the super-rich depend on states to function; but their crippling of national institutions, in order to free such 'wealth creators', jeopardises the very systems they rely on. So, in adapting and choosing systems that may produce more appropriate leaders, certain principles might be adopted and initiatives taken: transparency, conflicts of interest, checks and balances, self-policing, public information, social mobility, culture and ethics, intermediary professions, and ideas and innovation.

in Reckless opportunists
The City's Trojan Horse enters the Treasury
Aeron Davis

Chapter three argues that one gap-filler was big finance. Successive Thatcherite Chancellors, including Nigel Lawson, John Major and Norman Lamont, as well as several junior ministers, all had pre-political careers in the London’s financial sector. The same can be found when looking into the background of Cecil Parkinson and others who managed the DTI. Thus, when looking for guiding inspiration as to how to usher in the new economy, all these individuals were very much influenced by their prior professional experiences in the City.

Ultimately, many of the nationalised industries were not simply privatized, they were handed over to the control of shareholders in the London Stock Exchange. Likewise, a series of financial regulatory changes, corporate governance reforms and tax shifts, continually benefitted the financial sector at the expense of UK industry. New Labour had their own reasons for continuing the trends. The consequences were a massive expansion of UK finance and an equally rapid contraction of manufacturing.

in Bankruptcy, bubbles and bailouts
A microeconomists' story
Aeron Davis

Chapter two begins with the crucial shocks that bludgeoned the Treasury: near bankruptcy, the 1976 IMF bailout, and the arrival of the 1979 Thatcher government. The new administration was intent on tearing things up starting with the removal of top Exchequer mandarins. But while the Thatcherites knew what they wanted to get rid of (nationalised industries, unions, Keynesianism), they weren’t so sure of how everything would happen or what would replace state economic forms of management.

That left a rapidly reconfigured Treasury to begin drawing up the map. Behind the selloffs and political battles, changes in the Exchequer were very significant. One of these was the strengthening of the institution itself, giving it considerable new powers over other Whitehall departments. Another was the rise to power of a new generation of monetarists and economic modellers within the institution, replacing the Keynesians and generalists of before.

These combined changes effectively placed economic policymaking firmly in the hands of the Treasury at the same time it was rejecting the idea of state economic management altogether. So began the long road, not simply towards free markets, but to the end of government macroeconomic policymaking. Fiscal policy was put on autopilot while monetarist policy came to be reduced to interest rate setting, a lever eventually handed over to the Bank of England. Micro became the new macro.

The question was what was going to replace all that state-managed industrial activity and multiple forms of national economic investment and stimulation? All these things were still needed to keep the economy growing but who or what was going fill the gap? Chapters three, four and five provide the answers.

in Bankruptcy, bubbles and bailouts
Posh boys take charge
Aeron Davis

Chapter seven reviews the post-financial crisis period and the Coalition Government years, taking us up to 2016 and Brexit. In 2010, just as in 1979, Treasury orthodoxies and small-state politicians found a policy consensus on hacking back public expenditure. The only thing that mattered was eliminating the structural deficit. The trouble was that 2010 was not 1979. There was nothing to replace the impact of public-sector, local council and welfare cuts. There were no great state assets to sell off. The various forms of pseudo-Keynesianism in place stopped operating, as credit creation, big finance and the housing market ground to a halt. International investors (or Ponzi-scheme players) saw a busted economy and took their money elsewhere. When the muted ‘recovery’ did come it was not U but K shaped. The main government interventions – QE, ultra-low interest rates and housing market boosts – primarily benefited big corporate and wealthy asset owners. Rentier capitalism in Britain flourished.

In 2012-13, the Coalition, stuffed full of ‘posh boy’ asset owners, declared the economy was recovering. It clearly was for the bankers, property owners and big companies of London and the South-East. International investors were being tempted back too. The news media, as London-bound and small-state minded as the ministers and CEOs they reported on, were happy to agree the nation had turned a corner. But, all the while, salaries were not recovering, housing costs were shooting up, precarious working conditions were on the rise, and regional communities and economies were collapsing faster than ever. Then, came the EU Referendum. Unsurprisingly, the Remain camp’s lead argument, that the economy would tank if the UK left the EU, provoked a general ‘so what’s new?’ shrug of the shoulders. Anything the Treasury presented suddenly seemed no more or less plausible than any lie put out by the Leave side. The rest is Brexit.

in Bankruptcy, bubbles and bailouts
The rise of the internationalists
Aeron Davis

Chapter five looks at the Treasury doctrine of internationalism. If one replacement for state economic management was the financial sector, another was international business knowhow and investment. Previously, Britain had done exceedingly well out of free trade and exploiting imperial preference. From the 1980s onwards, the globalisation credo was adopted once again by Treasury officials, Thatcherites, and New Labour ministers alike. Everything was done to open up the UK economy, to encourage international investment and big foreign multinationals to set up shop.

In some cases, like car manufacturing, industry and exports were revived very positively. But overall, the story has not been so successful. Such an open economy approach did not help home-grown business innovation and expansion. Instead, more and more of UK finance, industry and real estate came to be owned by often transient non-UK multinationals and financiers. As international ownership of UK companies has increased, so manufacturing capacity and profits have been relocated abroad. Investment, productivity and home-grown supply chains have declined. It’s easier to buy, break up and sell off a company in the UK than almost any other advanced economy. Come Covid, despite having a world-leading life sciences sector, Britain didn’t have a UK-based manufacturer capable of mass-producing PPE or vaccines on home soil.

in Bankruptcy, bubbles and bailouts
The financial fixers come to town
Aeron Davis

Chapter four suggests that Keynesian-style demand management may have been wound down but, in its place came various manifestations of pseudo or privatized Keynesianism. These both cut Treasury expenditure and stimulated economic activity without immediate public costs. To enable such developments required outside experts and networks that spread across the top business consultancies, accountancies and investment banks. So emerged a group of financial fixers, intermediaries who moved between private and public and back again.

Pseudo Keynesianism came in several forms. In the 1980s it was privatizations, council house sales and North Sea Oil. For Labour in the 2000s, the golden elixir was PFI (Private Finance Initiatives) that allowed huge public investments to be made off-balance sheet. For both Labour and Conservatives, there were three more ‘magic money trees’: deregulated finance, enabling a large new source of private credit creation, puffed-up housing markets, and then QE (Quantitative Easing). As far as the Exchequer was concerned, all these initiatives generated income and stimulated economic activity without showing up as public spending. The hidden down sides were an ever-growing accumulation of long-term individual, corporate and government debt, and a stagnating economy that encouraged financial market trading and rentier behaviour rather than productive investment.

in Bankruptcy, bubbles and bailouts
A technocrats' tale
Aeron Davis

Chapter six focuses on the great financial crisis of 2007-08, when everything fell apart. The crash sucked in many countries, but the UK economy was hit particularly hard. The banking crisis revealed the larger problems of its Ponzi-scheme style economic model, built on growing private and public debt and reliant on an over-sized financial sector and fickle international investment. Although the Treasury was to appear the nation’s saviour, the institution was also culpable for helping shape and then shore up such an unbalanced and unstable economic system.

The key question that occupies the chapter is why no substantial paradigm shift followed. Whatever version of capitalism that had been operating in the UK was no longer working. Even the super-rich of Davos, OECD and IMF technocrats, and the Queen of England, could see that. Neoliberalism had hit its wall. Keynesians and other heterodox economists came out to cheer on the new economic revolution. And then … nothing. But for a raft of new banking regulation, arranged by mild-mannered technocrats, it was status quo as usual. Governments everywhere absorbed their failing banks, loaded up their debt, and flushed trillions in government-issue monopoly money (QE) around the failed Ponzi-scheme system.

in Bankruptcy, bubbles and bailouts
Abstract only
An institutional perspective on UK economic history
Aeron Davis

The conclusion pulls together the varied findings from different chapters to give a long view perspective on the changes and continuities over the period as well as on the consequences that followed. It ends with some brief speculative proposals for change.

in Bankruptcy, bubbles and bailouts