10 Days Remaining

Tuesday 11th
posted by Morning Star in Editorial

CLAIMS that the Bank of England sought to hold down inter-bank lending rates during the onset of the 2007 banking crisis should not surprise us.

From the point of view of the Bank it was attempting to maintain stability and prevent panic. Yet, if true, it did represent an illegal interference in the market for which others in the City have gone to prison.

Equally unsurprising are claims that Britain’s biggest company, Shell, was involved in corrupt payments of £1 billion in 2011 to secure a major oil field contract in Africa — unsurprising because Shell has been caught doing it before.

However, while not surprising, these reports should not be ignored. They concern the heart of Britain financial establishment.

The dominant shareholders in Shell are the leading investment banks from London, New York and the Netherlands.

Along with BP, they lock Britain into close alliance with the dominant US oil monopolies and the control of the world energy market.

Maintaining this control has major geopolitical implications, not least for the Middle East, and is critical for the global role of the dollar.

Pushing down the rates for inter-bank lending may sound quite benign. What’s wrong with cheap money — especially if it can stop a financial panic?

Yet the cheap money in 2007 was being used by Britain’s clearing banks to sustain a web of financially corrupt speculations by investment banks and hedge funds — speculations that brought yields of 10 or 20 per cent to those that made them while the clearing banks paid a fraction of that to their small depositors.

The two reports should remind us that the financial and political system within which we live is, not to put too fine a point on it, socially corrupt — and economically and politically destructive.

Two centuries after the end of the slave trade and 50 years after decolonisation, Africa’s under-development still stems from the political consequences of this external exploitation. Those who flee here to escape violence, civil war and extreme poverty do so as a result.

Britain’s own increasing under-development has somewhat similar origins. That £1bn could have been invested in Britain. So could the many more billions exported each year by the City of London to seek higher profits overseas.

However, a more fundamental issue is at stake. It is about the control of investment — especially in Britain.

The great bulk is in the hands of around 30 to 40 big investment firms. Some are banks; some hedge funds. The average length of any investment is just six months. Their objective is maximum short-term profit.

And if the investment firms themselves don’t produce the goods, their own wealthy clients will switch elsewhere.

This is why high dividends are being paid at the expense of strategic investment and why Britain’s firms rely increasingly on cheap and casualised labour. Longterm it is a recipe for economic disaster.

In the old days, socialists used to call this the rule of finance capital, its governmental support system State Monopoly Capitalism and the international consequences imperialism. Perhaps simpler, kinder words should be used today.

But the reality remains. It is why Britain is increasingly unequal, why social services are crippled, housing unaffordable and too many exposed to gross insecurity and fear.

It is also why we need the kind of policies being demanded by Jeremy Corbyn and John McDonnell: a state investment bank that can channel people’s savings into investments that will benefit future generations and a public sector that is democratically accountable to those who actually produce the wealth.