Mulling over the strangely subdued response to the Kay Review, published at the end of last week, I was browsing through a book sent to me recently by that fine social science bookseller Sean O’Donoghue of O’Donoghue Books in Hay-on-Wye. It’s After the Great Complacence: Financial Crisis and the Politics of Reform, by Ewald Engelen and colleagues at the University of Manchester’s CRESC. The essays consider how the financial sector captured the regulators before the crisis, and have a hold on regulatory and political decisions still. The story is a mix of the intellectual grip of a particular market-based view of the world, the incentives not to rock the boat created by the pre-crisis financial boom, and the sheer politics of lobbying.
Looking at these influences as barriers to post-crisis reform, the intellectual landscape has changed and continues to change, the incentives to reform finance are strong – and yet there has been scandalously little reform of either the legal and regulatory framework or the norms of behaviour in finance. That does put lobbying under the spotlight. Yesterday I found these shocking data – which look completely sound although presented in a tendentious way – on the amount spent by financial lobbyists in the US: $1,331 per minute, every minute since 2006. And as the book notes: “If finance succeeded in blocking significant reform in either London or New York, it would nullify reform efforts elsewhere.”
The book goes on to argue that financial lobbying has been unusually effective because it has been extremely well-organized through industry bodies (in my view there is very little competition in financial markets, much tacit collusion) and has supported a persuasive storyline about the importance of the sector to the national economy.
However, UK elections are significantly less money-driven than US ones. Perhaps I’m naive, but surely at some point our politicians will appreciate the additional votes in the widespread anger people feel about the absence of contrition or behavioural change in finance, the continuing misselling scandals, the mounting evidence of fraud and money laundering? Surely?
The CRESC authors are less optimistic and conclude that even UK political parties are too dependent on corporate funding, and the City too closed an elite. It might in the end depend on “provincial radicals”, they say, citing C Wright Mills (The Power Elite); somebody with a non-elite perspective needs to persuade us all of another story. I wish them well!
After the Great Complacence: Financial Crisis and the Politics of Reform