“We wholeheartedly support the government’s aim of boosting the UK’s long-term economic growth, including through financial regulation,” the letter said. “Yet we think competitiveness is an inappropriate goal for regulators.”
No doubt this is a view that will enjoy broad support across the establishment, especially among the kind of die-hard Remainers who are always appalled that the UK is creating its own set of financial rules rather than those drafted in Brussels, with the help of our competitors in Paris and Frankfurt, and among intellectuals instinctively hostile to free markets. But that doesn’t mean anyone should listen to them. In reality, there are two big problems with the analysis.
First, it is uncertain whether deregulation caused the 2008 financial crisis. In fact, it is just as likely that overregulation, which forced banks to hold too many so-called “safe assets” such as mortgage bonds, and an excessive box-ticking that replaced sensible judgments with “triple-A ratings” that turned out to be wrong, were equally to blame.
So did the misjudgments of central banks and their political masters, which fueled bubble after bubble until debts exploded. A more liberal approach, relying on sound money and letting bankers make their own decisions and bear their own losses, would have worked much better and also avoided a crash.
Second, competitiveness is essential to effective regulation. That’s true at all times, but as the City charts its post-Brexit future, it’s truer than ever. Excluded from the main European markets, the City must find a way to compete with New York, Singapore, Tokyo and Dubai, and offer a service offer that was simply not possible with the regulatory rules drawn up in Brussels.
Without it, we will have the worst of all worlds, outside the single market, but with all its restrictions. Of course, some people just don’t like bankers and want us to have as few of them as possible. Indeed, the “experts” reveal some of their prejudices when, towards the end of the open letter, they claim that the UK suffers from “too much finance”. There’s so much wrong with this worldview that it’s hard to know where to start.
How is anyone, and in particular a group of professors, going to know exactly what the “right amount” of funding is (and come to think of it, is Stuggart making “too many cars” or Silicon Valley “too much technology”), or what kind of commerce should be allowed, and why do they think they know more than the market?
But for the rest of us, who recognize that finance is one of the most successful industries in the UK, and one that generates vast wealth, many exports and huge tax revenues, it has hardly of meaning. The more funding the better, especially when exported.
The Johnson administration has very little say in the economy. He spent too much, imposed too many tax increases and moved far too slowly to seize the opportunities for radical deregulation that Brexit presented. The plan to ensure that the City’s regulatory regime embraces competitiveness is one of the few things he’s gotten right. In reality, it will make markets safer and, in the medium term, will also make the UK wealthier – even if a motley group of academics, exporters and activists cannot see it.