Author: John Rees, Trancript by Paul Hartley
Date: 2 January 2014
Type: Review
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The right wing press are in a state of frenzy over PJ Harvey’s wonderful job as guest editor on BBC Radio 4’s the Today programme – featuring this piece by John Rees

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When David Cameron had something to say about austerity last November, namely that it was going to be, in his words, ‘permanent’, he chose to say it amidst the gilt and gold of the Lord Mayor’s banquet at the Guildhall in the heart of the City of London. The venue could not have been more appropriate, for there are two cities in London: the City of London – the financial square mile – and the larger metropolis of which it is a part. Cameron chose to speak in the City of banks and corporations, not the city of working London.

As you leave London and enter the City, passing the special bollards bearing the crest of the City of London, you enter a place apart. This City has its own police force, its own laws and a special seat in the House of Commons, occupied by the Remembrancer, whose job – and £5 million a year office – is charged with the task of ensuring that the interests of the City are not damaged by the careless acts of elected representatives. Even the electoral system in the City is different, where businesses have votes according to the number of people they employ.

But where did all this begin? I went down to the Museum of London, which stands exactly on the line of the old wall around the City, to talk to Dr Ariel Hessayon of Goldsmiths College, University of London.

Ariel Hessayon

The key transition of money is really something that happens in the 17^th century, particularly with the diversification of goldsmith activities. From the 1660s-1670s they are beginning to issue notes saying ‘I promise to pay the bearer’; they are beginning to issue cheques for the first time from about 1670; the focus that England has becomes much more international; it looks much more out to the continent; and William of Orange needs British finance to fund his wars against Louis XIV.

Money is always the sinews of war, and what he needs is extensive amounts of income to be able to fight those wars, so he needs to centralise the debt into a public, national bank, and we get this with the formation of what becomes the Bank of England in 1694. The connection with war is absolutely fundamental. You are paying for the war on the promise of getting the money, and you need a central organisation. The financing of war is an extremely political agenda.

John Rees

As soon as the City was established as a financial centre in its modern form, it went bust in one of the most spectacular crashes of all time. The South Sea Company was a slave-trading company, but the real centre of the company’s business was banking. The company took on the national debt of Great Britain after the war of the Spanish succession in 1713. This early private finance initiative made the company all the rage among the elite. Politicians, ministers and the King’s mistress all bought shares and found themselves bound to the fate of the company. The price of South Sea Company shares rocketed from £100 to £1,000 each in a year.

But, as with every bubble, it had to burst. The price crashed back to £100 a share before the end of 1720. Banks and goldsmiths failed. Broken investors were outraged. Parliament was recalled. An investigation was announced. When it reported in 1721, it revealed fraud at the highest levels, among company directors and the Cabinet. The Chancellor of the Exchequer, the Postmaster General, the Southern Secretary, Lords Stanhope and Sunderland were all implicated. Ministers were impeached and the Lord Chancellor imprisoned.

If there has been any change in subsequent crashes it is that penalties for the rich have tended to be less severe. But the links between the City and Parliament are as strong as ever. Some 68 MPs and Lords have controlling interests or directorships in corporations linked to tax havens. At a time when privatisation of the NHS is being debated, over 75 MPs have business interest directly linked to private pharmaceutical firms.

I talked to Oxford professor Danny Dorling about the effect of having a powerful financial sector so hermetically sealed from the society of which it is a part.

Danny Dorling

You can see the spreading out to Canary Wharf and so on and the buildings rising up there and the areas very near by where the people who work in Canary Wharf will not live. But there is also another hidden city, which is towards Mayfair, where all you get to see are brass plaques on the wall, because they don’t need to advertise themselves – these are the hedge funds that only operate for the extremely wealthy.

The kind of decamping of the poor from London is now becoming widespread. It was originally the City area and the area immediately around the City of London that this first happened to. Now you are seeing the pushing out and the eviction of a much wider group of people, partly purely from market forces – you know, the average house price in London is heading over half a million – and that is changing who can be there.

The other thing that is very important to say about London – what is so different in London to the rest of Europe – is that London has a couple of thousand bankers who are earning over £1 million a year, whereas the next highest is less than 200 in the whole of Germany. This really is a very, very odd situation.

John Rees

London is one of the most unequal cities in the world. The average wealth of the top 10% of Londonders is over £1 million, compared to a meagre £3,500 for the poorest 10% – a wealth multiple of over 270. But not all the rich live in the City of London. Perhaps they commute from Elmbridge in Surrey, population 131,000, where property is now worth as much as the entire residential assets of the city of Glasgow, population 600,000. Or perhaps they don’t actually live in the UK at all. So-called super-prime real estate – the top 5% of the most valuable properties – is over 50% owned by private funds and individuals from abroad, leading to the ‘lights out’ syndrome of the richest areas of the city, where houses are owner unoccupied.

All this while a desperate housing shortage is felt at the bottom of the wealth pyramid. This wealth disparity is literally a matter of life and death. Life expectancy drops by one year for every stop travelled east on the underground from Westminster on the Jubilee line. Adults in Hackney are twice as likely to die before their 65^th year as those living in Kensington and Chelsea.

The effect of the City of London is felt on the whole course of national economic development. Bank assets as a percentage of the entire wealth of the country have risen by nearly 200% since the big bang in the 1980s. Banks have become so important than in the 2008 crash the government spent much more money to bail them out than in any comparable economy. Support for the banking sector in France was just 20% of national wealth; in Germany, 25%. Even in the United States, where the crisis began, it was only 35%. But in the UK, the government pumped money into the banks that was worth nearly 90% of our national wealth.

I went down to the Royal Exchange, one of the oldest trading sites in the City, to talk to James Meadway, senior economist of the New Economics Foundation, about the economic impact of the City.

James Meadway

Particularly after 1986 or so it was positioning itself as a hub for money dealing right the way across the rest of the world. This is only incidentally related to what you or I or anybody else in the country does on a kind of day-to-day basis. Of course, we have large banks, and it is a monetary economy so we make use of them. But if you are talking about the City, this is focused on the rest of the world. And the offer really that it makes is, if you want to do some money dealing of some sort, if you want to create derivatives, if you want to trade options, if you want to do all these things, come to the City because it’s cheap, we have people able to do it, you will make a load of money out of it, it is a very permissive regulatory environment, we have a government that thinks what you are doing is great. It is a really good place for you to do this sort of thing.

John Rees

In fact, although City boosters claim that the City creates jobs, there are just 332,000 jobs in banking, out of a work force of 4 million in London. James Meadway again.

James Meadway

It is the loss of manufacturing jobs, which are often usually more secure and better paid than certainly what replaces them, which for most people over a period of time becomes worse paid, insecure service sector jobs, where you don’t have the kind of protections that had developed in manufacturing industries. So you get a hollowing out of the labour market. You find lots and lots of people in these kinds of service sector jobs, which are actually not particularly pleasant – the appearance by now of zero-hours contracts, of falling wages, all the rest of it – and then a tiny section of society, particularly associated with financial services, does very, very well out of all of this. If you take the top 1%, you are talking a good third are involved directly in financial services. There is a very, very large chunk of very rich people directly engaged in financial services who have done very well out of the appearance of the City as such a major financial hub.

John Rees

This isn’t the City that David Cameron likes to talk about. In his view, the City is an engine for the economy, a wealth generator, its great oligarchs worth the riches that they are paid. But that simply isn’t the case. The City is a crash-prone debt generator. It is an engine of inequality. It disfigures the economy and blights the city. It is, as William Cobbett, the great 19^th century radical, described it, “the great wen” – a boil on the face of the nation.