Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Anglo Disease watch (4) - No industry is vital - except finance

by Jerome a Paris Wed Jul 4th, 2007 at 06:44:34 AM EST

Just a reference point, with the interview of the new Chancellor of the Exchequer, Alistair Darling, where he blasts Sarkozy on competition and industrial policy, while continuing to support Britain's industrial policy to support the financial services industry against all:

"There is an ideological battle in Europe at the moment between those who genuinely believe in the Lisbon process we signed up to seven years ago and those who don't, to put it bluntly," he said.

"It is impossible," he added, "to designate a particular industry or product or whatever, that is so essential to our way of life."

So, no industrial policy, because it's bad

The chancellor was happy to put the boot into Nicolas Sarkozy, the new French president. "I do not believe in economic patriotism," he said. "I think it is nonsense. Economic patriotism is protectionism and there is no other name for it."

... except when it's London's industry:

Mr Darling is in no doubt that the City of London is the engine behind the UK economy and is less than sentimental about Britain's lost manufacturing prowess. The City was absolutely critical to the UK economy, he said, and it was a fact of life that financial services would remain dominant.

"I do think the rest of the country [needs] to realise how just important this part of our economy is - and growing importance. The fact that we have such a healthy services sector - a financial services sector - is good for our economy and we should play to our strengths rather than harp back to a structure that might have been appropriate years ago."

Asked about the campaign to change the tax treatment for private equity he said he would "always strive in making changes to try and make the [tax] system simpler", but would not make quick changes to capital gains tax or the taxation of individuals not domiciled in the UK, even if it would gain him favourable headlines.

"I think we should be very, very wary indeed of a knee-jerk reaction or a reaction to a day's headlines into making a tax change that could result in unintended consequences and undesirable consequences," he told the Financial Times.

Echoing comments made by Sir David Walker, the former City banker and regulator at the Commons' Treasury committee, Mr Darling said London had benefited from ill-thought-through legislation in the US on corporate governance.

"I am reminded of Sarbanes-Oxley in the US....and they're now looking at how they can get out of it. There is no doubt it has damaged the US market," he said. "When or if we make any changes they must be made at the proper time in the context of the Budget or the pre-Budget report and in the context of making tax reform which is beneficial to the country."

Taxing investors less, or imposing fewer regulations on them is policy - it is that of an offshore financial center trying to capture business from elsewhere.

And, as he is making explicit in this interview, that policy is going to be expanded: "what is good for the City is good for the country". In that respect, one little tidbit in the Ersnt&Young report on various countries' attractiveness for foreign investment that has been discussed previously (mostly with respect to how France "was faltering") struck me back then in the FT article on the topic:

France falters as investor target

France has lost market share of inward investment into Europe, according to figures published Wednesday, allowing the UK to consolidate its position as the continent's favoured destination for FDI projects.


The UK and France remained the top two destinations, with other European countries falling well behind.


The UK's performance was driven by London and the south-east, which attracted more projects than any other country in Europe, with the exception of France. While London and the south-east secured more than 50 per cent of projects into the UK, Paris received 19 per cent of those into France


London's booming financial services sector benefited from an increase in investments originating from the US.

i.e. Paris received a share of investment more or less commensurate with its share of economic activity in France, suggesting that large chunks of France are attractive to foreign investors. Conversely, London is concentrating the majority of UK-bound investments, and the financial services seem to dominate that chunk.

The UK seems bent of becoming a mono-industrial country, concentrating activity, wealth and policy focus in a tiny corner of its territory, and ignoring the rest. And Darling is saying that this is explicit government policy...

Having been in the belly of the beast, and had a few years since to put my experience into context, I have no hesitation in saying that the City has become increasingly parasitical to the extent that it is in danger of killing its global host.

The City - in its current bank-centric manifestation anyway - IS the Anglo Disease.

It increasingly does not add Value, but extracts it form the UK's "productive" sector and from every other country it battens on to.

However, a change to City hegemony is already under way, and value-extracting financial intermediaries who do not make the change to value-adding service provision will shortly end up on the scrap-heap.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 4th, 2007 at 08:17:57 AM EST
I think we should stop talking about the UK, or even of England. It's all about London. They don't even bother to hide it.

(That is of course typical of offshore financial centres. They don't call for much space. An island will do. A city is fine. Mailboxes, telecommunications, some offices, and that's it. "A clean shirt and a blower", as Magnus Pym's con-man father says in John Le Carré's A Perfect Spy.)

I'd be interested to know if Darling realizes how contradictory his statements are. He doesn't actually have to bother his head about it. Is there a journalist anywhere who'll point it out?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jul 4th, 2007 at 09:12:31 AM EST
The problem is that the UK scene is divided between the "serious" and "unserious."

Larry Elliott who is economics editor at The Guardian has pointed this kind of contradiction out in the past, but nobody cares, because, well, he writes for The Guardian, so what credibility does he have compared to a 1000 mud flinging tame economists working for think tanks like the Adam Smith Institute?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Jul 4th, 2007 at 10:57:56 AM EST
[ Parent ]
that it's not even the city of London, but just the self-capitalised "City", and the very small geographical area it occupies (the similarly self-aggrandizing "Square Mile" and its recent annex in the Docklands and around Mayfair).

Most non-City Londoners (and even a large chunk of City workers) have to pay the price for that extravagant parasitic concentration of wealth in that real estate prices have become insane, and, with the insanity decreasing in slow concentric waves, people need to live huge distances from their place of work, with the accompanying strain on infrastructure and the price of everything else.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Jul 4th, 2007 at 11:05:38 AM EST
[ Parent ]
Great diary Jerome.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Jul 4th, 2007 at 11:00:25 AM EST
Our experts describe you as an appallingly dull fellow, unimaginative, timid, lacking in initiative,
spineless, easily dominated, no sense of humour, tedious company and irrepressibly drab and awful. And whereas in most professions these would be considerable drawbacks,
in chartered accountancy they are a positive boon.

Monty Python.

by Lupin on Fri Jul 6th, 2007 at 08:07:51 AM EST

Go to: [ European Tribune Homepage : Top of page : Top of comments ]