WE should be grateful for small mercies: yesterday’s announcements from the government concerning the banking crisis were half good. It is excellent news that the authorities have become more serious in their determination to prosecute wrong-doing criminally. Fines are not enough; we need to see tough jail sentences for those who break the rules and a change in the law if necessary to achieve that. The probe into the despicable and disgraceful Libor affair also makes sense – it will be speedy and to the point.
But I’m not sold on the parliamentary inquiry. Rather than relying on endless, energy-sapping and hugely time-consuming investigations partly designed to make politicians feel good about themselves, the authorities should focus on their core purpose: fighting fraud and rule-breaking wherever it occurs. Andrew Tyrie, the excellent chairman of the Treasury Select Committee, will undoubtedly do a good job trying to investigate what really happened and who in the City, the Bank of England, the Treasury and government agencies knew what was going on – why does he need another committee? I hope he’ll prove me wrong.
It is also laughable nonsense to assume that wrong-doing only happens in finance. GlaxoSmithKline yesterday settled a US fraud case in return for a $3bn fine – far more than what Barclays had to pay. Fraud and dishonesty happen in all realms of human action, public and private. Their occurrence shouldn’t be exaggerated – the vast majority of people are honest the vast majority of the time – but neither should anybody pretend that human beings are angels. Wrong-doers should be prosecuted, regardless of industry. That is the government’s job.
MANUFACTURING IN CRISIS
It is easy to become obsessed with the banking scandal but the state of the world economy is an equally pressing issue. Yesterday’s US ISM manufacturing survey revealed the first contraction for three years in that key part of the world’s biggest economy. America is not yet in a double-dip but this is a deeply worrying development, with potentially far-reaching repercussions. Barack Obama will be hoping that the trend reverses itself: the US electorate doesn’t look kindly upon presidents seeking re-election when the economy is shrinking.
The UK manufacturing sector is also continuing to contract, albeit at a slower rate. The Eurozone is, of course, in crisis; even Germany’s manufacturing sector is shrinking. China too is in negative territory (on the HSBC measure, rather the less reliable official statistic, which still shows a tiny amount of expansion). The problems facing the Chinese economy are perhaps the most worrying of all: like other economies, it too has pump-primed growth in recent years. At some point, however, stimuli cease working and the distortions created begin to hinder, rather than help, the recovery. The authorities in Beijing may well be at that stage.
Many countries are still suffering from the need to liquidate bad investments made during the bubble days; others are either deleveraging or accumulating debt at a slower rate to avoid bankruptcy; and the Eurozone itself is in terminal decline, with its latest summit another wasted opportunity. The tragedy is that the authorities seem to have only one answer: to print even more money. But that cannot be the solution. The UK in particular should be focusing on much-needed supply-side reforms. Holding inquiries into banks is all well and good – but it won’t do anything to pull us out of recession.