One of the most pernicious elements of Labour's current economic platform is the idea that the City is entirely distinct from (and damaging to) the so-called real economy.
Jeremy Corbyn and John McDonnell's stump speeches routinely contain attacks on predatory bankers, fat-cats and financial speculators. The labour leader also seems to have a personal vendetta against hedge funds, which he has variously confused with payday lenders and private equity, his attacks on the sector seemingly undimmed by a quite glaring lack of understanding.
But away from this rabble rousing, the notion that the City is too big, its interests too selfish, is gaining some ground among an increasingly vocal group of academics and campaigners. A recent report by the Tax Justice Network makes the startling claim that the UK's "oversized" financial sector has cost the economy £4.5 trillion in lost economic output between 1995 and 2015.
The report, produced by the University of Sheffield, talks about the “damage” caused to the economy through an over-reliance on finance and laments the small amount lent to the UK manufacturing sector. In other words, it's part of the “manufacturing good, services bad” school of thought. Nicholas Shaxson, author of The Finance Curse, endorsed the report and described the City of London as a cuckoo in the nest of the British economy rather than the goose that lays its golden eggs. Fortunately, this politicised and simplistic narrative is being challenged.
This week the think tank New Financial releases a new report which seeks to explain the role that capital markets play in supporting the economy – or what Shaxson and others would call “the real economy.” New Financial offer a detailed case study of the north west of England, looking at the activity of bank lending, corporate bonds, private equity and the many elements of a dynamic capital market.
The report highlights that more 900 companies in the north west, employing over 600,000, people have raised around £70bn from the markets in the past five years. Over 1,000 of the region's start-ups or fast-growing firms have been backed by venture capital over the same period and the 2.5m residents of the north west have nearly £200bn invested in their pensions, managed by hundreds of different firms. The think tank's chief, William Wright, says the research aims to analyse the impact, purpose and value of capital markets.
This is a welcome endeavour, and a much needed counterpoint to misguided City-bashing.