Chancellor Fails to Separate Retail and Commercial Banking

The loudest call for reform following the failure of the banking system in 2008 was that the risky activities undertaken by investment banks should not, in future, be able to threaten the deposits of ordinary working people. Osborne's speech at the Mansion House last night indicated that he is not going to separate these two very different aspects of UK banking activity.

The newspapers this morning draw attention to the proposal, adopted by the far-from-independent banking commission, to 'ring-fence' the savings and deposit side of banking from the global casino. Like the stock-market itself, this tired metaphor is drawn from the agricultural sector. But the beasts of the City are far more powerful than the politician's fence. Admissions that negotiations are still ongoing makes it clear who will decide the outcome. Needless to say, the citizens who have paid for the banking fiasco are not represented in these discussions.

If retail banking remains within the same company structure as its more glamorous, more profitable and more powerful investment-banking sibling, the efforts of all the most creative and Machiavellian minds within each global conglomerate will surely be bent towards finding ways through the barrier. Only a clear separation into separate companies, with separate boards pursuing different agendas can remove the threat of another crisis in future. The banks will refuse to settle until they have made this clear separation impossible, until they are sure that the ring fence is full of holes.

But this whole discussion addresses only half of the problem. Even if your own savings are safe, if the massive investment banks run into problems as a result of their absurd and irresponsible activity then, while they are large enough to provoke a systemic crisis, the risk that we will all have to carry the costs and take over their debts onto the public balance-sheet will remain. Another policy proposals is, if anything, even more important than the separation of retail and venture banking: to limit the overall share of the market held by any individual institution.

I would anticipate that most readers of this blog keep their own money far away from the commercial banking system, in a mutual organisation such as a building society or with the Co-operative Bank. However, we are still vulnerable to the threat that the uberbanks make to the credit system on which our national economy depends. Never was there a clearer example of when finding your own small-scale solution is not enough: we must rather find a way of turning public anger into a significant political challenge to the banking sector.
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Dubai to All That

The vaunting towers of Dubai provide an irresistible metaphor for the hubris of globalised capitalism, and the newspapers have been falling over themselves to draw attention to the fact that this small, Gulf emirate is, quite literally, built on sand. For a green economist, however, it is the social and environmental consequences of this artificial paradise that raise the most pressing questions.

In the more 'advanced' economies of the West, the tasteful veil between government and corporation is still maintained - in Dubai this was not the case, and it is difficult when reading some of the press stories to distinguish between Dubai World - the venture capital development corporation responsible for the irresponsible building projects - and the state of Dubai. And surely Sheikh Mohammed bin Rashid al-Maktoum could have used the phrase 'L'etat c'est moi' with more aplomb than Louis XIV ever dared. Reading about his nefarious dealings makes one wonder whether George Clooney followed the Beckhams in the trek to buy luxury apartments on Dubai's palmtree-shaped beach complex.

With energy no object it is possible to summon extraordinary buildings from sand and to make deserts bloom. The environmental consequences of this profligate use of the planet's dwindling oil resources receive far too little attention. While public debate concentrates on China's carbon dioxide emissions attention is distracted form the fact that the oil-producing states have the worst per capita record in this area. The other side of the coin is the human exploitation: the legions of South Asian immigrants who, like Irish navvies during our own 19th century building bonanza, were responsible for the heavy lifting for low pay that brought this crazed dream into existence.

Dubia is the apotheosis of an economy which is unsustainable in every sense: a grossly intensivised playground where the heedless and amoral playboys and playgirls, spawned by globalisation and a capitalist system that has broken all bounds of social control, enjoy pleasure without responsibility. Its gleaming untarnished towers are like the body of Dorian Gray; the abused workers and corrupted atmosphere are the the true picture, hidden away in the attic of our imaginations.*

Dubai is the sort of development you end up with when you let money make all the decisions. The creation of an elite resort for the super-rich is a perfect illustration of the logic of this late and putrescent stage of capitalism. It tempts you to imagine your way into a near future and imagine children being shown pictures of the artificial archipelago to help them learn the lessons of ecology.

*Thanks to Mary Mellor for this metaphor, whose appeal has helpfully been broadened by the recent movie. Tweet