RDN on “Do we need The City?”

Posted by RDN under Economic affairs on 23 April 2015

I have been invited to discuss  “Do we need The City?” at  The World Traders’ Tacitus Debate 2015, Wednesday 6 May 2015, King’s College London. My response is that as an engine of public trust, we don’t, because The City says nothing of interest.

So here goes…

[I have tickled this piece somewhat, 29 April, and 4, 6, 7 & a good deal and I hope finally on 8 May 2015]

Sorry, we need to break into the terms a bit. “The City” is four quite distinct things. They are often confused with each other, and that’s not good.

It is, firstly, “The City” as a catchword for the agglomeration of financial and allied firms which operates partly within the geographical bounds of the The City, and partly in Docklands and in Mayfair and other West End spots. It might even be stretched to include firms operating in other UK centres. This, I take it, is a wonderful thing, warts and all, and in spite of wobbles and failures, some of them pretty spectacular and even existential. This collection of firms is, I think, as marvellous a thing as are the UK’s world-class creative, media, motor racing, academic, tourism and other distinctive, star industries. This City is a world capital for world capitalism, the way Silicon Valley is a world capital of IT. The UK needs this City very badly.

Then there is, secondly, the Corporation of the City of London as a small local authority with a huge history. This City seems uncontroversially useful. We need it.

Then there is, thirdly, the Corporation’s affiliated network of Guilds and Livery Companies, which are socially and philanthropically very useful. We need it.

So we come to the fourth manifestation of “The City”. I think of this as the Corporation when it is acting as the spirit of The City. This, I take it, is – or, importantly, was – some sort of a collective and almost official ethos, culture, idea and even ideal which for centuries cast its reputational mantle (mostly for good and sometimes for ill) over the activities of the money-handling firms. For most onlookers, The City was “The Voice of Finance”, though actually it didn’t produce a single narrative or indeed say very much. It certainty wasn’t in the modern PR game or its spawn, Corporate Social Responsibility (CSR). It looked something like a professional body, though it wasn’t one (it didn’t have formal rules of membership, academic standards and discipline). It looked like a club, though it wasn’t one (though fear of ostracism was a powerful force). This cultural phenomenon had some sort physical being within the Corporation of London and was largely generated by people from firms in The City.

This reputational role – vague, informal and not without meaning and value – has been largely abandoned. Instead, The City as a voice now most often sounds like a trade association.

My contention is that the main message we get from this manifestation of The City is that it is useful to the UK’s economy and meddling with it is dangerous. But as an engine of public trust, it has recently been and remains a spectacular failure. (I have written a longer post on the wider aspect of the ethical failures behind the Crash and Recession. I have written a separate but closely related post on the betrayal of the Tory voter by the financial Establishment.)

I have been alerted to the existence of the City Values Forum, sponsored as an official Corporation activity, with its mostly CSR material and its promise of a formal pledge, which is along the lines of the oldest City mantra: “My word is my bond”.  This work looks to have been started in 2011 and to have peaked in late 2013 (I have found two mentions of its work, in the FT and the Evening Standard, both from then). I think it is fair to say that this work may be of use, but that it is hardly proves that The City has got its mojo back. Besides, it is about somewhat aspirational standards, integrity and ethics. As such, oddly, it is not likely to be very useful as an engine of trust. This counter-intuitive conclusion of mine flows from quite broadly understood arguments about trust. Much of what follows is about all that.

I fancy the idea of the Corporation developing a role as the modern voice of The City as the home of modern capitalism.

Here goes….

I have one very broad point. It is that in the years of The Great Moderation before the Crash and Recession beginning in 2007, really the whole profession of finance failed to prove itself reliable and trustworthy. It did not deliver what people thought was written on the tin.

It failed to be trustworthy. Following the general line of argument endorsed by the 2010 Tacitus lecture, I stress that one needs to make a few distinctons when discussing trust in a firm or institution. The first is about performance and covers questions such as: Is it competent? Will it survive? Does it deliver what it says on the tin? The second is about honesty: does it speak frankly? Is it as open as possible?  The third is about decency, and covers questions ranging from: Is it criminal? to Is it inclusive?

It is very important to understand that to trust a firm or institution is not remotely the same as liking it or even approving of it.

It is important to note that the financial system, and especially that of the UK and US, seemed, in around 2007, to be incompetent. It wasn’t often very dishonest, was very seldom criminal but was arguably quite often less than decent. It was not good at describing, interrogating or defending its activities. To a surprising degree, the system more often deceived itself than us. It was too clever by half, and not nearly thoughtful enough. I mean that most economists (academic and professional), politicians, civil servants, the Bank of England, journalists, regulators, and firms, and the Corporation of the City of London, simply didn’t spot the myriad hazards which faced the financial systems of the West. There were some exceptions but very few. There was a widespread delusion of confidence and it robbed the system of the corrective of fear, inquiry and challenge.

Narrowing my critique to The City, I make two main points. The first is that the Corporation as “The Voice of The City” has had next to nothing to say in response to the multiple crises of 2007 and onward. Secondly, I would quite like The City, as a Corporation, to be a stout embodiment and proponent of the merits of capitalism and the financial wing of capitalism, and it isn’t. Indeed, the City Values work is a sort of mea culpa and a promise about good behaviour, and I would like it to be be matched by something bolder as to the nature of the myriad sources of resilience and points of weakness in real world capitalism.

Maybe The City knows itself all too well and anyway there are dangers in an outspoken City.

I see the problems The City faces. After Big Bang, The City became less English and more international. It more or less consciously abandoned a gentlemanly, clubbable, old-boy sort of capitalism in favour of something more Wild West. It never was constituted to be a professional body in the manner of the Chartered Institute for Securities and Investment. It probably never could have developed an investigatory, supervisory, disciplinary role. And in the new world in which it was keen to be the accommodating world capital of a vigorous world capitalism, it had to accept that Caveat Emptor was becoming an important catchword of financial operations. (And it has many merits as a protector of the system. Better than gaming the regulator, a sourpuss old hand might say.) “My word is my bond” might still apply, but in the new world one had to read people’s lips pretty closely.

Indeed, one might plausibly argue that it is for regulators, the Bank of England, and independent inquiries and the House of Commons and the Lords and so on to discuss safeguards and for the law and professional bodies to police them. And it might quite often and decently be The Corporation’s  role to fend them off, as a trade association.

I wouldn’t much mind if The City boldly said that it is a lobbyist, a local authority and a host to various valuabe bodies.

The City could plausibly add that the World Traders’ livery company annual Tacitus lecture and debate, the City Values Forum process, the debates within various professional bodies, and the discussions at Gresham College do between them add up to the challenging sense of intellectual and ethical investigation The City ought to welcome and does. It could argue that it is host to the wide-ranging and necessarily inconclusive interrogation of the ideas and values capitalism needs to be resilient and decent. It could go on to say that coming to some settled, corporate (as in, Corporation of London, official) message or formula or orthodoxy would be the worst sort of boilerplate nonsense.

And yet The City’s indifference to its putative role as “The Voice of Capitalism” has been a disappointment.

Maybe the solution is that The City should become famous for hosting the many intelligent voices of capitalism and even anti-capitalism. The City might be at its most interesting and valuable if it framed itself as proud to host the energy, richness, and complexity of the modern financial system.  It might be upfront in asserting that its role in working toward the safety of capitalism is to show itself interested in interrogating not merely capitalists but anti-capitalists. The City could very decently assert a reluctance to be a single voice saying any class of single thing. It could say that just as it is a valuable host to capitalism, so its best role in showing tough love toward its guest is to encourage and sponsor robust discussion about it. As such, it could form a sort of meta-thinktank whose role would be to fund and indeed curate debate all around the geography of thought about capitalism.

In the modern world, The City might contribute to capitalism’s reliability precisely by being the host to robust and honest debate about how fear is the best policeman of greed; about the dangers of PC; about moral hazard; and yes the value of self-imposed ethical standards. The City would do us all a favour if it showed that it is perfectly proper to be sceptical of the St Paul’s or Occupy school of moral capitalism. But it needn’t drop anchor on any particular view.

The City could, if it wanted, abandon any pretence at being interested in ideas or ethics or trust. That approach would have the merit of honesty and of reminding citizens to be on their guard and to look elsewhere for comfort. But to have abandoned one famous old cultural role without having pronounced on its intentions as to the adoption of a new one seems to be lazy. So, no, as it stands, as an engine of trust, we don’t need The City. But it might yet become admirable.

One comment

  • Written by Paul Seaman on 25/05/15 at 4:41 pm:

    In the the above speaks RDN at his best……

    “The City might be at its most interesting and valuable if it framed itself as proud to host the energy, richness, and complexity of the modern financial system.”

    Yes!

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