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The Economist loses the plot with this shallow, pro-City propaganda

January 7th, 2012

I was surprised and disappointed when I opened my copy of The Economist on Friday morning.

The magazine is running a feebly-argued propaganda piece headlined “Save the City” as its cover story. The piece vaunts the “skills” that are to be found in the City of London and seeks to persuade us that having a powerful financial sector is critical to the future health of the UK economy and that the “Square Mile” must therefore be cherished and preserved at all costs. The cover image harps back to the Blitz, as if Hitler’s Lufwaffe is once again poised to carpet bomb a key part of our heritage.

Outside PR puff sheets like HBOS’s absurd “Deal Leaders” of 2005-08 and the Pravda-style advertorials inserted into newspapers and magazines to launder the images of evil dictatorships, I’ve rarely read such a farcical or misleading article.

The magazine’s “Save the City” leading article is one-sided, snide, racist, xenophobic, and makes massive omissions. It doesn’t even start to acknowledge the multifarious failures of the financial sector, or the damage it has wrought on the UK economy in recent years. The article fails to mention the massive risks posed by “crony capitalism” and “regulatory capture”, including wilful blindness to fraud, and even includes the words –

“Finance—the funnelling of savings to their best use—is a vital industry. Britain is very good at it, leading the world in various financial markets, including foreign exchange and over-the-counter derivatives. “

Who wrote this garbage I wonder?

Yes, the City did once fulfil the function of efficiently allocating capital, but that stopped some ten to 20 years ago when the ‘zero sum’ game of financial speculation for the self-enrichment of the participants took over.

As I have said before the City has, with a few exceptions, become the cuckoo in the nest of the UK economy.

It has become gigantic skimming machine/casino. In addition to making taxpayer-underwritten bets, however absurd, it largely serves to diminish the savings and pensions of UK citizens, though outrageous fees, spurious and unwarranted trading and an intermediated structure that favours the interests of the people that work in its own, often-conflicted institutions (plus the people in their various suppliers including brokerages, law firms, accountancy firms, investment and actuarial consultancies,  etc, etc) over and above the long-term interests of savers and the needs of the wider economy.

The article includes the cross-head “Strangely, California doesn’t talk down Silicon Valley”. As several of the 144, mainly outraged, Economist readers who have commented on this piece said, such a claim is farcical. One commenter, who uses the pseudonym jbunniii, wrote:-

Strangely, California doesn’t talk down Silicon Valley.” That is because Silicon Valley produces tangible, useful things (in addition to less useful things such as Facebook). Financiers produce nothing and enrich themselves by skimming from other people’s transactions.

This intellectually lazy piece of journalism is a disgrace. More than any Economist article I’ve recently read (some of which have been excellent by the way), it has made me give serious thought to cancelling my subscription to The Economist.  I’ve heard that others are thinking along similar lines.

I’m kind of hoping there might be an internal rebellion at the magazine next week against whoever wrote or approved this ill-considered piece of claptrap, and that the magazine will, at the very least, prominently publish an opposing view in its Friday 13th January issue. Letters will not suffice, I’m afraid.

Edited highlights of other comments on Save the City piece include:-

Hyperoglyphics:-

Comparing the “City” to Silicon Valley is so ridiculous that I did not expect it even from the Economist. This reprehensible article reads more like a propaganda piece than balanced reporting from an esteemed magazine of economics…

ZUBq9o3Lo5

It would be great to see feature in the Economist of a a sober analysis of what actually goes on in the City. If they are so confident lets see them look at all the activity, quantify it and break down how much is actually true investment and proper allocation of resources and how much could be characterised as zero sum games?

mdoo:-

“Finance—the funnelling of savings to their best use—is a vital industry” Amen. Is that Comical Ali by invitation in the Pravda?

guest-iaisajo

The Economist aims “to take part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.” You should be ashamed of yourselves. You would do well to take heed of the ire you have invoked here in the comments. This docile fluff piece that praises those who caused the The Great Recession, tipping us the closest to a Depression we’ve ever come whilst maligning those who seek to make their voices heard against the the greed of The City is sick. Your readers are incredibly intelligent, there’s a reason why we won’t swallow guff like this. Do yourselves a favour, pull this piece of nonsense and throw your weight behind reforming the city into a useful and honourable place where I’d want to work.

WT Economist:-

…Nobody has properly allocated capital for more than a decade. That takes lots of people in middle class jobs checking up on those using the capital, which cuts into the pay and bonuses of those doing the deals. … [as a result of rampant fraud] what I worry about for New York is what the Economist should worry about for London. That the financial industry will be lost because no one will trust anyone doing business in that city. Detroit’s auto industry ended up a despised and overpaid oligopoly with many political protectors that produced bad cars for its customers, and was subsequently blown away by a bunch of competitive companies from Japan. Worry about the customers, not the regulators.

Canuk:-

…At least you know how to spell the word “finance” but that is all you all at the Economist and the FT really know about the real world of finance. Too bad really – you are a disgrace, along with the City itself, to any well meaning and developed civil society trying to survive in a real political economy.

Insubstainability:-

…I used to work as a quantitative analyst and a trader for a hedge fund … Don’t hide behind a self-justification of how important finance is, we all know it is, what we decry is the misappropriation of returns and the lack of consequences of losses on what is essentially gambling with borrowed and highly leveraged money.

Jo Mellon:-

Finance is a vital industry. Yes… Britain is very good at it No, Britain is really, really, really crap at it. Like the once large and now gone UK car industry, the products are badly engineered, leak oil, break down and lack safety features. The current world financial crisis is the death agony of Anglo-Saxon finance: delayed by the ‘Big Bang’, but inevitable due to endemic incompetence.

Perig:-

What a perspective for UK! The economist is advising UK of becoming, protected by its veto, the ultimate uncooperative fiscal paradise in the world… A Cayman Island of 60 millions inhabitants. In other words a huge parasite.

Cord Christian Drews:-

“Britain will one day wake up to discover that it has lost… the best hope the next generation has of earning a decent living.” As other readers I struggle with this conclusion to your article. There are plentiful reputable academic studies that show how little the whole British economy benefits from the financial centre … Of course, the UK should make sure to remain the important financial centre it is, but only if it’s at a justifiable cost to the whole society, rather than preserving the status quo, where a farcially small minority increases their wealth on the shoulders of the rest of the nation that has increasingly less benefit from the current workings (and had to support the broken financial system up with billions of tax money).

John Sanderson:-

I would like to add to the outrage expressed on this article. A few points:
1. A thorough review by John Cassidy of all the studies done found that what Wall Street investment bankers do is socially useless (see New Yorker Nov 29, 2010). The same is undoubtedly true of the City of London.
2. The City of London paid £63bn in tax although only only £7.2bn was corporation tax and banks paid £3.5bn of this (in 2010 HSBC increased profits by 27% but paid 15% less tax and Barclays paid just £113m tax last year). Most of the tax paid appears to be VAT which is paid by clients. This compares to the minimum £850bn bail-out cost of rescuing the banks to the UK taxpayer out of which bankers still take their bonuses.
3. There is no correlation between success or failure and remuneration in the city.
4. In the same issue of the Economist Buttonwood’s article is entitled “Rich Managers, poor clients” and reports on a devastating analysis of Hedge Funds. Clients have largely done badly while the managers have made fortunes.
5. The City has taken young graduate talent out of more productive industries.
6. The City has conspicuously failed to invest in productive industries (in contrast to the banks in Germany).
7. The Financial services industry has served investors and in particular pensioners very poorly. Most of any profits have gone in fees.
8. Most of the big money made in the City is based on exploiting small inefficiencies and failures of the markets which are now in any case increasingly manipulated to maximize short term profit. This is not serious work.
9. There is no evidence that a 50% tax rate on high incomes deters people from creating major industries or wanting to live in a fair society with good public services viz Sweden
10. The comparison with silicon valley is ridiculous as many have pointed out: they produce goods and products that are generally socially very useful and make real money.
Do we really want or need this industry in the UK? Surely a talented and inventive nation with good universities could do better and create industries that provide real value to the whole community and do some good rather than just enriching its own workers and destroying value of long-term investments.

This week’s Economist also has a Schumpeter piece which warns against the demonization of bankers. The article is yet another example of shoddy journalism. It mainly uses diversionary tactic running through various historical instances of the demonization of bankers and money men, which are wholly inappropriate to today’s situation, including historical instances of hatred of the Jews.

Jesus expelled the moneychangers from the Temple. Timothy tells us that “the love of money is the root of all evil.” Muhammad banned usury. The Jews referred to interest as neshek—a bite. The Catholic church banned it in 1311. Dante consigned moneylenders to the seventh circle of hell—the one also populated by the inhabitants of Sodom and “other practisers of unnatural vice”.

… The rise of banking has often been accompanied by a flowering of civilisation. Artists and academics railing against the “agents of the Apocalypse” might also learn from history.

Surely the Economist can do better than this?

Here are two of the comments from underneath the “Dangers of Demonology” article:-

New Conservative:-

This is a terrible article. It tries to tuck away the important part, “most people have gotten off scot free” and instead of examining why they got off scot free it says that people should give the finance industry the benefit of the doubt because it might turn into racism. (Which is ridiculous because modern finance is a fairly cosmopolitan affair. It isn’t dominated by one ethnic group. Someone trying to be racist against bankers would find, once they’ve checked off all the nationalities on the boards of big financial firms, that the only people not involved in international banking are from Bhutan and Lesotho.)

Canuk:-

…For those of us who have no power, and are completely sickened by the corrupt role that banks/finance have played in our society over the last decade or two, all we can hope is that, by “demonizing” these scum, others with political and street power will find ways to bring them down for good, for the benefit of younger members of civil society and, indeed, a more cohesive society. I apologize for my tone here, but having starting in the City in 1955, and having had to watch for the past 50 years the decimation of wide swathes of UK civil society outside of the London and South East, just to save the role of sterling initially and now the so called “City” makes me deeply ashamed to be English and I would have hoped the same might apply to the journalists of the Economist and the FT (I have been reading and subscribing to both for over 40 years). But I am not holding my breath.

Short URL: http://www.ianfraser.org/?p=5785

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3 Comments for “The Economist loses the plot with this shallow, pro-City propaganda”

  1. [...] Fraser is a journalist for whom I have a lot of time, and respect. I warmly endorse a blog he wrote this weekend on the subject of this week’d edition of The Economist in which he wrote: I was surprised and [...]

  2. Thanks for these comments, John, Douglas and Richard.

    If anyone has got this far and is interested in reading further comments on my piece, please take a look at the 70-odd comments on the Naked Capitalism version of the piece

    Please feel free to add further comments here if you wish, though.

  3. “A love note to London’s lengendary corrupt financial district” could not be more apt. It wouldn’t surprise me if the Economist article was drafted by someone in the Financial Ombudsman’s Service if my latest letter from them is anything to go by.

    For some reason, there appears to be no inclination to seek distance from the on-going regulatory tolerance for the plundering of our economy via fraudulent and greed-driven business practices, so I can only assume the reasons for the endorsing the corrupt and powerful will, yet again, come down to some form of personnal gain.

    See my recent blog on rot and the regulators

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