Be informed

There I am in the bookshop and the owner offers me Rana Foroohar’s lastest book, Don’t be Evil..., about the inherently evil Big Tech. He detects my interest, but not quite in this book at this moment. Then he reaches for Foroohar’s earlier work from 2016, Makers and Takers. In true Douglas Adams style I bought it because it was slightly cheaper, but unlike the Hitch Hiker’s Guide to the Galaxy, it did not have a reassuring title (Don’t Panic). Indeed, this book’s subtitle, How Wall Street Destroyed Main Street, could actually be re-titled, Panic. It is that troubling.

How does this book fit into my current reading? Regular readers know that climate change is occupying my thoughts at the moment, indeed my current reading (right) is shockingly pertinent (also used by my bookseller to cause an exchange of money from me to him). The finance industry is both a cause and solution to the climate crisis. To understand how it might solve the crisis, it is worth knowing – or at least reminding oneself – about the dark side of finance. How, despite the financial crisis of 2008, in Jarvis Cocker’s words, The cunts are still running the world. And indeed, ruining it.

This is a gripping book. I know most of the story, but here it is nicely sewn together. Essentially as a Financial Times journalist – unusually so – Foroohar has been a chronicler of the story in bite-sized chunks, in real time. She reminds us about the banking industry’s original functional purpose for capitalism, to provide the funds for investment in the productive economy. She takes us through the deregulation of the industry in both the USA and the UK that crucially broke the separation of boring, low-return retail and business banking and lending and the riskier investment, speculative and hedging activities. Moreover, the central banks in those countries are both lenders of last resort (always reassuring when engaged in risky trading), regulators and, in tandem with the state, secure a compliant civil society and the system of law that favours capital over labour.

Wall Street is also complicit in the financialisation of business. Faroohar reminds us how large firms avoid tax by offshoring their earnings abroad; how they increase the value of their firms by share buy-backs financed by lending (for example, Apple) at the expense of innovation in product and services; and how the executives of these firms remunerate themselves not on the basis of salary like their employees, but rather by shares attracting capital gains tax rather than income tax. This provides the incentive to inflate the value of the firm independent of its products. Here Faroohar cites the case of Pfizer, so desperately short of innovative products, but rich nonetheless.

We see how the finance industry thrives on private and public debt, itself fuelled by low interest rates. The lower the interest rates, the more lending (and hence money generation) becomes feasible. The lower the interest rates, the more money there is to buy property which squeezes out of property ownership a good percentage of private citizens – or at least gets them to overstretch themselves in pursuit of loans. And when whole neighbourhoods become bankrupt, the finance sector provides the money for equity funds to buy up swathes of cheap properties, rent them out, often supported by the state and tax payers, and take rather than make.

The finance sector steals our pensions, ensures the high price of commodities, including essential foodstuffs. And, particularly in the USA, personnel enjoy the revolving door between Government and Banking and vice versa, over and over again. We see how the banks, private equity, and their customers monetise public goods like research and development executed in publicly-funded universities and research centres but privatise the benefits. By offshoring their profits, they return only a fraction of the value generated to source.

Where does the environment come into this? The climate crisis that is ramping up can be still solved by investing in zero carbon technologies, infrastructures, public procurement, education and lifestyle changes. It does not. The finance sector has become an end in itself rather than the means by which an economy can be radically changed in a relatively short space of time. Not only do they not lead in investment in green technology, but they actively lobby against it. And because of the revolving door, a bubble is generated whereby business-as-usual – that is, making money – remains the priority. Challenging this is the struggle of the century. And if we do not win it, the climate will change. Badly.