Debating financial regulation: The people v the City

As students continued to protest against the commodification of education, and Ireland prepared for a bailout, the New Political Economy Network met to discuss the realities of financial regulation. It was agreed that regulation – or re-regulation – is needed in order to protect against predatory and dehumanising financial practises. Inseparable from regulation, according to Maurice Glasman and Costas Lapavitsas, is the state’s capacity to be a force for social democracy.

Jim Milnes of the Dress to the Left blog reports on the latest NPEN seminar, on the people vs the City

As students continued to protest against the commodification of education, and Ireland prepared for a bailout, the New Political Economy Network met to discuss the realities of financial regulation. It was agreed that regulation – or re-regulation – is needed in order to protect against predatory and dehumanising financial practises. Inseparable from regulation, according to Maurice Glasman and Costas Lapavitsas, is the state’s capacity to be a force for social democracy.

Lapavitsas, Professor in Economics at SOAS, University of London, said the problem was not with regulation per se, but the fact that the desire to regulate effectively is lost in a disconnect between grassroots thinking and political leadership.

The dilemma comes from the readiness of social democratic forces to “buy in” to “the realm of financialisation”, a process of finance-led government that Lapavitsas said has been ingrained in both the state and popular thinking.

In the process of financialisation, financial institutions, finding it difficult to profit purely through production, shift their focus instead to the mediation and circulation of capital as a source for wealth generation.

Lapavitsas said that the primary effect of recent financialisation, exposed in the crisis, was in the housing sector, due to the switch by major banks from targeting corporations to profiting from widespread household borrowing. He compared the finance-driven economy of Britain to the production-based model of Germany.

This comparison is of note because while there has been financialisation in Germany, it has not been accompanied by the rampant speculation of the American and British economies. Lapavitsas concluded that this is due not to “the merits of the banking system… but the different customs, norms and practises of housing in Germany.

“The Germans don’t get into the system of buying a house through a mortgage that you can sell so you go up the ladder and you can make capital gains – it just doesn’t exist. It doesn’t exist because there is public provision and the system of housing works differently.”

Lapavitsas urged the UK to change its thinking about the relationship between housing and banking, even down to the basics of private banking and public ownership:

“The ownership of banks is of paramount importance – the UK actually possesses public banks but it doesn’t treat them in that way. I think it’s a natural demand that the banks operating under public ownership should start operating like public banks.

“If we are to have private banking in the way in which people imagine we have it, then let’s have it, but let’s have it without public support. These need to be truly public banks, run democratically, and run with full accountability from below.”

Maurice Glasman, the self-described ‘Blue Labour’ academic, reacted to the issue by questioning the orthodoxy that constructs market systems as ‘natural’, thus allowing regulation to be negatively reported as “intervention” and “interference”.

Glasman employed the idea of “commodification” to describe the effects of an unrestrained finance. This complemented Lapavitsas “financialisation”. For Glasman, capitalism with unrestrained finance allows the commodification of two very basic factors: land, and people themselves.

As with Lapavitsas’ reading, the interface of speculative finance and land “relates to the housing bubble: it encloses and privatises land, turns land itself into a commodity. But people have to live somewhere in the world, so the pressure to buy, the desire to buy becomes an enormous financial matter”.

“On the whole, democratic politics is an attempt to take human beings and land out of the market. But what we’ve had of late is the increasing impotence of the state or of politics to constrain capital in those relationships. So what you have is the extreme volatility of a predatory finance.”

Both speakers felt that regulation inevitably requires democratic, political action in the financial system, globally, nationally and locally. Lapavitsas concluded that:

“If you really want to do something about the way Britain has suffered in this crisis then you operate in the housing sector. Think about how the banks and financial institutions will be tied in with that.”

Glasman summed up the feelings of disappointment with the current system:

“There is a word for market regulation, that we used to use, and that is politics. Democratic politics in particular, and that’s the thing we’ve lost.”

5 Responses to “Debating financial regulation: The people v the City”

  1. The City versus the People: social democracy hanging in the balance « dresstotheleft

    […] This piece was published on LeftCentral on 4 December. See Also Jim Milne’s NPEN account at Left Foot Forward. […]

  2. Paul Evans

    A rethink of the relationship between banking & home-ownership in the UK //bit.ly/gds90D

  3. Spir.Sotiropoulou

    RT @leftfootfwd: Debating financial regulation: The people v the City //bit.ly/idqIH2

  4. Bryonny G-H

    RT @leftfootfwd: Debating financial regulation: The people v the City //bit.ly/idqIH2

  5. Debating Financial Regulation: The People v The City | Jim Milnes Journalism

    […] from New Political Economy Network for Left Foot Forward. This entry was posted in Politics. Bookmark the permalink. ← […]

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