The Storm: The World Economic Crisis and What it Means by Vince Cable, Atlantic £14.99, pp192
Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City’s Golden Decade by Philip Augar, Bodley Head £20, pp272
The pleasures of playing Cassandra are fleeting. Just as you prepare to enjoy your vindication, the juddering realisation hits that the doom you prophesied is at hand.
No one has a greater right to say: “I told you so” than Vince Cable. The Cassandra of our age warned against the complacency of bankers, regulators, politicians and economists, whose failure to spot a looming catastrophe matched the failure of Soviet specialists to notice the cracks in the Berlin Wall.
It is much to Cable’s credit that he does not pause to gloat. It says more about the scale of our losses that he has no time to do so. The Storm is an urgent, admirably clear book which studies each stage of the crisis and asks what it portends. His conclusions are all the more convincing because he answers objections and considers options. Only on one point does he accept no caveats: Britain is back in decline. For 15 years, we could kid ourselves that our fortunes were reviving. But we placed our trust in housing equity (now evaporating), lavish public services (now unaffordable), an independent central bank (now discredited), a debt economy (now demanding repayment), and financial services (now bust). We will have to start again.
Few will disagree with these conclusions, but Cable is more challenging when he looks at the sudden increases in fuel and food prices when recession began. Events have moved so fast since oil hit $147 a barrel last July that it is easy to forget that for a few months the world faced stagflation. Cable does not want us to forget. He doubts that price rises are inevitable because we are near “peak oil” – he thinks plenty of oil is out there. Yet what geology cannot deliver, politics may. So much of the world’s oil is in the hands of corrupt and unstable regimes, which are unable or unwilling to meet demand, that even a mild global recovery may run aground on an oil shortage.
When he turns to food supplies, however, the ghost of Malthus haunts his thoughts. Here, natural limits, particularly water shortages and the shift of purchasing power east to China and India, make the hope that recession may at least save the age of cheap food appear overconfident.
Cable is from the social-democratic wing of the liberal-democrat alliance and wants liberal markets where they work, tough regulation for dysfunctional financial markets and a redistribution of wealth to help the economy’s victims. The failure of under-regulated capitalism can make the reader believe that social democracy stands a fighting chance. But Cable is wise enough to realise that a more equal order is not predestined or even probable.
The last era of globalisation did not give way to a new era of justice but the First World War, communism and fascism. Cable sees the modern equivalents of old tyrannies in what he calls the “state capitalism” of authoritarian, xenophobic countries that use economic power as a political weapon and may not worry if trade wars turn into shooting wars. State capitalism is already here in Russia, the Middle East and Venezuela. Even now, the typical financial institution is not a plc but “a state-owned bank or sovereign wealth fund, or a private body owned by a politically favoured prince or oligarch. The alignment of private and state interests promises all the worst features of capitalist economies – unfettered greed, corruption and inequalities of wealth and power – without the benefits of competitive markets.”
Cable notes in passing how strange it was that Labour ministers who once read Trotsky and The Ragged Trousered Philanthropists should let finance capital run riot. As a historian of the years leading up to the crash, Philip Augar, in Chasing Alpha, has to spend more time on the astonishing liaison between investment bankers and the centre-left. Augar is a former City man with the rare ability to take the reader through the complexities of high finance. Even he sounds baffled when he has to describe how the proper relationship between the government and City was inverted as Labour ingratiated itself with what it took to be the powerhouse of the economy. Instead of calling the bankers into Whitehall, Tony Blair and Gordon Brown paid homage to the heroes of finance in the offices of Goldman Sachs and Lehman Brothers. Rather than order civil servants to watch the City, Labour recruited civil servants from the City.
When my colleague, Will Hutton, proposed better regulation and a stakeholder economy, Labour adviser Geoff Mulgan explained the true balance of power in Britain when he told a colleague: “The stakeholder idea has frightened the big end of town and so it has been dropped.”
In a speech at Mansion House in 2004, Gordon Brown bellowed to an audience of bankers: “What you have achieved for the financial services sector, we as a country now aspire to achieve for the whole of the British economy.” The British will be living with that achievement for years.