QUOTE OF THE MONTH

‘Such a separation within the upper levels of British capitalism helps explain the aloofness of the twentieth-century City from the needs of British industry. This aloofness can be traced back to the eighteen-seventies, when so much of the social pattern of modern Britain was being fixed. The year 1878, which saw the failure of the City of Glasgow Bank, was, W.P. Kennedy has argued, a watershed for British banking’s relation to industry: “A point had been reached where the entire system had either to be reorganized to withstand the greater risks of steadily enlarging industrial requirements or the system had to withdraw from long term industrial involvement. The system withdrew. After 1878, no longer would banks become willingly involved in the long term financing of industry”. The capital markets became “deeply biased away from favouring most home industrial projects”. Consequently, the development of industry was handicapped and a vicious circle of declining relative profitability was created that continued through the twentieth century. Insufficient long-term investment hobbled productivity growth, which in turn made such investment ever less attractive, and so on in a downward spiral. Particularly hurt were the new electrical equipment and automobile industries, two of the industries of the “second industrial revolution”.

Why did British bankers take that turn away from industry? Domestic industry may already have become less profitable than other opportunities afforded by a rapidly developing world economy. Yet there seems more to it than this. That financial watershed paralleled the wider cultural watershed: As Kennedy observed about capital markets, “Institutions successfully created in Britain to ensure the stability necessary to early industrialization were distinctly less appropriate for the problems of sustaining subsequent development”. The stability had been achieved; now what was becoming necessary was a radical overhaul of institutions (and values) to actively foster continued development. Instead, stability remained the overriding end; confronted with the choice between safety and maximum growth, the financial system (like the social system as a whole) opted for safety. This pullback from industrial involvement was made more likely by the social separation that already existed between the worlds of finance and industry, and the contemporaneous entrenchment of anti-industrial sentiments in the financial and professional classes.’

And:

‘British businessmen in the twentieth century came to accept a dual orientation - what one business school professor called “the British mission - to combine business with humanity”. As Sir George Schuster, a director of the Westminster Bank and of several other firms, hopefully asked in 1947, “Can we, the nation of shop-keepers and money-makers, show the world how to put money-making in its right subsidiary place in the scale of values, without ceasing to perform well all the varied - and vital - functions which underlie the process of money-making?”

These aspirations of gentility imparted a particular tone to business behaviour in Britain. But its consequences were not the same throughout the business world; finance was not hampered as industry was. The milieu of finance, as we have seen, was not all that different from the traditional world of the aristocracy. It was already wealthy and socially established in the mid-nineteenth century, when the cultural counterrevolution was gaining momentum. It was “clean” - well removed from the actual processes of production. It involved the extraction of wealth by associating with people of one’s own class in fashionable surroundings, not by dealing with things and with the working and lower-middle classes, in perhaps grimy and ugly and certainly unfashionable locations. The life of finance was readily reconcilable with the gentry ideal, could recruit the best talent, and could call forth its energies without apologetics or the deliberation of a collective inferiority complex. There was no haemorrhage of ability out of finance: Families like the Barings, or the Barclays, the Smiths, and the Rothschilds remained active over generations, becoming indistinguishable from the old aristocracy. The inhibitions on economic enterprise that this ideal still enforced even on those in the City - resulting in the high value placed on amateurism, for instance - were counterbalanced by the great political power they wielded. Through its integration into the elite, the City could call upon government much more effectively than could industry to favour and support its interests. Further, the City did not depend upon the prosperity of the domestic economy. It was increasingly bound up more with foreign economies than with its own, and could flourish with them while British industry languished. The City, in short, offered a way (more difficult in industry) to be a gentleman and still get rich. Given all these advantages, it is not surprising that finance prospered while industry struggled.’

Martin J Wiener [writer and historian]