A searing indictment of global finance, exploring how the banking sector grew from a supporter of business to the biggest business in the world, and showing how societies might fight against financial hegemony
Financial journalist Nicholas Shaxson first made his reputation studying the “resource curse,” seeing first-hand the disastrous economic and societal effects of the discovery of oil in Angola. He then gained prominence as an expert on tax havens, revealing the dark corners of that world long before the scandals of the Panama and Paradise Papers. Now, in The Finance Curse, revised with chapters exclusive to this American edition, he takes us on a terrifying journey through the world economy, exposing tax havens, monopolists, megabanks, private equity firms, Eurobond traders, lobbyists, and a menagerie of scoundrels quietly financializing our entire society, hurting both business and individuals.
Shaxson shows we got here, telling the story of how finance re-engineered the global economic order in the last half-century, with the aim not of creating wealth but extracting it from the underlying economy. Under the twin gospels of “national competitiveness” and “shareholder value,” megabanks and financialized corporations have provoked a race to the bottom between states to provide the most subsidized environment for big business, have encouraged a brain drain into finance, and have fostered instability, inequality, and turned a blind eye to the spoils of organized crime. From Ireland to Iowa, Shaxson shows the insidious effects of financialization on our politics and on communities who were promised paradise but got poverty wages instead.
We need a strong financial system—but when it grows too big it becomes a monster. The Finance Curse is the explosive story of how finance got a stranglehold on society, and reveals how we might release ourselves from its grasp.
In its final decades, the Soviet Union was hooked on alcohol. It needed the revenue from selling vodka, and it needed the booze to keep its citizens happy. But there was a problem: the more Soviet citizens drank, the less they worked, and the more the economy withered. It was a vicious circle, with no clear exit, that helped doom the whole communist project.
I was reminded of this parlous trap while reading Nicholas Shaxson’s excoriating analysis of the City of London’s effect on our economy in The Finance Curse. Coming seven years after his groundbreaking Treasure Islands, which told the story of Britain’s tax havens, this new book broadens his assault on the foundations of the modern globalised financial system.
Shaxson argues the financial sector has become so big that its gravitational field has distorted everything around it. Instead of serving the real economy, it now preys on it. I would have liked to have seen the working behind his claim that the City has cost Britain £4.5tn since 1990, but the grand analysis is utterly convincing: we are hooked on the City and the hot money it brings in, just like the Kremlin was addicted to flogging spirits to its own taxpayers.
The book starts at the micro level, with the purchase of a ticket on the Trainline app – something most people do without giving it much thought – and then follows the 75p booking fee’s journey after it leaves the buyer’s bank account. The money bounces through accounts in the UK, Jersey, the UK again, Jersey again, Luxembourg and the Cayman Islands, before ending up in the US.
The purpose of this superstructure piled on top of the Trainline app is to keep as much profits as possible away from the taxman, thus starving our government of the money it needs to – among other things – maintain the railways. “The corporate bosses and their advisers in the financial sector have moved away from creating wealth for the economy, and towards extracting wealth from the economy,” Shaxson writes.
The book roams widely through the philosophical justification for the “competitiveness agenda”, the idea that countries need to compete with one another in the same way companies do. And he adds further analysis to the growing consensus that a key inflexion point for the modern world came when the postwar Bretton Woods system collapsed under the weight of offshore finance in the 70s.
The City was central to the undermining of the capital controls of Bretton Woods and, once those controls were gone, could export its lucrative inventions ever more widely. That led to “lower economic growth, steeper inequality, inefficient markets, damage to public services, worse corruption, the hollowing out of alternative economic sectors, and widespread damage to democracy and to society”, abroad and at home.
Over the past couple of years, there has been widespread mockery of Brits who say they feel politically homeless (full disclosure: I’ve occasionally been one of them) but Shaxson lays out the dimensions of the radicalism-shaped hole at the heart of our politics, through which financialisation has entered every corner of our country.
Both major parties have tinkered around the edges of the issue, but signally failed to understand the urgency of tackling the monopolies that are strangling society, as well as the banks that claim what is good for them is also good for us. Shaxson demands radical transparency to reveal who owns what, as a core defence against kleptocratic capital flowing in from China, Russia and elsewhere, as well as a land-value tax to defang the tax havens, and outright bans on some hot money.
This would require politically difficult decisions: we would not become the great trading centre for China’s yuan that the City wants us to be; we would need to break up the big four accountancy firms; the tech giants would need to be regulated so they act in our interest, rather than their own. In a sense, this is a progressive version of the Laffer curve used to justify tax cuts: if we restrict finance, we’ll all have more money.
The Finance Curse is a radical, urgent and important manifesto for improving our country, starting from where Britain actually is – a wide-open, highly vulnerable economy utterly transformed by our finance industry – rather than where our major parties would like it to be, whether they’re harking back to the 1950s or to the 1890s. This argument should not really be party political, but it challenges the decades-long thrust of British politics, and winning it will require a hard fight. If we don’t want to go the way of the USSR, however, it’s a fight we need to have.