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Friday, 22 January 2010

Obama can split the banks; Osborne can try

The loss of Edward Kennedy's Senate seat to the Republicans has compelled the Obama Administration hastily to demonstrate its populist intentions. 'Main Street versus Wall Street' has been a battle-cry resonating through the USA for eighteen months, and it has become a mass clamour as the bonus season has proved just how insensate and arrogant - and downright stupid - the giants of financial services have become.
The huge US economy is still based on the broad acres and natural resources of the continential USA, and [above all] on the immense accumulation of scientific and technical intellectual property that the country possesses. America can afford to make the banks become once more the servants of real business; and cease to be autonomous cyberspace empires that can threaten the functionality [though not the substance] of the US economy.

Britain is in a very different place. Industry has all but been destroyed. The country is carrying some four million state employees, more than ten million pensioners, and more than eight million adults who are 'not economically active' below pensionable age. Another twenty-five million adults and children benefit from tax credits, and the parents of all children are recipients of child alowances and other benefits. The tax income that is needed to support that number of individuals is massive.
The industrial base is narrow, though it contains world leaders in aerospace, pharmaceuticals and biotechnology. The biggest-spending area of the private sector and the prime source of taxation has been finance, which has gone heavily into gambling. To shut down the casino or even to ban some of the high-rolliing games, would make any survival strategy for the economy much more precarious. Separating the gambling from retail banking is basic common sense - which is no guarantee that a government of any complexion would actually do it - but it would be ruinous to drive the gambling hive overseas. This means that the country must bear the risk of harbouring an increasingly-adventurous casino City as the major source of tax for the period until research, technology and industry can be reconstructed. These are not nice thoughts, but they are reality.

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