New Economics Foundation & the Bankers

23 11 2010
Category: Politics, finance

The New Economic Foundation is going up in my estimation. They’ll certainly breathe a sigh of relief about that…I’ve been wary of the NEF (Neff? En-Ee-Eff?) for a while.

Ever since they published a report that came to the conclusion that care within the family, and household chores, were ‘seven to ten times’ more valuable than the work of bankers to the economy. Nice round numbers.

They were very pleased with themselves for this report; maybe it was smugness connected to understanding that an economic think tank writing anything negative about bankers was likely to get a good press, no matter how nonsensical.

But the fact they were writing nonsense bothered me. It told me that they were an organisation more focused on the easy headline (and getting on Radio 4’s Moral Maze) than saying important and true things.

What’s my problem with the working in their domestic work v bankers comparison? It’s nonsense – you simply cannot relate the two in economic terms. If you could, the developing world, where most of the world’s household working and caring takes place, would be a lot richer than it is.

It’s relating it to the economy that’s the problem. It ought not take much justification to argue that someone who cares for a relative or works in the home for their family adds more value to society than a banker. In fact it’s pretty undeniable that in terms of any sort of useful values the banker’s going to come off the worst. Whether it’s of 4 times more value, 27.45 times more value or 7-10 times would be harder to calculate.

But in pure economic terms the fact that a major part of the global banking industry has been focused on London has brought a great deal of money into the economy that otherwise would not have been brought in.

For confirmation of that you can click here and take a look at a speech by Andrew Haldane of the Bank of England in July 2010 where he looked at exactly this point. It’s quite long and technical but there are lots of dramatic charts. Here are some relevant bits:

Chart 1

Financial services contribute 3.5 times more to the economy than they did in 1975

Chart 8

Finance represented more than 4% of total UK employment in 2008

Chart 9

The financial sector incorporates 10% of industrial capital in the UK (2003) (buildings, equipment, vehicles, intangibles, computers)

Chart 12

Returns to Labour and Capital in the UK Finance sector is £120bn

Chart 13

Average weekly earnings in the finance sector are more than £900 per week, the highest paid sector (2007).

Chart 19

Banking sector assets stand at more than 500% of GDP (2006) up from less than 100% (1970)

On top of all that, at the height of the recession:

“According to the National Accounts, the financial sector in the UK grew at the fastest pace on record in 2008Q4. As a share of whole economy output, the direct contribution of the UK financial sector rose to 9% in the last quarter of 2008.”

But that’s not really the point of this post; the point is that we’re looking at the wrong thing. We should be developing new value-ranges, beyond economic value, for governments and societies to be judged against. The NEF say they want to do that but the mushing together of economic and  other values with ridiculous claims designed to grab headlines undermines their claims to serious work in this area.

At the start of this piece I mentioned that they’d gone up in my estimation. They’ve done so by turning back to Aristotle in their attempt to develop new ways of measuring ‘happiness’. It’s the right place to start, lots of people in the field seem nervous of saying so. Perhaps because they haven’t read him, or perhaps because they’re nervous of scaring people off with a dose of elitist classicism.

In any event Aristotle’s back on the agenda and that’s good news.



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