Michael Gove: Our nation's future hinges on building up our banks again

Published on Saturday 12 September 2009 19:47

Us Scots had much more invested in our banks than we imagined

HAPPINESS, the Chinese say, is watching your neighbour fall off his roof. And, for many of us, the bigger the neighbour and the higher the roof, the greater the joy. Few roofs were as lofty as those above the dealing floors in Lehman Brothers, and few falls have been as precipitate as that of the bank's moving spirit, Dick Fuld. Once the quintessential master of the universe, he was crushed beneath the falling masonry as the great House of Lehman collapsed into dust this time last year.

For many, Fuld's humbling will have provided a moment of sweet schadenfreude, the most stratospherically aloof of all high financiers brought so low. Certainly, the collapse of Lehman last autumn engendered a warm glow in all those who felt that the casual arrogance of the rich was overdue for a correction. But while it was all too forgivably human to take a mischievous pleasure in last autumn's bonfire of financial vanities, one year on we should take a more sober view of events. For Fuld's fall, like Adam's, has lessons for us all.

For us Scots the past 12 months have been particularly traumatic. Because we had, as a nation, much more invested in our banks than we imagined. It wasn't just our savings, but a considerable chunk of our national self-esteem, which we thought rested securely in those great Scottish institutions. And when the reverberations of Lehman's collapse hit Edinburgh, we discovered just how much we had to lose. The humbling of RBS and HBOS, the twin giants of Scottish financial services, has had a profound affect beyond the world of finance.

For generations, Scotland enjoyed a reputation for financial prudence, for safe dealing, for shrewd investment, which allowed us not just to build up a thriving financial services sector but to take a special place in the English-speaking world. From Toronto to Hong Kong, Auckland to Wall Street, Scotland was a brand which defined dependability. The image of the Scottish bank manager as a cautious steward of the bawbees putting them to work diligently for the anxious investor was a cliche, but also a priceless asset. And now its gone, like the Stuart monarchy or Third Lanark, a distant memory.

And the departure into history of the image of the fiscally prudent Scot hasn't just been bad news for the bankers of the Mound, it has also been a tragedy of a different kind for the politicians in Downing Street. For if RBS and HBOS have been scarred by the past 12 months then so, in profound ways, have been the Chancellor and Prime Minister.

Gordon Brown's most precious asset used to be his reputation for care in the maintenance of the nation's finances. The Iron Chancellor, wedded forever to Prudence, and bound by a web of Golden Rules, was supposed to be the quintessential living embodiment of Scottish economic wisdom. When Gordon wasn't saving the world he was channelling Adam Smith. But now that image, like so much else in the past year, has been exploded. The recognition that the next government, whoever leads it, will have as its major task paying off the gazillions of pounds of debt racked up in the last ten years only reinforces the tragic fact that the Scot, who more than any other, traded on our reputation for native financial shrewdness, has done more than any other to undermine it.

The damage done, to savings, to investments, to self-esteem and reputations, by the banking crisis has understandably led many to argue that we were fundamentally foolish to place such trust in financial services. And the future of the British, and especially Scottish, economies lies in rebalancing our efforts, away from manipulating figures on screens and back towards fashioning goods of lasting value from iron, steel, silicon and titanium.

I feel the pull of that argument as strongly as anyone. I can never gaze on the Clyde, or the Tyne, without feeling that it is a special sort of tragedy that those rivers don't still resound, from end to end, to the sound of shipbuilding. I know just why Letter to America is still the Proclaimers' most powerful song. So when people argue that now is the time, after years spent flirting with fickle Dame Finance, for us to recover our nation's manufacturing soul, my heart beats in time with that call.

But my head also tells me something else. The principal lesson of Lehman's collapse is that globalisation has shrunk our world – or in the metaphor deployed by the New York Times's Tom Friedman – made the Earth flatter. The distance between events in Wall Street and Princes Street has diminished, the barriers we used to erect against threats from abroad have now been all but swept away.

And in this smaller, flatter, world we are exposed to competition like never before. That means we have to make sure that our nation uses every resource we have as efficiently as possible. Capital has to be allocated in a way which secures the best return, so that wealth and jobs can be created in a truly sustainable fashion. The imaginative, the creative, the enterprising and the passionate need to be given the wherewithal to allow their dreams to become fulfilled, so that the new drugs, technologies, films and inventions which will transform our nation, and our fortunes, for the better can all be made.

And all that needs a flourishing, innovative, cherished financial services sector. If we're to get growth, including in manufacturing, then we need the discipline, and innovation, that a properly run and regulated banking industry provides. Helping the financial services sector get back on its feet may not be nearly as much fun as seeing bankers being brought down to earth with a bump, but our future happiness depends on it.