It has been a depressing few days for democrats, and especially for those democrats worried about the power of business. The shiftiness of Bob Diamond and the extraordinary innocence of Paul Tucker about money market practices coincided with the publication of two reports that highlight the way corporate interests are organised to shape public policy in the UK. Democratic Audit, which has now been auditing democratic practices in the UK and elsewhere for over twenty years, published its fourth audit of democracy in the UK. (Downloadable at http://democracy-uk-2012.democraticaudit.com/how-democratic-is-the-uk-the-2012-audit.) The Bureau of Investigative Journalism meanwhile published the most comprehensive and well researched study we have yet seen of the lobbying activities of interests in the City of London (downloadable at http://www.thebureauinvestigates.com/). The section in Democratic Audit’s report on accountable government, combined with the Bureau’s investigation of the web of corporate patronage spun by the City, together give us the essential background to the extraordinary arrogance revealed by the behaviour in the Libor scandal and the astonishing blindness to this behaviour displayed by senior regulators like Mr Tucker.
What these two reports show is a fundamental change in the recent decades in the way business has exercised power in the UK. Some of this change is due to factors external to business itself, factors that are a major theme of the work of Democratic Audit. These changes are atrophying the official institutions of democratic participation. The two most obvious indicators concern voting in general elections – the single most important summary sign of the health of national democracy – and the membership of the political parties. Voting offers us a paradox. In the last couple of decades voting opportunities (referendums, elections for devolved systems of government, elections for mayors and even now for police commissioners) have proliferated; but turnout has declined. Meanwhile the mass party – the capillary tube of the democracy – has simply vanished: parties that a generation ago had millions of members now typically have less than 200,000. The Westminster parties in particular have shrunk to tiny cadres of professional careerists.
The decline of these institutions and practices has created a vacuum now being filled by other institutions and interests. This is how we should understand the new world of corporate lobbying documented by Democratic Audit and, especially, by the Bureau of Investigative Journalism’s work on the City. A generation ago business had to work alongside, and often in opposition to, powerful institutions of civil society: a trade union movement with large and well organised membership in the private sector; political parties that could rely on mass membership to generate the bulk of the money that they needed. Business certainly exercised power, and the City in particular exercised great influence through a network of informal contacts, mostly funnelled through the Bank of England. But the decline of so many countervailing influences in civil society, and especially of the mass party, has created the opportunity for much better organised, and more pervasive, corporate influence. The new world of City politics revealed by the Bureau’s work shows, in particular, three profound developments. The first is the colonisation of the parties through the use of money. Since corporate lobbying is opportunistic this mostly affects parties in office, or those with a reasonable prospect of office: this explains the surge of financial support from the City for the Conservatives since David Cameron’s assumption of the leadership in 2005, closely documented in the Bureau’s report. The second is the pervasive infiltration of City interests into the institutions of government. Of the many instances of this penetration in the work of both the Bureau and Democratic Audit, one of the most revealing and hitherto neglected is the way City interests have colonised the House of Lords: 16 per cent of active members of the House (124 out of 775) declare paid positions in finance firms. And that’s only the most minimal measure of connection, based as it is on a declarable interest. The significance of this is simply not appreciated, because the significance of the Lords is not appreciated. The second chamber is no longer a joke. The Life Peerage reforms (dating from 1958) have transformed the institution. It is now a much more expert and competent body than the Commons, and much the better place for interests to shape the detail of policy and legislation. And in financial regulation it is the detail that matters.
The third great change is probably the least appreciated of all: the City has revolutionised its internal government. The Corporation, until recently a mostly charitable and ceremonial body, has been turned into a largely autonomous governing institution for the richest bit of territory in the UK. And, as the Bureau’s investigations show, it is turning its considerable firepower – money, and the advocacy skills that money buys – into a sustained promotion of the interests of the finance sector.
In the wake of the report from John Vickers’ Commission, and the most recent banking scandals, attention has, quite reasonably, focused on the problem of the substantive reforms of the banking sector. But reform of institutions and business practices is not enough, and indeed will probably be impossible to achieve until the power of the City as an organised lobby is confronted. The Bureau’s work, and the continuing work of Democratic Audit, is a start on that long hard road.