Ben Wray

Ben Wray

‘City of Money’ Review: Bankers’ Scotland?

Reading Time: 6 minutes

Ben Wray examines a history of the banking system in Scotland, and asks what the implications of monopolisation and financialisation are for Scottish socialists.

Whether it was colonies or canals, mansions or mines, ferries or factories, behind the past 300 years of Scotland’s economic development stood loans issued by banks. More often than not, that bank was the Bank of Scotland (BoS) or the Royal Bank of Scotland (RBS). Ray Perman’s financial history of Edinburgh is, essentially, a history of Scottish capitalism, told through the lens of its banks.

The Rise and Fall of the City of Money is a story worth telling, because the rise was so remarkable and the fall so dramatic, even if its importance has still barely registered in the country’s contemporary political and cultural discourse. The Scottish Parliament has debated Scottish banking once since the 2008 crash, in 2010.

What has been missed and Perman has recognised is that, for all the febrile debate about Scottish political sovereignty for the past decade, Scotland has just lost its independent financial centre in Edinburgh, swallowed up whole by the City of London.

Bank of Scotland’s old headquarters on the Mound is now nothing more than “a venue for corporate entertaining”. The bank, already merged with Halifax before the crash, has become a Lloyds subsidiary. RBS is still officially independent, but its HQ at Gogarburn on the outskirts of Edinburgh, which had been opened by the Queen and where former CEO Fred Goodwin used to park his private jet between trips to watch Formula 1 in Abu Dhabi, is now “an incubator for 80 entrepreneurs starting up companies”.

Any socialist agenda for Scotland must reckon with what the end of Edinburgh as an independent financial centre means for Scottish capitalism.

Scottish banking: origins and monopolisation

The Bank of Scotland was launched in 1696, eleven years prior to the Act of Union. It was that pre-1707 sovereignty which allowed BoS to set up with Scottish notes and under Scots’ law. The then independent Scottish Government also guaranteed the bank against losses and gave tax-free dividends. Scottish banking was closely connected to the state from the beginning.

The country’s ruling elite sought entry to the Union after the failure of the Darien Scheme, a disastrous attempt to establish a Scottish colony in Panama in the late 1690s, which had been backed by about one-fifth of all Scottish currency in circulation. It proved to be good timing for them to reap the huge rewards of Empire.

It was integration into the British establishment which allowed, for example, the newly formed RBS (established in 1727 as a unionist rival to BoS) to become banker to the British army. This was a key position from which to accrue financial advantages. Following the defeat of the Jacobite rebellion in 1746, landowners which supported the Rising had their property and titles seized – the proceeds were channelled through RBS.

It’s this dialectic of 1707 – between the particularity of Scottish banking emerging out of the Scottish state of pre-1707 on the one hand, and its development within the integrated Union state post-1707 on the other – that is key to understanding how BoS and RBS first survived, and then thrived.

As the post war era began, monopolisation had led to their being five big London banks, the smallest of which was bigger than all of the Scottish banks put together. In that context, RBS and BoS could only survive through merger and acquisition. Within 20 years “eight Scottish banks had been reduced to three”. The days of a diverse and competitive Scottish banking sector were over.

In the case of RBS, the bank’s 1959 merger was “a takeover by National Commercial [another Scottish bank] in all but name”. The merger brought an end to “the near feudal reign of the Dukes of Buccleuch”, who had been governors of the bank continuously since 1777. The present Duke of Buccleuch is one of Scotland’s largest landowner’s. Old money has been a cornerstone of the Edinburgh banks since their birth, and remains so.

An idealistic analysis

When Perman’s history reaches recent times question marks start creeping in about his account. While the book tells enthralling stories about the characters which have made Scottish banking, there is a tendency to over-play the role of individuals in history. An over-investment in personalities means that major changes in the world of finance – such as the end of the gold standard in the early 1970’s, the financial ‘big-bang’ of the 1980s, and the shift in the focus of finance (including in Scotland) away from manufacturing to personal loans and finance itself as the rate of profit fell – are only mentioned in passing, if at all.

This really becomes an issue in Perman’s conclusion, which is rightly excoriating of the role of executives at RBS and BoS in the 2008 crash, but suggests that something could have been fundamentally different if only the bankers had “learned from the way Bank of Scotland forced William Cadell to resign in 1832, or Royal Bank acted against John Thomson in 1845”. The implication is Scottish banking’s track record for “prudent management” could have been saved if only there were more competent, less megalomanic individuals at the helm of these two institutions.

All the evidence points in the other direction: neoliberal globalisation had created a systemic drive to expand or die, and the governments, auditors, accountants, regulators and shareholders were as equally implicated as the bankers in looking the other way during the bubble. Despite the monumental losses incurred by both banks, there was very little about what happened at either bank that could be considered criminal – such shocking risk-taking was all within the governing rules of the global economy. The ‘rotten apple’ theory doesn’t really stand up to scrutiny.

Finance, currency and independence

Despite these weaknesses, Perman’s detailed account provides the raw materials for a proper debate about banking’s role in modern Scotland, a debate that is increasingly required now that a new, even more painful crisis is before us.

Are Edinburgh, and Scotland, now ready for a post-financialisation era? In the 2014 independence referendum, RBS made its unionist roots plane, stating one week before the vote that it would move its headquarters from Edinburgh to London if Scots voted Yes. If Perman’s analysis is correct, that would have been at most a cosmetic change after the 2008 crash anyway.

The post-referendum period has been marked by polarisation within the independence movement on the question of the banks. The SNP’s Growth Commission on the economics of independence, led by corporate lobbyist Andrew Wilson, barely sought to disguise its deference to The City.

Asked if the Growth Commission report was written to please financial elites, Wilson responded: “People on the left say: ‘Who cares about the City?’ Well if you don’t care about investors and the people who fund you and create jobs, well then you don’t win, you don’t succeed.”

The debate highlighted the divergence within the independence movement between its grassroots and establishment wings. The independence of Andrew Wilson and his corporate clients proposed utilising statehood as an opportunity to deepen financialisation. The grassroots movement saw independence as an opportunity for a breach with governing norms, more in common with the anti-austerity movements which emerged elsewhere in Europe in the 2010s.

The 2020 crisis has buried the Growth Commission, almost certainly permanently. The extraordinary steps taken by Central Banks to prop up financial systems clearly exposes the folly of the report’s proposal to go without such monetary under-pinnings. If Wilson had got his way and a second referendum had been held and won in 2019, it’s not an exaggeration to say that a newly independent Scotland would now have the begging bowl out for financial support, cap-in-hand to the Bank of England or – in lieu of their backing – the International Monetary Fund.

The alternative is straightforward: establishing a Scottish currency during the transition phase to independence. This base level of monetary sovereignty is hardly radical: indeed, huge central bank balance sheets are now clearly the modus operandi of global capitalism. For the pro-independence left, it should only be seen as the basic starting point for a much more ambitious agenda to transform finance in Scotland, so that credit operates with a social and ecological purpose. Largely London bank owned credit in the Scottish economy – especially dominant in its “core business” of the “security of land”, as Perman describes it – will not disappear just because an independent Scotland sets up its own currency.

The financial history revealed by Perman in many ways shows us how history is not a guide to the present crisis. Scottish banking used to be sufficiently flexible and dynamic that it could adapt and evolve through crisis, and major constitutional change. Today, banking in Scotland (not ‘Scottish banking’) is monopolistic, parasitic and London-controlled. Perman’s book (published pre-Covid) does not provide a satisfying answer to these problems, but it is a superbly researched account of banking’s place within Scottish capitalist development since its birth.

A longer version of this article was published on Jacobin.

The Rise and Fall of the City of Money: A Financial History of Edinburgh by Ray Perman was published by Birlinn Ltd in October 2019, ISBN: 9781780276236, £25.

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