Fintech companies should leave the door open for the Labour leader
Fintech companies should keep an open mind about Corbyn. He might not be the dinosaur he appears.
No-one in financial services wants to defend Jeremy Corbyn.
Among investors and finance professionals it’s taken as obvious that Corbyn is bad for business. And taken as obvious that he is a “museum piece dinosaur” who should take his policies “back to the seventies”.
“Mr Corbyn is a fringe figure who has spent his entire political career in opposition — to his own Labour leadership,” wrote the FT’s election leader, expressing an industry consensus.
“Despite his recent media makeover, he is a pacifist relic… in hock to the trade unions, with no grip on economic issues.”
But while there is plenty of room for disagreement on Corbyn’s platform, it’s far from clear that any government he leads would be acid to fintech. And on some issues it seems he offers a preferable alternative.
Fintech needs the government money tree
A centrepiece of the Labour Party’s manifesto – if the manifesto is to be taken seriously – is a tax cut on small business profits and lavish government funding for SMEs through public banks.
While the small profits tax cut would be useless - most fintechs are loss-making and have no profits to tax – easy government money is something fintech needs.
Here, it can be helpful to remember that London became Europe’s fintech capital in large measure because it has a supportive government. The same is true elsewhere.
Singapore became the lodestar of Asian fintech because it is, essentially, government funded. Singapore’s central bank coordinates with startups and feeds them cash and resources. Its central government brings fintech education to colleges and universities, helping them hire staff.
In Singapore as in London: a small young industry like fintech succeeds best when it can play koala to the government money tree. More support for the British Business Bank, or for an alternative government investment vehicle, is likely under Corbyn and something fintech could use.
Tighter labour laws are not a problem
Corbyn’s labour laws are the most radical of all his policies and one suspects that’s where most business hostility comes from.
Corbyn has promised a higher minimum wage, stronger unions, more holidays and ending zero hours contracts. These policies do not endear him to businesses, who want labour market flexibility above all else.
Critics have warned that Corbyn’s laws would scare off foreign investment, blunt competitiveness and increase operating costs. All of which would be detrimental to British business.
But as far as fintech is concerned, the evidence is mixed at best.
Painting in broad strokes, there is no correlation between startup success and labour laws. Small business advocates have long observed that continental Europe has more small businesses per capita than the UK, despite Europe’s tighter labour laws. The United States, with more relaxed labour laws than even the UK, has even fewer small businesses still.
More concretely, stronger trade unions are beside the point for fintech as the industry has none. And the minimum wage and zero hours contracts are outside concerns as fintech is a capital not labour-intensive industry. In Australia, where this author is based, the minimum wage is the highest in the world and zero hours contracts illegal. Yet fintechs do not complain as they are unaffected.
Reigning in the Too Big To Fails
The last issue and perhaps the most crucial issue is that Corbyn could inject more competition into lending.
It has been argued from the start that the mission of fintech should be to weaken the banks. But how fintech was meant to do this when the banks are too big to fail has never been explained.
The subsidies flowing to the banks are mighty indeed. They range from the subtle – government guaranteed equity, government guaranteed deposits, cheap government credit. To the not so subtle, as in the 2008 bailouts.
Readers with long memories will remember an article from Bloomberg’s editors back in 2013. Using IMF data, they found that the world’s biggest banks aren’t actually profitable at all. Instead, all their profits trace back to subsidies from the government, creating both socialism for the rich and formidable barriers to entry in financial services.
What matters here is who is best placed to wield the mop. The Conservatives, who get much of their Party funding from bankers? Or Corbyn, a finance outsider?
Keep an open mind
The point here is not to endorse Corbyn or encourage others to do. It is only that in politics, as in business, one should always keep an open mind. And a Corbyn-led government, while not the best thing in the world, might not be the worst thing either.
26 October 2020
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