The Prawn Cocktail Party (1998)

Book Review from the July 1998 issue of the Socialist Standard

Prawn Cocktail Party by Robin Ramsay. Vision. £9.99

The Prawn Cocktail Party is of course the Labour Party which when in opposition under John Smith and then Tony Blair organised a series of lunches and receptions in order to convince business and the City that they had nothing to fear from a Labour government. According to Ramsay, the City welcomed this as they had already begun to write off, for the time being at least, the Tory Party as a reliable instrument of their political will because of the large inward-looking Eurosceptic element within it.

Ramsay starts from the premise that “there are essentially two economies in the UK. One is the domestic, manufacturing economy and its allied services; the other consists of the City of London, its support services in the ring of shires round the capital, and some multinationals with bases and plant in the UK. Traditionally, he says (and he writes as a Labour Party member), Labour has defended manufacturing industry while the Tories have represented the City. But now:

“British politics has been stood on its head. The Conservative Party, traditionally the party of financial and overseas interests, has been replaced in that role by Labour. Instructed by its new friends in the City, Labour has become the party of financial, pre-Keynesian orthodoxy. Gordon Brown looks determined to re-enact the role of Philip Snowden in 1931—the perfect Labour Party front man for the interests of the overseas lobby”.

This explains, says Ramsay, why one of the first acts of the Labour government last year was to give the Bank of England the freedom to fix interest rates and why Gordon Brown and other Labour ministers defend the policy of allowing the pound to rise in value even though this harms exporting industries. Instead of defending the interest of manufacturing industry as it used to, Labour is now promoting the interests of the City.

To Ramsay the City is the villain of the piece. Certainly they are villainous enough, but he exaggerates when he describes a policy of high interest rates as a “racket” and a “fraud” on the grounds that banks make more profits when interest rates are high than when they are low. If, like Ramsay, you think that banks have the power to create credit out of nothing this would be true. In fact, however, banks are financial intermediaries which make their profits from lending money out at a higher rate than they pay those they borrow it from. This means that what is important for their profits is not the absolute level of interest rates but the difference between the rate charged to borrowers and the rate paid to lenders; if interest rates are high banks don’t necessarily make bigger profits since they have to pay higher rates to their depositors—in fact high bank profits are not at all incompatible with low interest rates.

So there is no basis for Ramsay’s supposition that the banks are somehow worse than manufacturing businesses and that we should therefore support the latter against the former. Since both derive their profits from the surplus value produced by the workers and since it is the capitalist system as a whole that is the cause of our problems, why should we support the manufacturing capitalists against the financial capitalists?

Adam Buick