Regulating the City: Competition, Scandal and Reform 
by Michael Clarke.
Open University, 288 pp., £25, May 1986, 9780335153817
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Regulating fraud: White-Collar Crime and the Criminal Process 
by Michael Levi.
Tavistock, 416 pp., £35, August 1987, 0 422 61160 3
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By no means the least significant consequence of the Conservatives’ adoption of an ‘authoritarian populist’ platform on law and order during the Election of 1979 was the pressure this put on the British Left to develop its own practical and ‘realistic’ policies with regard to the containment of crime. The only really interesting new development within British criminology during the Eighties (other than the resurrection of the idea of the ‘reasoning criminal’) has been the emergence of ‘left realist criminology’, with its insistence on the seriousness of street crime.

Closely paralleling this development has been a transformation of the public stance of the Labour Party on questions of crime and penal policy. This transformation is quite clearly revealed by comparing the essentially sceptical and libertarian concerns of the briefing pamphlet on ‘Law, Order and Human Rights’ which was circulated to all the Party’s candidates in 1979 with the heavy emphasis placed on crime prevention in the pamphlet on ‘Protecting our People’ released at the time of the 1987 Election, In this pamphlet, nearly all the concerns of realist criminology find a place: the focus of discussion is almost entirely on street crime. The substance of the policy proposals centres on the creation of crime prevention schemes at the neighbourhood level and on the re-constitution of the Police as a public service preoccupied with the prevention and prosecution of crimes committed against ‘ordinary people’.

In 1988, the continuing increase in the rates of crimes of violence and hooliganism, together with the Hungerford episode, makes the emptiness of the Thatcherites’ early insistence on the effectiveness of penal coercion (‘the Barrier of Steel’ of which Mrs. Thatcher spoke in an infamous speech of May 1979) look obvious enough. But the narrow – ‘realistic’ – focus on street crime adopted by ‘left realist’ criminologists – who are in other ways quite critical of Thatcherism – has now encountered some problems. One of these has been the publicity given to corruption in the City and in the international stockmarkets. Press reports of June 1986 about cases of insider-trading in the United States, and the extraordinary sums of money involved,1 were quickly followed by the prosecution in Britain of Michael Collier. Chairman of Morgan Grenfell, the largest securities firm in the City of London, for making an instantaneous profit of £15,000 on the purchase of shares in a company he knew was about to be taken over. A steady series of cases involving manipulation of the market followed throughout 1987 (including the prosecution of a Tory MP, Keith Best), and by the end of the year, there was a perceptible suspicion abroad (certainly in the mass media) that these cases represented merely the tip of a very large iceberg.

Once again, the attempt to construct a ‘popular capitalism’ in Britain was encountering the problem of moral default on the part of individual capitalists (the ‘unacceptable face’ of capitalism), and once again, criminologists were being asked questions about ‘the criminality of the powerful’. Left realists, however, concerned to develop a popular socialist programme of crime prevention and democratic policing, have found themselves with little to say about crime in the City. There is, indeed, a temptation to ignore these recent revelations on the grounds that they have no direct physical or psychological impact on working people, on the unemployed or on other disadvantaged populations. But there is clearly some anxiety amongst left realists about this position: isn’t the emergence of new evidence about fraud and corruption amongst the powerful an important measure of the moral problems inherent in free-market capitalism? Isn’t the treatment of fraud and corruption by the courts an important issue in and of itself, highlighting the broader and very powerful ideological question of substantive equality before the law?

There is a long tradition of interest on the part of socialist criminologists in the criminality of the powerful. ‘White-collar crime’ and ‘economic crime’ were central topics in the work of the great Marxist criminologist Willem Bonger, whose Criminality and Economic Conditions was published in 1916. ‘White-collar crime’ was also an interest of the American sociologist Edwin Sutherland, whose main work on this subject was published in 1949. In this country, however, dominated as its criminology has been by technical and administrative concerns, the interest of scholars has been periodic and largely indecisive. The only period in which any serious work on the criminality of the powerful (or on the regulation of financial markets in the public interest) has been published was the so-called period of Social Reconstruction in the aftermath of the Second World War. The whole of the second half of Hermann Mannheim’s underrated Criminal Justice and Social Reconstruction (1946) is taken up with an examination of the ways and means of shifting the main emphasis of English criminal law and of standard forms of policing, from ‘comparatively petty economic crime to the various, more complicated and more dangerous types of white-collar crime’. According to Mannheim, a typically social democratic radical of the period, the issues involved were the moral legitimacy and the efficacy of the legal and penal systems as such.

The long silence of socialist criminology since the late Forties on the criminality of the powerful has been broken only by a monograph by Frank Pearce on American corporations and anti-monopoly legislation, a rather inconclusive review of the literature on ‘white-collar crime’ by the late John Spencer, and an important critical essay by Paul Hirst on the inability of orthodox Marxism to theorise the joint-stock company. None of these interventions did much to ground their discussion in the developing realities of economic crime in Britain. This particular project was only taken up with any seriousness in the early Eighties, with three studies by two men, Michael Clarke and Michael Levi.2 Both Clarke and Levi have now re-entered the fray in order to examine the pressing question of fraud in the City and other financial markets.

Clarke’s Regulating the City provides an analysis of changes in ‘modes of regulation’ of British banking and insurance and of the Stock Market. The central argument is that a ‘discernible shift’ has taken place (with some unevenness), over the last decade, in all the financial service industries: from a reliance on in formal modes of self-regulation, based on the recruitment of staff from a very narrow social stratum, to more bureaucratic and theoretically more accountable systems of external regulation, characterised by rather stricter surveillance and rules of membership. Partly as a result of London’s developing role, beginning in the Sixties, in the Euro-dollar market, and partly because of the rapid growth in the number and influence of secondary banks, trusts and other financial institutions, it simply is no longer possible for the Governor of the Bank of England to keep his finger on the capital markets by making a few phone calls and by holding informal meetings, at short notice, with small groups of heads of financial institutions. The unresolved question is whether the new, more formal regulatory systems are likely to have influence over established City institutions and over the ‘new money’ now so significant in the City.

Clarke’s other major argument was much discussed in the press at the time of the flotation of the British Petroleum shares in October 1987 – a time when stockmarkets were in trouble. Clarke traces the encouragement given by the Thatcher Government to the idea of a ‘popular capitalism’, based on a wider ownership of shares, and speculates that this must have generated expectations of quick and handsome economic returns, especially amongst first-time share-owners. But this poses real dangers for the Government: for, as Clarke presciently observes, the market’s tendency toward booms and slumps necessarily involves ‘relatively high risks, particularly for small-time novice players’. The contradiction, therefore, according to Clarke, is that a free-market government may increasingly or repetitively be drawn in to act as a guarantor, especially at a time when financial institutions are being celebrated politically for their ability to deliver what industrial institutions have failed to deliver. It is, Clarke implies, a dangerously corporatist game for a free-market government to play.

Clarke writes very much in the manner of a distanced sociological observer, concerned to identify some of the structural features endemic to the Thatcher Government’s attempted popularisation of free-market capitalism. But it is legitimate to wonder whether the account does deal with all of the most important and interesting sociological questions. He does not provide any information on the striking regional unevenness that has characterised the growth of share-ownership in Britain, and does not, indeed, discuss the continuing low level of popular share-ownership in Britain as a whole, relative to other capitalist societies. It would have been quite telling, for example, to have been offered some cultural analysis of the ways in which shares have been advertised in Britain over the last few years: notably the ways in which the purchase of shares – for example, in the Channel Tunnel – is depicted as an act of patriotism. The investor is invited into complicity with a view of the future of Britain as one that will be constructed via the dynamics of free-market activity. We also witnessed, in 1987, the advertising of British Petroleum shares, where ownership was depicted as evidence of the investor being positioned at the heart of ‘the action’ in a fast-moving modern world. The obvious sociological question is whether these encodings work at the ideological level or whether, instead, the purchase of shares occurs, at many levels of the class structure, and in many different parts of the country, without a ‘buying-in’ to the free-market ideology that suffuses the advertising of these shares. Might it not be the case, for many working-class men (and some women), that the purchase of shares in British Telecom is akin to a visit to the betting shop, the purchase of a lottery ticket, the weekly entry in the pools – or a go at bingo? This certainly seems to be the understanding brought to popular capitalism in the tabloid press, where the standings of shares are positioned immediately before the horse-racing and greyhound selections.

These kinds of question do not find a place in Clarke’s account, which has a rather one-dimensional feel to it. It is not that the question of whether the free market will deliver economically is an unimportant one (the debates concerning the crash of October 1987 were vigorous and anxious): but this does not exhaust the issue. Perhaps the most important question to be asked has to do with the relationship between lived social conditions in general and the continuing viability of ‘popular capitalism’ as ideology. One of the most urgent features of free-market ideology as it has been articulated in Britain has been the insistent claim that the private ownership of production and of services is a more efficient and dynamic instrument than is their ownership by the state for the protection and extension of the public interest. An important literature has developed on the left, acceding to many of these claims, and accepting that it can no longer be a part of a viable, popular socialist politics to argue for a return to the inert, bureaucratic and user-unfriendly ‘solution’ of nationalisation, especially of the kind which entrenched itself in Britain during the earlier post-war period. But there is now another side to this question. One of the obvious and inescapable features of life in Britain’s free-market economy has been the rapid deterioration in the condition of what may be called public space.

Take the case of public transport. The unrelenting erosion of the idea of a free, efficient and safe public transport system has been signalled dramatically by the tragedy of the King’s Cross fire, but it is quite routinely observable in any case in the decrepit everyday condition of the London Underground and of public transport systems generally. Public transport is more expensive, and more unreliable, than at any time since the late Fifties. The only alternatives for most people have been the services provided by the new private companies, and these are more ramshackle and more inconvenient – especially outside peak hours or on less popular routes – than those that used to be provided ‘by the council’. The dangers involved in the privatisation of transport, and the running of services largely removed from regulation by the state, have acquired their own ideological signifier in the sinking of the Herald of Free Enterprise – which the British press prefers to call the ‘Zeebrugge tragedy’. The truth is that there is a widespread sense of the inadequacies in both public and private provision of goods and services across a widespread range of areas, and that this sense of contradiction – between a declining, defensive public sector and a brash, opportunistic and self-interested ‘private market’ – is at the heart of public concern over the future of education, the media and broadcasting, and, most strikingly of all, over the future of the National Health Service.

What may be threatening to emerge, in all these areas of public concern, however, is a renewed awareness of the inextricable connection between the pursuit and encouragement by government of private wealth and accumulation and the appearance, on a broad front, of the reality of public neglect. This is a prospect which has been discussed – in semifictionalised, prophetic fashion – in the novels of Pete Davies, Dick Morland and others,3 and it is also an operative assumption of the controversial films of Stephen Frears and Hanif Kureishi and of Steve Bell’s Maggie’s Farm cartoons. It may be that an unlivable and impoverished public sphere – where the buses are all but non-existent and far too expensive, where the inner city is a ‘no-go’ area (especially for women, the elderly and children), where public spaces generally are covered with filth and litter, and where public services are so bureaucratised and under-financed as to be virtually irrelevant to the citizenry – is now a fact of life in Britain. The alternative constructed in free-market ideology – of a gleaming, efficient service to the public provided by private capital – is increasingly problematic and contradictory, however. The new North American-style shopping centres in the ‘downtown cores’ of British cities may be an improvement on the kinds of services (for example, in shops, restaurants and other consumer outlets) that have traditionally been provided for the masses by private capital: but they are nearly all surrounded by dirty, unwelcoming concrete wastelands and walkways, and by cold and uncomfortable bus and coach stations, where there is very little provision for ‘the public’, very little attention to facilities. For these, no matter how much it benefits from their downtown location, private money takes little or no responsibility.

It was no pail of Clarke’s original set of concerns to be monitoring the relationship between the explosion of private financial institutions, the promulgation of free-market ideology by Thatcherite politicians, and the quality of everyday experience in public space in Britain. But the absence of such concern limits his analysis of what he sees to be the ‘contradictions’ in free-market ideology. It seems, too, that he does not succeed in clearly identifying a ‘public interest’ over and above the interests of investors themselves.

Michael Levi’s preoccupations, in Regulating Fraud, have less to do with the interpretation of the free market as ideology. Like the Labour Party leadership (in its recent Statement of Policy), he seems to have accepted that the free market is here to stay in an institutional sense – as the motor of innovation and economic growth. Rather than spend time distinguishing between the free market as an economic institution (one instrument among many in the organisation and government of social life) and the free market as a full-blown, revolutionary ideological initiative attempting to unpack a vast range of social and economic practices – a distinction on which Labour spokespeople could surely expend more intellectual and polemical energy – Levi proceeds directly to the business of identifying and evaluating procedures for the control of fraud in the market as currently organised. There are echoes of Mannheim and other social democratic writers of the Forties in Levi’s concern with the discrepancy which exists between the permissive treatment given by the regulatory agencies and by the courts to those few fraudsters who are successfully brought to public attention and the increasingly punitive treatment meted out to the conventional property offender by the criminal courts. Levi tries to make sociological sense of this discrepancy, as a measure of something other than the exercise of naked class bias, and, on the basis of this analysis, to make proposals for reform of the procedures for investigating fraud that stand some chance of being put into practice.

The analysis undertaken by Levi, on the basis of extensive interview and survey work, leads him to offer an explanation of the permissive character of existing systems for the control of fraud as arising out of the routinely informal and interpersonal social processes that make up the organisation of the market economy. He describes the ways in which the regulation of market relationships is accomplished: sometimes by correspondence, but more usually over the telephone since this does not result in a written record. He shows how the aim of these informal consultations and negotiations is for business people to obtain guidance from the representative of the appropriate regulatory agency (the Department of Trade and Industry, the Office of Fair Trading, the Customs and Excise Department, the Stock Exchange itself) as to the ‘ “best practice” consistent with the economic realities as perceived by the regulators at any given point in time’.

This routinisation of informal negotiations in the City ensures, according to Levi, that the operative definition of ‘good’ or ‘honest’ business practice is very wide indeed, and it also restricts the idea of criminal fraud to a very small number of practices that are quite unacceptable to the broad mass of financial operators, or, alternatively, to individual cases of fraud which may reach the public eye and demand a regulatory response in order to protect the reputation of ‘the market’. This may, indeed, be the prime significance of the establishment by the Government of the Serious Frauds Office last month.

Another way of putting this is to say that one consequence of the acceptance of free-market ideology in the conduct of economic and business relations is that the boundaries of legitimacy and morality are encountered strategically rather than in terms of some set of a-priori and/or moral principles. But it does not help much, in Levi’s view, to proclaim that this amoral and generally permissive approach to the regulation of market relations is a function of class bias. Most important of all, it is a function of the informal and negotiated character of economic relationships in an enterprise culture. Whether ‘we’ want to do more to detect and to prosecute fraud and malpractice in the market is not only a matter of abstract jurisprudential preference: it is also a measure of ‘our’ attitude towards those market entrepreneurs who, in Levi’s estimation, are ‘socially useful and create our wealth’. In the end, however, he concludes that the most effective response of the state to fraud would be one that focused on a workable policy of deterrence: he rejects calls for a more stringent, retributive sentencing policy partly on the grounds of the obstacles that such a policy would put in the way of free-market initiatives.

Both Clarke and Levi would seem to accept the inevitability of high levels of self-interest, fraud and corruption on the part of well-placed operators in a free market. For Clarke, the most interesting question is identifying the point at which ‘popular capitalism’ might be threatened, in some (rather unspecific) political sense, by the inability of investors to turn a quick profit. For Levi, the pivotal question is how a balance might be struck between existing market arrangements and some notion of a ‘public interest’.

We can surely assume that the Labour Party will remain committed (at least under present political circumstances) to some idea of the free market, and, indeed, it is still not unlikely that a version of Bryan Gould’s proposals for the extension of share ownership will find a place in the Party’s strategic thinking. But the Party wilt certainly have to take on, at some time in the none-too-distant future, the issue of market regulation and, in particular, the question of how its conception of the ‘public interest’ might be defended in the ebb and flow of the market. A vast range of public interests is at stake – from the interests of the individual citizens who own shares to the corporate deposits of the large public authorities themselves. It is not at all clear how these interests can be effectively represented, except through a public body with a broader, and more pluralistic, conception of the public interest than that held by the Bank of England. It is in respect of this problem – of thinking through the institutional realities of the new market economy – that Michael Levi’s study is invaluable. One of its great merits is the careful, critical treatment given to the halting attempts of the major financial institutions to regulate their own activities. Levi is particularly scathing about the use by the Stock Exchange of its power to suspend membership in the Exchange. This study, an essential resource for the re-thinking that must take place in Labour’s policy-making circles, provides a definitive response to those free-market interests who continue to argue that self-regulation is compatible with the interests of a larger public.

Levi also offers a convincingly sceptical discussion of the conventional legal and commercial view that the prosecution of fraud and corruption is made difficult by the very technical nature of the evidence, and the impenetrability of such evidence by the average jury. Levi turns this conventional view very firmly on its head by suggesting that there are real grounds for concern as to how prosecution and defence lawyers often present such cases to the court. He describes, for example, fraud cases that have been transformed into exercises in mystification by witnesses (with the collusion of their counsel) who could not or would not translate their private professional language and knowledge for public consumption and evaluation.

There is no point, of course, in assuming that any of these questions is open to an easy, or definitive, socialist answer at the level of policy: the internationalisation of market relations that has occurred since the Forties, but particularly in the Seventies and Eighties, makes any straightforwardly ‘national’ or ‘statist’ solution to problems of regulation look absurd. What continues to be important, however, is the offensive that has been mounted by free-market theorists and politicians on the very idea of public provision as a means to the achievement of a good life. There is an issue here which is surely not open to revision on the part of social democratic politics. Nowhere are the consequences of accepting the free market as a full-blown ideological package more apparent than in the contrast between the glossy, self-serving condition of the City of London and the appallingly neglected public space of the average British city. The idea of the city as a public space – a meeting space for all citizens – rather than the idea of the city simply as a ‘marketplace’ ought surely to be a continuing and central element even in the most revisionist of social democratic politics.

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