No, Sajid Javid is not responsible for the financial crisis – but he will be for no-deal Brexit

As a former economic advisor to John McDonnell I can understand his misgivings about the chancellor. But Javid’s investment banking career is not a true emblem of the malaise that gave us the finnancial crisis

It is the shadow chancellor’s duty to scrutinise the policies and plans of the government, especially the government of an unelected prime minister at a time when the country is at risk of an economic and constitutional crisis. Since the government’s policies are barely formulated, and as the country is still struggling with the legacy of the 2007-09 financial crisis, it is understandable why John McDonnell has focused on Sajid Javid’s background as an investment banker, now put in charge of the nation’s finances.

Here, nuances do matter. No single financial product caused the crisis that began in the summer of 2007. A large and complex infrastructure of financial innovation, trading and balance sheet management was at play, and all major participants of the economy were part of the machinery.

Notwithstanding its ongoing debacle, Deutsche was not the only bank at the heart of the asset bubble in 2007-09; in fact, it was not even the most aggressive. Regulation, accounting and tax arbitrage schemes have been at the heart of banking and finance for a long while, and remain central to financial industry even after more controls and new rules were imposed on the banking system after 2009.

So it is probably an overstretch to project Javid’s personal experience in finance in the 1990s and 2000s to the ills and malaise of the industry as a whole. His career in banking seems to simply reflect the evolution of the industry and markets over time.

Nor is there anything wrong with investment banking as such. Investment banking is as complex and varied as the industry of finance as a whole. In order to build a new highway or a hospital, you do need investment banks and structured credit. In order to guarantee pension income to an ageing population you need not only competent asset managers, but well-functioning financial markets.

These and many other areas of human economic activity do need long-term investment oriented towards the future, with business expectations secured against risks. Unavoidably, some of the hedging activity takes unproductive and speculative forms, but investment banking does serve a variety of important functions towards public welfare.

What brings me to the next point, which I stressed in my contributions to discussions with the shadow cabinet during my time as a member of the Economic Advisory Committee (EAC). It is important to distinguish between speculative elements of financial trade and investment and fund-raising activity performed with the help of banks and financial markets. Far too often, the left makes the mistake of seeing the whole of the financial system as speculative, unproductive or even parasitic, whereas all economic activity throughout our life cycle is connected to the operation of financial markets, whether we recognise it or not.

In this respect, it is that wider context of Javid’s role as chancellor that raises concern. The only former Remainer in the de facto Vote Leave Cabinet, his presence serves the function of rectifying the image of the Conservative Party as the party of business and the City. After a prolonged period of business bashing by many Tories including Boris himself, it is a necessary step. Question is, can Javid’s career as a deal-maker in finance serve the public?

There is a myth, alive far beyond the UK, that businessmen must make good politicians. It stems either from the notion that getting rich individually will help enrich a country; or relatedly, from the idea that a successful businessman is necessarily also a good deal-maker. Once in a position of power, such a deal maker is supposed to ensure consent in politics and economics.

The mythology has enabled many businessmen to migrate into politics. Silvio Berlusconi in Italy, Petro Poroshenko in Ukraine, Donald Trump in the US are only few of the recent examples. The international record of businessmen turned politicians is inconclusive at best: Berlusconi led Italy into economic stagnation; Poroshenko is facing several criminal investigations; the economic risks of Trump’s presidency threaten to undermine the international financial and trading systems and slow down the US economy itself.

Part of the problem lies in conflating the market with business. It is easy to confuse business and business people with the idea of the market itself. Far too often, economic problems and financial crises stem not from the operation of the market as such, but from the attempts of businesses to subvert the rules of competition and exploit regulatory niches. Brexit, especially a no-deal Brexit, would be a Holy Grail to such deal-makers. A snowball of volatility and systemic risks, it already offers great opportunities to speculators that make money on a simple prospect of change. A departure from EU norms also opens a new and exploitable regulatory niche.

To what extent the deal-making facilitated by no deal will serve public purpose in post-Brexit Britain is an open question. History offers a pessimistic guide. In the early 1990s USSR, the removal of trade barriers and regulation enabled the creation of oligarchy that has undermined the power of the state, contributed to a massive transfer of national wealth into the private ownership of about a dozen businessmen.

In the USA in the 1930s, it would take a decade of depression and several years of careful planning to set up the institutional architecture (known as the New Deal) which would ensure the “golden age of capitalism” that so many today, including many who voted for Brexit, long for.

Anastasia Nesvetailova is a professor in political economy at City University