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Anthony Rowley

Nowadays, prime ministers and even presidents cower before the mighty bond markets. These have the ability – in democracies, at least – to have leaders ejected from office via the ballot box, as even US President Donald Trump appears to acknowledge.
However, it is not enough to simply offer dismissive gestures towards the bond markets, as some political leaders have discovered to their cost. It is much more important to ask why it is that bond markets have become so powerful.
It is refreshing in this regard that Andy Burnham, the newly elected member of parliament for Makerfield in northern England and the man widely expected to become Britain’s next prime minister, is in effect doing just that. He appears to have recognised that financial systems – more specifically, mechanisms for transferring savings into investment in his own county and in other market economies – could be in need of a radical overhaul.
As with equity markets, bond markets are virtually force-fed with savings collected by private financial institutions such as pension funds, insurance companies and investment trusts. As a result, bond markets have become too big for their proverbial boots in some cases, while the capitalisation of the equity markets has grown in size to become a threat to financial stability.
Meanwhile, government budgets have become overburdened with responsibilities ranging from defence and health spending to infrastructure and education provision. They are underfunded from tax revenues and forced to turn to borrowing from bond markets, becoming increasingly indebted in the process.
At first sight, Burnham might appear as likely as his predecessors to exacerbate this situation by following the increasing trend among governments to nationalise or renationalise key assets, such as water systems in the UK. He is far from alone in urging increased state control of important national assets.

Historian Nicholas Mulder wrote in a recent article for the International Monetary Fund’s Finance & Development Magazine that governments are taking over private enterprises and resources at the fastest pace in 50 years. “Based on the past century’s multiple waves of nationalisations, this shift will alter the world’s economic landscape,” Mulder wrote.
He noted that governments on every continent had nationalised properties held by their own citizens and foreign investors since 2020. For example, France and Germany took over utility and electricity companies, while the United Kingdom nationalised railways and steelmaking. Russia has seized more than US$48 billion in ports, factories and other businesses since it began its invasion of Ukraine in 2022. The United States has taken a dominant ownership stake in the country’s only domestic rare earth producer.
“Geopolitical instability, commodity market disruptions and renewable energy development are driving these takeovers,” Mulder said. “And as more governments embrace interventionist economic policies, the current wave of nationalisations shows no signs of letting up.”
Burnham, the former mayor of Greater Manchester, has been an advocate of a more socialist approach to financing. In this approach, local or state governments could take ownership of essential services instead of leaving their often bond-financed ownership and control in private hands.
As the Official Monetary and Financial Institutions Forum, a think tank for economic policy, noted in a recent report, Britain’s essential systems are too costly, too fragmented and too underinvested. Public money is spent compensating households for failure rather than fixing the essential systems. Burnham’s answer is public control, local accountability and a state willing to shape the supply side.

This debate goes far wider than Britain. It has critical relevance to countries around the world that have been greatly influenced in their economic and financial development in recent decades by market-favouring trends emanating from the UK, the US and even Japan.
Holding companies – one model Burnham could adopt – would be able to obtain the funds they need to make investments by borrowing or by selling debt or equity interests in themselves or in their subsidiaries. Either way, their activities can shift liabilities off the balance sheets of governments and reduce the need for direct government borrowing, thereby reducing the power of sovereign bond markets to intimidate policymakers.
Similar arguments apply to the setting up of sovereign wealth funds of the kind that have proliferated in and beyond energy-exporting nations. Non-commodity sovereign wealth funds are generally financed through transfers from a country’s foreign exchange reserves or from government budget surpluses.
There are many permutations to these formulas, but the important thing is that a wide and much-needed debate on public and private financing mechanisms seems likely to be triggered by the arrival of a new (Cambridge-educated) political leader in Britain. This could hold lessons for the whole world, and not least for those parts of Asia where market-based financial systems have taken hold in recent decades.
In any case, bonds are already under pressure from the market itself as yields rise and prices fall in line with rising interest rates and inflation. These downward pressures on bond prices almost certainly reflect a growing realisation that government debt in advanced and emerging economies has reached or is approaching unsustainable levels as the financing burden upon public authorities increases. This is another reason that public debate needs to take place on the viability of financial and fiscal systems if current structures are maintained.


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Newly elected Makerfield MP and former Greater Manchester mayor Andy Burnham (centre) walks at Manchester Piccadilly station in Manchester on June 22, as he leaves for London. Photo: Reuters

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The favourite to become Britain’s next prime minister is the latest figure promoting greater state control of important national assets


The favourite to become Britain’s next prime minister is the latest figure promoting greater state control of important national assets.


Bonds

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Andy Burnham

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Can Andy Burnham fix Britain’s essential services and debt problem?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The favourite to become Britain’s next prime minister is the latest figure promoting greater state control of important national assets

The favourite to become Britain’s next prime minister is the latest figure promoting greater state control of important national assets