Is "Jeremy Corbyn vs the City of London" a recipe for investment disaster?

Labour leader Jeremy Corbyn has vowed to go head-to-head with the financial power of the City of London should he become prime minister, declaring that finance should be "the servant of industry, not the masters of us all."

Why does that send chills down my spine? It's partly because it sounds a bit like "these golden eggs should be our servants, not our masters, so let's dissect the goose."

With the financial crisis undoubtedly escalated by short-term excess across the banking sector, its easy to see how Mr Corbyn's sabre rattling would find a receptive audience among the electorate. 

But what he's actually saying that other people's money should be our servant.

And it can be, via the (admittedly imperfect) capitalist process that has been by far the biggest long-term creator of wealth in history. But that needs willing cooperation between the providers of capital and the providers of labour -- not governments dictating what the owners of capital should do with it.

I don't deny that the banking system has needed better regulation, and I'm also convinced that there will be financial crunches in the future. But I argue that these are a necessary part of our wealth creation and distribution process, and we surely need to take these short-term risks in order to reap the the long-term benefits.

Hostile takeovers

As an example of short-term financial opportunism, Mr Corbyn points to the takeover approach by Melrose Industries for engineering firm GKN. He described it as "short-term performance and narrow shareholder value prioritised over long-run growth and broader economic benefit." But is he right?

I'd say that's a question for GKN shareholders to decide -- if they believe the offer's terms "fundamentally undervalue GKN and its prospects" as their board claims, then that's their decision to make. And if they accept an offer, Melrose has a great track record of turning companies around.

In response, GKN plans to sell off non-core assets and return £2.5bn to shareholders over three years. Chief executive Anne Stevens said: "The new strategy brings clarity, accountability and focus" to the company, adding that "often we pursued growth at the expense of returns.

If that's true and it's being rectified, that's a good thing, isn't it?

It's nigh on impossible to succeed with a hostile takeover unless the target is fundamentally undervalued, and for that to happen it really must be doing something wrong. We've got inefficient use of capital, and rectifying that will do more long-term good than having government step in and try to dictate how things should happen.

Capital efficiency

It's similar to the concept of shorting -- taking sell positions in shares you don't own and which you think will fall. People decry shorting as being negative, but again the truth is that shorting is rarely successful unless its target has genuine problems, and again it helps improve the efficiency of capital allocation.

My final though is on the practicalities of Mr Corbyn's ideas. 

It would take a long time to effect any significant changes to how the UK's multi-trillion pound financial system works. At times like this, I'm reminded of Margaret Thatcher -- she was my least favourite PM in my lifetime, but she was right when she said that if you try to buck the market, the market will buck you.

Ignore the politicians

Over the long term, it's best to just ignore the politicians and focus on a long-term approach to your investments, as that's your best chance of reaching a wealthy retirement.

The Motley Fool's 10 Steps To Making A Million In The Market report takes you through what you need to know, one step at a time, and should set you on your way nicely.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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