Friday, 24 June 2011

Saachi, Yelsin, Clegg and bonkers notions

I learned yesterday that the origin of the dubious notion of issuing 45 million shares in the nationalised banks to electors originated with that arch Thacherite Lord Saachi. It is much the same approach as Boris Yelsin pursued in de-nationalising Russian businesses and we know where that unfortunate policy led.

One of the key causes of the credit crunch and the crisis we are in is what Will Hutton described as the
'the oddest and most regressive constitution for private ownership anywhere in western capitalism'. 45 million share holders will be so dispersed and atomised as to play no effective role in the governance of the business. The policy of keeping them happy by building an increase in shareholder value will dominate and all the high risk strategies that go with us. The share will soon be sold on to the British equivalent of the Oligarchs and a quick profit taken. There will be no reform or restructuring of banking and it will soon be business as usual bonuses and all.

There is a radical Liberal alternative. The banks could be broken up and parts could be re-mutualised. They would then be owned by their member-those to whom they provide services. Such owners-who could not sell on their shares- would have a real interest in holding the management to account and instead of involving themselves in dubious bits of financial alchemy the banks would concentrate on serving their members. This diversity in the 'gene pool' of models of ownership in the financial sector would be wholly beneficial.  A regional bank determined to serve its members and locality would be a source of long term finance and partnership for local SMEs (small and medium size enterprises). Those banks driven by the need to make high profits have simply no interest in this sector and as David Boyle pointed out they simply have no insentive to provide the products. One of successes of the Mondragon co-ops that so impressed Jo Grimond was the mutual bank structure which provided the cash for the co-ops to grow.

The nation does need to get its money back from the nationalisation of the banks. This can be achieved by the new banks repaying the cash over an agreed period. A banking structure whose models of  ownership was more diverse and risk adverse would be a real benefit in these times. It is of note that all the de mutualised financial institution failed to come through the crash without state aid whereas the mutual sector fared much better.

These would become popularly owned banks protected from the predatory actions of the share owned banks as the shares would not be up for sale. One of the biggest inter-generational rip offs was perpetrated on the present younger generation by the Baby Boomer generation who cashed in all the value of the mutual society as they were sold off. Value that had been built up over generations was squandered in a moment. I know why Thatcher and Saachi would back this notion but why should we?

One of the debates that is raging at present amongst Lib Dems is about the definition of social liberalism/social democracy/ radical liberalism/mainstream liberalism. I would suggest that the daft notion of doing a Saachi with banking shares belongs on the wacky free market fringes of economic liberalism/neo conservatism. The understanding that our freedom is enhanced by individuals coming together in communities to exercise power belongs to the radical tradition. One way leads to extremes of wealth and power the other leads to the spreading of power and co -operation. I know which I choose.


  1. "the daft notion of doing a Saachi with banking shares belongs on the wacky free market fringes of economic liberalism/neo conservatism."

    I know quite a few people on the left of the Lib Dems who think it's a great idea. Handing the ownership of the banks to the people rather than the shares being bought by big corporations or private equity firms. If people collaborate then they can have a lot of sway over the way the banks operate. Plus, if things go well they will one day get a windfall which will help them get back the money they've paid in taxes to bail out the banks in the first place.

  2. Personally I'd rather just hand out a few bob as a council tax cut or pension rise. We want to permanently transfer the asset into the hands of members rather than a temporary sham. I suspect that the more the scheme is examined the less attractive it will be to Radicals.

  3. Actually I gather that the idea of distributing free shares orginated from Sam Brittan (brother of Leon), the celebrated economist, in the late 1970s as a means of establishing the principle of wider ownership of business.

  4. sorry to have taken so long to publish your comment Richard-I've been away. I take your point that the idea was floated 40 + years a go by Sam Bittan who I have a great deal more respect for than I do Saachi or Redwood. Indeed if my memory serves me well Bittan's pamphlet was a pre-emptive strike to stop Labour nationalising the Oil industry and there was a fringe meeting at the Liberal Assembly with Brittan and Richard Wainwright promoting the idea. I too was attracted to the notion. Since then experience has prompted me to think again. Firstly the privatisations under Thatcher did not lead to a transfer of asset wealth. Folk took the profit asap and sold up. Secondly we do not need another shareholder bank. I am convinced that part of the cause of the credit crunch/crisis in banking was down to the ownership and governance issues. If the only statutory obligation of Directors is to look after shareholder and increase their return they will take risks and involve themselves in all manner of 'clever' transactions. We need to diversify the models of ownership. The mutual sectors was destroyed by the sell offs, we need to rebuild it and its superior model of governance and look at the German system and the Mondragon banks that so impressed Grimond


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