Tuesday, 5 March 2013

Urgent need for a Liberal plan more radical than plan B

I am please to have signed the Emergency motion on the economy tabled for this weekends conference. Prateek Buck has drafted the motion. Prateek is author of the Social Liberal Forum's Plan C which-along with Will Hutton's foreword is available here

The motion speaks of the failure of the banks to lend to businesses and people-especially RBS and Lloyds. Yesterday Lord Oakeshott tweeted:

matthew oakeshott

Furness Building Soc was bigger net lender to homes and biz than RBS,Lloyds or Santander"State-owned banks are stabbing biz in back

That is a pretty amazing statistic. One small northern mutual Building Society is massively out performing the mega banks-and I bet nobody at Furness got as 7 figure bonus. It does raise two important issues for me; the diffusion of economic power (including what to do with the state-owned banks) and the consequence of having our financial institutions owned predominately by PLC's.

Liberals have never been comfortable with concentrations of power and wealth. Unlike the Labour Party whose activists default position is to concentrate more and more power in the state through nationalisation or the Tories who are naturally the friend of big corporate businesses-mind you that is also true of the Labour leadership, we have sought to diffuse ownership/wealth. That is why we have championed employee ownership of businesses, wealth taxes and inheritance tax. Today alternative institutions for  financial services are much diminished.

The market place is dominated by one form of ownership-the PLC. It is not original for Liberals to assert that that model is flawed. The sole obligation of the directors is to build 'shareholder value'. This leads to excessive risk taking and a concentration on short term activities. There is no obligation to build a sustainable business or to have a care for the employees or the community. Perfectly good and sustainable businesses are wrecked in the pursuit of increasing shareholder value.

Liberal have sought over the years to reform the ownership model. For nigh on a hundred years the party has argued for employees to be involved in the ownership and control of their enterprises. It is an idea that goes back to J S Mill. It was part of the Yellow Book proposals in 1928, developed further in Ownership For All ten year later and received a major boost under Jo Grimond's leadership who adopted the idea as his flagship policy. Even after his retirement as Leader Jo carried on his campaign and after visiting the Mondragon Co-ops along with Robert Oakeshott  (Liberal by election candidate in Darlington) set up what is today the Employee Ownership Association (EOA). In announcing the launch of  EOA's new annual Oakeshott lecture their CEO Ian Hasdell writing on his blog echoes that analysis:

Economic ownership remains one of the fundamental macroeconomic issues yet to be addressed since the economic crash. Business ownership and wealth in the UK has become, as the recent report of the Ownership Commission testifies, incredibly concentrated amongst a small number of individuals and institutions with the plc model for businesses being over-dominant. 50% of the people in the UK own just 1% of the wealth, with the wealthiest 20% owning a huge 84% of the wealth. This unequal nature of economic ownership in the UK will, if unaltered, continue to have major negative social consequences and costs. There is, therefore, a burning need in the UK to help nurture and achieve greater diversification of ownership of wealth and business.

This is true not just of manufacturing firms. The dominance of the PLC amongst banks is also unhealthy. This was not always the case. The mutual financial sector was destroyed in an extended crazed act of economic vandalism under Mrs Thatcher and Blair. The TSB, and Building Societies turned themselves into PLC's and joined the frenzied march toward the financial crash. Those Building Societies that stayed loyal to their origins-like the Furness-and had as the guiding objective to provide services for their members have flourished. Sadly there are too few of them.

In launching a pamphlet recently Vince Cable highlighted the role that Building Societies had in reviving the economy after the economic crash of the 1920's and 1930's:

...........for households deemed to be prudent, almost 1,000 locally based British building societies were dependable, non-profit, mortgage lenders. A virtuous circle was created: more mortgage demand leading to more house building leading to more houses; leading to lower prices and greater affordability; leading to more demand.

Houses built by the private sector rocketed from around 130,000 in 1931 to almost 300,000 in 1934 and it is estimated that house building contributed almost a third of all employment increases in this period.

By contrast we are now in a downward, opposite spiral. A key reason is the destruction of the British building society movement – or much of it – in the two decades after the late 1980s. This was one of the great acts of economic vandalism in modern times. And the commercial banks largely abandoned locally based relationship banking in the decade before the recent financial crisis. There is now no institutional structure in place to offer countercyclical lending, particularly small and medium sized businesses, in place of the banks. A major and urgent task of government today is to ensure that we have banks that meet that requirement, alongside counter cyclical regulations and liquidity measures of the kind set out at last Thursday’s Mansion House speeches. We now look enviously at Germany where the Sparkasse and KFW underpin a business and mortgage lending system which works.

A key element of reviving our economy is to create locally based financial institutions that know their regions and will lend to local people and businesses. The worker owned mutual bank established in Mondragon are an essential element in the growth of the worker co-operatives there. Grimond was much impressed by them Today the only avenue for action is via the sate-Green Banks and Business Banks. I have long thought that when the government come to disposing of the state owned banks they could do a lot worse than to break them up into new mutually owned regional institution. The purchase price could be recouped over a period. Establishing them as PLC owned banks would appear to me not to learn the lessons of the crash. This is why I am not attracted to the idea of handing out shares. A mutually owned bank would be permanently an alternative to the plc . Handing out shares would be a short term measure and would soon result in those shares being bought up by the usual shyster City institutions

Prateek's motion doesn't deal directly with this issue but it does address the issue of the lack of lending and the central role of  house building in kick starting the economy.

Emergency motion: kickstarting economic growth

Conference is concerned that the latest published figures show:

■low growth, as confirmed on February 27th 2013;

■negative net bank lending (especially by RBS and Lloyds), as confirmed on March 4th 2013;

■and weak manufacturing confidence as announced on March 4th 2013;

while real incomes are being squeezed for the fourth year in a row, with retail prices rising at 3.3% pa, more than twice as fast as average earnings at 1.4% as announced on February 12th 2013.

While noting positive trends in employment and company start-ups, conference believes our economy continues to suffer in the wake of the disastrous banking crisis from a serious shortage of confidence and domestic demand, and therefore calls on Lib Dem ministers to show unity and resolve not only to reduce the structural deficit in the budget but to take radical action to get growth going again with a bold Plan A+ with these four pillars:

1. Get the builders building.

2. Get the banks lending to business.

3. Prevent a slash and burn approach to public spending.

4. Bring in the mansion tax.

Conference calls for:

a. Loosening the straight jacket preventing public capital investment by government and councils and realising a once in a lifetime opportunity to invest using low interest rates

b. A firm commitment to increase house building by at least 100,000 houses a year by 2015 including at least 50,000 more social homes by freeing councils and housing associations to borrow and build.

c. Urgent action to step up lending to SMEs through the imposition of net lending targets on semi state owned banks as in the Coalition Agreement, considering whether it is necessary to split the major British banks in to good and bad banks, and further development of the Business Bank and Green Investment Bank.

d. Resisting pressures to agree to curbs on public spending beyond the lifetime of this parliament when this Coalition Government will be over

e. Shifting the tax burden from hard earned income to wealth with a Mansion Tax of 1% a year on a property’s excess value over £2m to help lift the income tax threshold to £10,000

No comments:

Post a Comment

I am happy to address most contributions, even the drunken ones if they are coherent, but I am not going to engage with negative sniping from those who do not have the guts to add their names or a consistent on-line identity to their comments. Such postings will not be published.

Anonymous comments with a constructive contribution to make to the discussion, even if it is critical will continue to be posted. Libellous comments or remarks I think may be libellous will not be published.

I will also not tolerate personation so please do not add comments in the name of real people unless you are that person. If you do not like these rules then start your own blog.

Oh, and if you persist in repeating yourself despite the fact I have addressed your point I may get bored and reject your comment.

The views expressed in comments are those of the poster, not me.