The 24 Dispositions revisited

From time to time on this blog I’ve referred to ‘the 24 dispositions’ that were produced by an inter-faith group in Birmingham a few years ago primarily for use in religious education but also to be made available for more general use. The 24 dispositions are a set of values, attitudes and preferred behaviour and are common to all participating groups (all the major faiths) with each disposition being followed by a commentary interpreting it in the context of a particular faith. I’ve often born the dispositions in mind when considering moral and ethical matters myself. I’ve always found them to be of value and I reproduce below the twenty four dispositions together with the Sikh religious commentary.

I’ve thought for some time that it would be an interesting and valuable exercise to produce a set of personal dispositions in simplified form (combining explanation and commentary) and have recently been doing this together with one or two people with whom I am close. It is certainly instructive and equally certainly not easy to do as it gives a picture of where you stand and who you are (or who you think yourself to be) in terms of morality and social values. Any such effort is going to be a ‘dynamic document’ – a work in progress and in terms of my own dispositions I can never escape the feeling that I’m overlooking some things that are important! But because something is not explicitly included in a current list does not mean that you do not care about it – you cannot put everything down if the personal dispositions are to be useful.

In the next posting I intend to put my own personal dispositions on this blog as an illustration of the form that they might take should anyone else like to produce a list for themselves or possibly a discussion group. If you do decide to try this exercise yourself remember that these are your own dispositions so don’t feel obliged to add in something just because others may think that it ‘ought’ to be in there. It’s well worth composing your own set of dispositions, particularly if you consider yourself to be a ‘seeker’ – you may discover that you’ve already found rather more than you thought.

The 24 Dispositions

With Sikh religious commentary

Being Imaginative and Explorative

This disposition requires lateral thinking, the capacity to see things differently, together with the capacity to see the promise and potential of the world about us.

Religiously, it means giving due regard to, or seeking out, what is sacred and to explore, for example, what it may mean to be made in the image of the Creator or to investigate the idea of a promised land.

Appreciating Beauty

This disposition requires a deep sensitivity for the world about us, an awareness of the nature of human responses, and the capacity to make qualitative distinctions.

Religiously, it is an awareness that in the world there is a qualitative dimension (which is thought to be given and which is indicative of transcendence i.e. it is not wholly subjective). This dimension normally evokes the human response of respect and reverence. Religiously, the recognition of an aesthetic dimension in the world is made manifest by human beings through their own works of aesthetic creativity.

Expressing Joy

This disposition requires an awareness of human affective responses and certain expressive capacities, for example, in music, in language, in body language.

Religiously, it is an acknowledgement of, and a response of life itself to, transcendence through music, laughter etc.

Being Thankful

This disposition requires an awareness of relationships of dependence and of not being wholly self-sufficient and in control of our own well-being. It requires a willingness and expressive capacity to acknowledge the relationship of dependence and the good that flows from it.

Religiously, it is the awareness of being dependent on the transcendent and it is the response to the sense that, in the light of this relationship, all will be well no matter how things go.

Caring for Others, Animals and the Environment

This disposition requires an awareness of the needs of others (and other things) together with a feeling that these needs matter, and the will to do something about them.

Religiously, it is the sense that this caring is not a matter of self-interest but a divine duty laid upon human beings.

Sharing and Being Generous

This disposition arises out of an awareness that others may be dependent on us, the sense of wholeness that may come from our relationships with others, and the will to please others.

Religiously, it is the unity of creation in which the needs and joy of others are the needs and joy of the self. It is because the transcendent is a fecund source that humans are likewise impelled to give liberally.

Being Regardful of Suffering

This disposition arises out of the affective capacity for pity, as well as out of an attention to the situation and condition of the other and the will to help or to maintain one’s solidarity with the other.

Religiously, the sense of the unity of all things leads to an attention to pain and suffering so that what is endured by another is felt by the self. This unity is such that the pain and suffering touches the very core of the transcendent.

Being Merciful and Forgiving

This disposition presupposes the recognition that the unity and solidarity that exists between all people and all things is readily broken through aesthetic and moral offence. It also presupposes an acknowledgement of offence, the desire for unity and the will to bring it about despite the cost it may entail.

Religiously, there is the possibility of spiritual offence that goes beyond aesthetic and moral offence. Restitution of the social and universal solidarity therefore rests on a Divine mercy and responsive human mercy and forgiveness.

Being Fair and Just

This disposition depends on a recognition of the claims of equity and consistent reasoning, together with the will to restore and to maintain the state of equity.

Religiously, equity is the beginning and end of a harmonious creation. Human beings are, therefore, bound to maintain and restore equity.

Living by Rules

This disposition presupposes that the world behaves in law-like ways and that the society on which we depend requires rules for its very functioning. Whilst it is acknowledged that the rules of nature are given (heteronomous), it is supposed that: (a) The rules of society are collectively agreed and therefore binding, and (b) The rules of personal behaviour are self-imposed (autonomous). A law-abiding disposition depends on the will to live the ordered life.

Religiously, the rules that truly matter are neither heteronomous nor autonomous. They are the order and sense of our own nature and that of our world, being in effect ‘God-given’.

Being Accountable and Living with Integrity

This disposition is the capacity and willingness to be answerable for one’s actions, formally and informally, to others and to oneself. Integrity presupposes that one would always act in such a responsible way even if one could or would not be held publicly to account.

Religiously, the answerability of human beings is given a more radical turn since from the perspective of transcendence, everything is transparent and no motives are hidden.

Being Temperate, Exercising Self-Discipline and Cultivating Serene Contentment

This disposition requires a good deal of self-knowledge and a mastery of the affections to ensure these affections are proportionate and subject to reason.

Religiously, the unity of creation demands a deep sympathy for others and for other things, but before God, a selflessness permits an acceptance of all things no matter how things go.

Being Modest and Listening to Others

This disposition presupposes self-knowledge and an understanding of others together with a capacity to evaluate what each one can contribute to cultural life. As such, it avoids false modesty on the one hand, and boastfulness on the other.

Religiously, by developing the skill of attentiveness and by decentring from the self, it is possible to relate to the divine and to enter into a proper relationship with others.

Cultivating Inclusion, Identity and Belonging

This disposition recognises that human beings are never isolated selves but exist and can thrive only in relation to others. This relationship ranges from the intimate relation of two people to the relationships that constitute families, groups, communities, nations and world. Deliberate exclusion prevents others from developing relationships through which they can thrive.

Religiously, a relationship to the transcendent prevents the creation of artificial barriers since God is the God of all. Instead it promotes the vision of the interrelationship and interdependence of all people and all things.

Creating Unity and Harmony

This disposition recognises that different people/creatures have different interests, needs and capacities, and as such they can also frustrate one another and cause aesthetic, moral and religious offence. The disposition also requires the desire and skill to restore relationships.

Religiously, the restoration is achieved through taking thought and through processes of repentance, forgiveness and redemption.

Participating and Willing to Lead

This disposition presupposes a self-knowledge and an appreciation of what one can contribute to collective life, together with a willingness to be proactive.

Religiously, being a single individual before God, that is to say, being responsible to the Creator of all, implies a relationship and responsibility for the well-being of all.

Remembering Roots

This disposition recognises how the past can shape the present and the future through its promise and obligations. It notes what the possibilities of human life are and hence what defines human life.

Religiously, from the perspective of eternity all human beings become contemporaries and belong together to a single community.

Being Loyal and Steadfast

This disposition presupposes an understanding of the needs of others and a willingness to offer them support in the face of opposition and destructive powers.

Religiously, it is a shared resistance to the wickedness that subverts the unity of community and the world.

Being Hopeful and Visionary

This disposition might reasonably be linked to being imaginative and explorative. The attitudes of expectation and anticipation are fundamental to some forms of religious life and contrasts sharply with the mood of despair. The disposition of being hopeful should be distinguished from being fatalistic in which everything is determined and from a reliance on ‘luck’ in which people depend on chance.

Religiously, hope is based on the promise offered by transcendence and the power of providence to transform realities.

Being Courageous and Confident

This disposition should be contrasted with foolhardiness on the one hand and with cowardice on the other. It requires a good understanding of situations, coupled with selflessness and a commitment to the well being of others.

Religiously, it is a confidence in the transcendent in which the good person understands that s/he can come to no harm no matter what happens to her / him.

Being Curious and Valuing Knowledge

This disposition arises out of a fundamental human interest in which knowledge is valued for its own sake. Affectively, it involves a love for others and other things, just as they are, and in all their complexity. This should be linked to a determined will to discover this strange complexity.

Religiously, to love and come to understand creation is to love and understand the Creator. These are ends in themselves.

Being Open, Honest and Truthful

This disposition presupposes an understanding of others as ends in themselves and therefore not to be manipulated or used without their agreement. An affection for the truth and for the well-being of others underwrites the integrity of any communication and the clarity of its meaning.

Religiously, one can relate to the transcendent only through being utterly truthful and transparent. Just as deception hides the truth from others, so deception obscures any sense of the transcendent.

Being Reflective and Self-Critical

This disposition presupposes an awareness of the confusions of motives and the comforts of fictions. It requires a will to eschew such comforts as false consolations and a determination to be clear about what is the case and to evaluate rightly.

Religiously, to exist before God is to anticipate the purity of understanding and the transparency of motives.

Being Silent and Attentive to, and Cultivating a Sense for, the Sacred and Transcendence

This disposition understands that through language and concepts, human beings impose their own structures on the realities that confront them. This imposition secularises the realities and renders them amenable to human domination. Attentive silence is enabling the realities to ‘speak’ for themselves.

Religiously, silence is a traditional method of allowing the transcendent and sacred to present itself.

Municipal Banks and Exemplar Institutions

There seems to have been a partial awakening at national level, enforced by events, that the banking system as it now is isn't serving ordinary people (i.e. voters) well (and, unreformed and unchallenged, it never will) and that some kind of regionalism in banking might be a good idea. Any such developments, if they came about, should not be left to the tender mercies of the private financial sector, to which political parties have been so closely wedded over the years, and which of course is mainly responsible for getting the country into another fine mess.

A significant part of the banking system should be in the public sector – and not just the worst bits. It is not that the privateers can't do it, but because they have proved themselves unworthy of it, time and again. These people simply cannot be trusted. The whole discredited system resulted from an unbridled faith in financial markets and our political leaders still prop them up whenever they can, to most people's embarrassment and dismay, and despite the evident corruption in some of these 'markets'. Banking is not an end in itself. We must ask the question who does it serve apart from itself?

For years it has been clear that there needs to be a simple and reliable service provided to ordinary people – especially savers. The former Birmingham Municipal Bank with forty branches throughout the city gave such a service and also issued mortgages at reasonable rates that didn’t need switching every ten minutes. 'Security with Interest' was the motto of the late and still lamented Municipal Bank from its foundation around 1916 right up to its closure on the 31^st of March 1976 – a very sad date, one day later would have been more appropriate to this decision.

Many of the city's older residents recall this people's Bank (and still cherish their passbooks) and the confidence and security that the bank offered them with the City Council guaranteeing the deposits. The Municipal Bank also encouraged the practice of saving from the earliest years through a stamp scheme that I think was operated through schools. The Municipal Bank was loved and trusted by all its users and should be brought back.

The idea would be to offer security to small savers and fair and consistent interest rates for saving, with no Zombie accounts with near zero interest and encouraging thrift – even explaining what this is to some younger people today. As well as security with interest (note the order) there are other mottoes inside the old headquarters building on Broad Street reflecting virtues that are well worth re-adopting today such as: “Saving is the Mother of Riches” and “Thrift radiates Happiness”. In other words real prosperity comes through saving in a trustworthy institution and satisfaction as well as wealth will be the result.

A re-creation of this much desired service could also extend to the provision of finance to small businesses who are still being starved of much needed capital despite the prodigious amount of public money that has been pumped into the private banks. Support for manufacturing was the main remit of the original banks founded in Birmingham but which are now morphed into unrecognisable, useless and globalised entities. A municipal bank could also support the issuance of municipal bonds so that local people can be part of the regeneration of our infrastructure – such as could have been the case with the new Central Library.

It would be entirely acceptable if a re-established Municipal Bank cast its net more widely throughout the region since ordinary people and small businesses in all parts of the West Midlands have been just as ill served by the bonus brigade as the residents of Birmingham. If so, I would suggest the name: ‘The Greater Birmingham Municipal Bank’. That really would radiate happiness more widely – and also serve the common good.

The commercial banks' profits, extracted by various means from British customers, are a disgraceful way to get back money they lost with their rash and incompetent investments and reckless lending. They are all up to it. It is yet another 'industry wide' phenomenon. If there was anything resembling genuine, service based competition industry wide copycat behaviour could not happen. This greedy and anti-social industry competes only to the extent of how long-standing customers can be cheated of fair rates of interest on their savings, hit by outrageous charges, forced to use call centres and palmed off with low quality services in understaffed branches. There is a desperate need for a real alternative operating on near-forgotten principles of service with fairness and responsibility.

While the Municipal Bank could help to renew social capital, provide trusted services, create jobs and be the means through which City Bonds could be issued, the commercial banks would probably attempt to stifle such an initiative with their armoury of anti-competitive practices – just as they attempted to do when the bank was first set up. These tactics could be overcome, and perhaps the subsequent exodus of customers from commercial banks would lead some of them to start mending their ways. Birmingham could lead the way as it did in the early days of commercial banking. It is sometimes asserted that such a move should be opposed because competition from a publicly owned bank would be unfair to the rest. But an effect on the rest is precisely what is needed, and is long overdue. The rest have hardly been afraid to be unfair to the public.

The creeping cartelisation evident in financial services is also a feature of other so-called competitive industries – witness the power companies and their outrageous leapfrogging price hikes – another industry wide phenomenon. Regulators range from inadequate to useless, and the toothless consumer groups are simply ignored. Unmitigated ‘competition’, meaning little more than a profit-grabbing free-for-all, is long past its sell by date.

If such sectors had a publicly owned firm acting as an exemplar institution, treating people in a respectful, honest and straightforward fashion, this would introduce a degree of competition that is socially worthwhile. It would offer security and fairness to ordinary people, presently abused by commercial predators, picking out vulnerable individuals, introducing deliberately complex pricing arrangements and pedalling  confusing ‘products’ also designed to deceive. Commerce should not be a morality free zone, nor need it be if there was confident, principled intervention through an exemplar institution.

A start towards a fully fledged municipal bank could be made with a savings bank (as was done back in 1916) with the scope broadening later if lobbying of the Government to restore municipal banks' former powers proved to be successful. This would be complementary to existing Credit Unions, which perform valuable if mostly small-scale services but which are not everybody's cup of tea.

We are often told that Birmingham should distinguish itself. What better way than by knocking aside the obstacles and putting people first with the renaissance of our own Municipal Bank? What a contrast this would be to the City of London in terms of both services and values. A bank for all seasons and all people, striking the right moral tone and offering simple, unsophisticated services.

Sometimes there’s a value in being unsophisticated – a remark originally attributed to RBS who clearly didn't see the irony. There most certainly is, and bankers should know this better than anyone. But I suspect that reform for them will be well nigh impossible – their deeply ingrained habits are very hard to drop altogether – their spots go deep. Incidentally, an old meaning of the word ‘sophisticated’ is ‘corrupt’ - which I think serves to underline the point.

Constancy and confidence were the values on which most of the true wealth of this country was built (much of it, alas, now cast to the winds under extractive capitalism) and which other institutions sought to complement and support. Is it too much to suppose that these fundamental principles might be worth rediscovering and implementing again today? They have not been lost by the majority of our population, but are hard if not impossible to find in the financial, fuel and power and other private sectors.

There are flies in this healing ointment. Despite the now promised reduction in the capital requirement from £5 million to £1 million to start things up, government legislation introduced in 2000 made the establishment of civic banks more difficult (Municipal Banks still exist in name in a few other local authorities but they are allowed to offer only very limited services to their own staff). Furthermore, governments have had an almost exclusive focus on access to credit and such like ‘financial services’. What we are also considering here is saving and fair, and comprehensible rates of interest rather than shifty packages (where loyalty is penalised with craftily cut rates and spurious ‘tracking’). The whole legislative background should be made enabling for local authorities. Indeed I believe that is should be a requirement for the metropolitan authorities to establish their own municipal bank.

Will we get this kind of positive action? I rather doubt it. And I fancy I know the real reasons for this. They are not flattering to our political system and the way it is financed nor to our economy. But we shall see – perhaps there will be a groundswell from the bottom up, perhaps one local authority will start the ball rolling or perhaps national politicians will realize that market fundamentalism does not ultimately serve them well – let alone the country, and perhaps we will move towards the time of the common good.

The Common Good in essence

I am constantly drawn back to the concept of the common good which I think would make an enormous difference to our society if its principles were adopted. Here I present a modified and shortened version of my ideas about the common good that I hope will be more readable.

My understanding of the meaning of 'the common good' is the overall well-being, broadly defined, of all citizens. It involves the set of social conditions and public goods which enable individuals and groups to flourish. This includes psychological and moral components as well as material goods and services, the environment and expectations about the future. In its material aspects it includes what belongs, or ought to belong, to everyone.

Our society has been denuded of respectful values and trust is severely eroded. We've lost our way in economic and societal terms, to the betterment of the few and the detriment of the many. Also diminished are national self-respect and self-sufficiency, the contentment of citizens and expectations for the future. This is the state in which we'll remain so long as the moral foundations of corporate and individual behaviour are not rebuilt. There needs to be a focus on the common good.

The common good goes beyond questions of ownership narrowly defined and, for example, includes non-possessive attachments such as those which were felt by people for the Royal Mail or a historic firm such as Cadbury's. The common good therefore has as important elements of both local and national self esteem and so relates to social as well as individual fulfilment. It includes together people and the environment, present and future generations, their temporal, cultural and emotional needs and the legacy that one will leave for the other.

The way the common good is judged or measured is important. There's an obsession with the numbers that are supposed to measure economic activity regardless of how they're calculated and the distribution of well-being. If further economic expansion is sought, it must relate to the common good. Not all growth is desirable, particularly if the fruits are maldistributed, and not everyone would agree on what is sustainable. Any measure of the wellbeing of society should be multiplicative rather than additive so that very low values for some people have more impact on the final value. This is appropriate since the common good is a concept of mutuality.

Our political system should also serve the common good but what we have at present fails to do this. Also serving the common good should be businesses and other major social institutions such as voluntary and cultural organisations and the faith communities. Some, of course, do just this and all are valuable and honourable professions or vocations if operated with all of society in mind - making their decisions in 'the reasonableness of the common good'.

Attempts to enforce ethical behaviour on profit driven companies via external rules are doomed to failure. It's impossible to supervise everything, let alone what goes on in people’s heads. Cunning must be replaced with character in all economic activity. Morality cannot be suspended when we enter the office. It should become second nature to act in the right way in all that we do. Profound change is needed to achieve this, but it could be done. People are alienated by a selfish society, preferring one where we respect and help one another, strengthening ties and accepting that 'no man is an island'. We are interdependent and are moral agents as well as economic ones.

In a society of the common good each person can make a difference through their own abilities and personality and is encouraged and enabled to do so. A spirit of good citizenship liberates people's generosity, and clear roles for the family, cultural, educational and religious institutions make this possible. The major religions should interpret their traditions to create an 'autonomous space' for the common values of society. Secularists (the benign variant, not aggressive atheists) for their part should appreciate that religious sensibilities can give moral depth to enterprises and direct them away from perilous private adventures and towards the common good.

Good government at national, regional and local levels helps to achieve the goals of society and the replenishment of social capital and is proactive in this process. Equally important, prudent stewardship at all levels is essential for the common good and power and influence relationships, often secretive, need to be opened up.

An economic system fit to advance the common good requires new objectives for governments, large enterprises (public or private) and those who own them, run them and take profit from them. There will need to be changed approaches to economic management and new concepts of national well-being. Achieving all this requires action over a generational timescale.

We must begin this change at home by re-evaluating how we conduct ourselves in society and where the country stands in the world. There should be less foreign adventurism and more attention paid to the concerns of ordinary people. There needs to be more leadership by example and careful stewardship of values as well as institutions while conserving the natural environment. There must be ethical conduct by national leaders, both political and in business. Programmes should be set up to achieve this re-education, particularly for finance and big business. 'Human nature' is not an excuse, it is what we make it and how we ourselves choose to behave.

I envisage a kind of National Service applying particularly to holders of power, influence and wealth. Trainees would, outside moral re-education, perform simple tasks such as cleaning, preparing and serving food, providing personal care and taking night shifts. Food and accommodation would be as affordable on the national minimum wage. Courses on business ethics should be scaled up rather than down and citizenship education would have enhanced ethical content and a focus on the common good. All this would make our own Cultural Revolution.

There should be a change of perception on what constitutes desirable occupations for young people to aspire to and on the respect in which worthwhile work at all levels is held. There would be enhanced status for careers in engineering and manufacturing and, in a remodelled economy, the real and lasting jobs to go with them and an end to the siphoning off of valuable young talent into the banking and finance morass.

Voluntary organisations with the common good at heart need encouragement and restored levels of funding with net increases following years of cuts and distraction from their proper objectives. Political parties should be less tribalistic and more confident in presenting constructive alternatives, including furtherance of the common good.

A government for the common good requires a fit-for-purpose democratic system that is less easily manipulated by the political establishment and not slanted towards rich and powerful vested interests that require their bidding to be done. Young people, who are yet to be shorn of their ideals and who are much less ingrained in their ways, could take the lead in much of this, taking advantage of modern technology with its scope for organisation.

Alongside the societal changes we need to re-cast the economy. A much longer view needs to be taken that is not constrained to the typical three years or less now usual in western businesses or five years or less in government. And in their turn each generation considers anew and acts on the question: 'What is required of us to promote the common good?'

There's been talk of economic rebalancing, but nowhere near enough action to this end. Just as it took decades to throw away our engineering heritage, so it will take a similar time to restore this sector of central importance to the common good. But this could be achieved if the will was there, if fashionable and convenient theories were set aside and a stop was put to the kow-towing to media and lobby interests.

What the country has now is an extractive capitalism which bore its most poisoned fruit in the banking catastrophe and the subsequent punishment of austerity meted out with callous unfairness. People have a lower sense of well-being and for all but the rich, less wealth. This is partly because of the unequal impact of austerity and  population growth. So what could be done to move towards a system promoting the common good? I won't go into my views on economic policy here (I've presented these on my blog)  but I will pick out a couple of other ideas.

Government should set up what I term public sector 'exemplar institutions'. These would have an ethos of public service rather than profit. Municipal banks would reintroduce simple services for citizens and 'help' private banks by taking business from them and prompting reform in their ways to the benefit of the common good. Society won't change for the better without restoring trust via demonstrated action. There would be fair interest rates for savers, no pressure to borrow or have paid-for accounts or other financial 'products' and above all they would be trustworthy. The same goes for power, water and fuel. Railways, in accordance with the public wish, would be gradually returned to the public sector as franchises expire. The movement of enterprises between the public and private sectors should be two-way traffic rather than the one way system we have now.

Future governments must escape the thrall of ‘markets’ which are often nothing of the kind, being at one extreme clubish, at the other herd-like and at either end uncompetitive - except for the scramble for profit - and rarely operating in the public interest. Corporate governance should be reformed to deal with executive excesses and bring in flatter pay structures. As part of the reforms there should be more employee and community share ownership and representation on company boards.

The bulk of the burden of present policies is born by young people and the less well off either seeking work, in work of some sort, 'employing' themselves or, through no fault of their own, unable to work. This is wrong both morally and in economic terms. There should be a mandatory living wage that isn't also a maximum wage. Zero hours contracts should be abolished - except possibly in boardrooms.

Loopholes left in the tax system encourage tax dodging and should be closed. Tax havens both close to home and further afield should be shut down. Those who can afford to pay more in direct taxation should do so - as socially responsible rich people here and abroad have already declared their willingness to do.

A government for the common good should take the lead on a revised international approach to the basis of trade, working with like-minded countries in a co-operative grouping that would ensure civilised employment conditions and respect for the environment. Globalisation is not free trade, rather, it is a license to exploit, extract, export jobs and destroy communities and young people's futures. So reform here is not 'protectionism' but stewardship.

Economic actions on a Keynesian basis should bring good early results and will help to enhance the common good. Ethical changes will take a lot longer to bring about and embed but they are equally important if we are not to revisit, time after time, the recent near catastrophes.

Is all of this an impractical dream? It is only a dream if you take the view that a country should not operate on the basis of ideals. It is just very different from what we've been told we must put up with. Change is possible, but it needs and expanded notion of 'self' and all of us to bring it about - not just 'leaders'. The country faces choices that can't indefinitely be postponed. Those in authority may not want to make them but, to deploy their own mantra, they should 'embrace' these changes. If we wish to put an end to exploitation, inequality of wealth, health and opportunity and restore our national self-esteem, then this is the path we must take. Such is the road to the realisation of the common good. The going will be hard, but I for one believe we are up to it.

Compounding the Problem

The payday lender Wonga has been in the news again for its appalling conduct towards the impoverished borrowers for whom it ruins lives and from whom it extracts, by one means or another, colossal amounts in interest payments. To be precise a rate of 5,853% compound on an annual basis. Except, of course, when it is charging itself for the overdue compensation it is required to pay to borrowers it had threatened with phoney legal firms. In this clearly deserving case it applied a much more civilised 8%.

We also hear a good deal about the role of interest rates in national economic policy and the mixed messages recently from the Bank of England about raising official interest rates from the long-standing historic low of 0.5%. Mind you, I doubt if the likes of Wonga take these into account when setting the malignant rates they charge to their unfortunate users.

The question of interest, the price charged for the use of money over time, has always been contentious. Over 800 years ago, Maimonides was the first to suggest a connection between interest bearing loans and economic growth. In the Industrial Revolution, interest was seen just as one of many prices – as was the view in Roman times (though Roman law held that debt was personal and didn't allow it to be transferred). In the USA some states have legal provisions against charges for the use of money that are deemed excessive (usury) – would that we had them in this country. I wonder why we don't?

The Medieval Christian Church saw banking as usurious regardless of the rate of interest. In fact the Old Testament (Deuteronomy, 23: 19 & 20) allowed interest to be charged only to foreigners! Islamic opinion of course includes the view that overt charges for the use of money can be sinful – along with excessive risk taking. No wonder Islamic banking is on the rise here as elsewhere, and a good thing too with these desirable principles.

In Victorian times thrift, saving and so the receiving of interest were hailed as virtues. This view carried on well into the 20th century as the noble inscriptions inside the late lamented Birmingham Municipal Bank in Broad Street reveal – 'Thrift radiates happiness' being one of them.

Of course, even if you are thrifty you need enough to live on in the first place, and there's no guarantee of that in this economy. These days, consumers are pressed to borrow even when they don't need to and those who have saved first and want to pay cash may well end up paying hidden subsidies to those people made impatient and prevailed upon to buy on credit.

I cannot assert strongly enough that unless good values are embedded in the individuals who operate an organisation, that organisation will, sooner or later, again begin to take advantage of vulnerable people.

At the national level, behind the view that interest rate cuts will stimulate demand are the presumptions that these favourable changes will be reflected in loans to business and that most consumers are borrowers. This only works if more people are borrowers than savers and it may not work at all if there's not a 'credit culture' – as in Japan some years ago when consumers reacted to lowered interest rates by saving harder.

Successive governments have attached great weight to official interest rates as an economic regulator. But interest is just one factor among many for economies, companies and individuals. Apart from the hapless people trapped in mounting payday debt, in these exploitative and unprincipled times interest has some importance but not as much as it once did when the Bank of England's lead was automatically followed.

But it's not just the rate of interest that's important in assessing consequences. It's the compounding of interest that can add remorselessly to national, corporate or personal debt with unethical lenders and borrowers eking a living on slashed benefits, zero hours contracts or minimum wages.

In his intriguing tale 'The Sleeper Awakes', HG Wells showed the dramatic effect of compound interest over very long periods. In the story, an investor wakes from a sleep of two centuries to find that the accumulated value of his investments had made him the owner of the world! And Einstein reportedly said that compound interest was the strongest force in the Universe!

The key point is that in compounding, interest attracts interest. If you deposit £100 in an account paying 10% compounded annually, with no withdrawals after one year you'll have £110 in the account, all of which earns interest in year two (since you and a new depositor with £110 should be treated equally). The total at two years is £121, and after three years you'll have £133.10. These multiples of your original sum; 1.1, 1.21 and 1.331 are called 'future value factors' which show how debts build up if repayments are missed. The impact is much worse at higher rates. For example, at a compound rate of 15% debt doubles over 5 years, quadruples over 10 and increases sixteenfold over 20.

The effects of interest rate changes over long periods can be enormous. Over a twenty-year period, doubling the interest rate from 15% to 30% increases liability nearly twelve fold. And putting off the evil day can cause enormous increases in the sum due. At 30% per annum £100 becomes £19,005 after 20 years but a staggering £261,999.60 after 30 years.

Thus can compound interest turn a modest sum into a king’s ransom. So debt rescheduling – either for individuals or indebted nations – must be carefully constructed if it is not to store up even more unmanageable problems for future generations.

The positive side of all this shows the value of early contributions to pension funds and reducing interest charges for struggling firms. Returns of over 50% are sometimes sought by venture capital firms (who, despite the enterprising name are scarcely adventure capitalists – preferring safe investments in the South East) and this sort of rate was charged on some bank credit cards before the financial crisis. (Incidentally, the annual equivalent rate of 2% per month compound is 26.8% not 24% - thus are bloated profits made). All these rates are trivial of course when compared to the grotesque usury of payday lending.

Investment means outlay before income. Adding together costs and returns separated in time and regardless of interest isn't comparing like with like. For each cost or return its equivalent value at the present is found by dividing by its future value factor. This process is called discounting. Then these present values are added up to give the net present value of the investment. Nothing ultra modern here – the rule was first recorded in 1582. But long before that, there were manuscript compound interest tables in the fourteenth century, and an understanding of compounding can be inferred from Babylonian tablets!

But in adopting this approach it is vital not to use too high a rate for discounting. The higher the rate, or the further into the future the cost or return is located, the less weight it is given. This can be very important. Discounting at a rate of 30% gives only one eighth the weight to tenth year returns compared to that from discounting at 5%, so discounting at high rates biases against projects where the higher returns come later on.

In contrast, 'patient money' reaps long term rewards – both strategic and political. And in terms of costs there can be crucial implications for future generations – as for example in the decommissioning costs of nuclear power stations. At a 15% rate a cost thirty years ahead is given only a quarter the weight of the same cost at 10% discounting. And at 30%, the weight of a thirty year cost is zero to three decimal places! So excessive discount rates are a potent force both for short-termism and leaving a legacy of dire environmental consequences.

In the field of personal finance, Governments have refused to set effective legal limits to rates. This has allowed vulnerable people to become victims of usury, trapped in perpetual debt to profit making companies. We know about Wonga and its like, but these despicable practices are nothing new.

A survey carried out in Birmingham a quarter of a century ago showed equivalent annual rates of over 100% for money lending to be common. At 100% debt doubles every year. This little publicised survey which should have prompted much needed reform found loans with annual rates of over 1000% - at which rate debt increases tenfold in a year. All this points up the importance to small borrowers of joining a Credit Union and avoiding this appalling usury.

Even at that time there was a case of loans charged at an equivalent annual rate of 4,822%! Quite competitive in comparison to Wonga. To illustrate the financial enslavement resulting from this dreadful usury, at this astronomical rate the liability from borrowing £1 would, in the absence of capital repayment, in eight years exceed the entire UK GDP!

Why does one government after another let these companies get away with this immoral conduct? I certainly hope that the Archbishop of Canterbury's initiative succeeds and Wonga and its like are driven out of business. It can't happen soon enough.