Virtuous Exemplar Institutions

Being the fifth of an eight part series of postings on the subjects of the Virtuous Economy and the Common Good.

The state that western capitalism has been allowed to drift into is such that much talked about and often postponed regulatory and structural reforms cannot address all of the deep seated issues. This is because the spots on the financial and other leopards run so deep and because of the extent of their influence one way and another. Dates are put back, ways will be found round and, after a time, pressures reapplied for relaxation of conditions on the need to remain 'competitive' and the promise that 'competition' would provide what customers really want.

This latter is, of course, not so outside of the entirely theoretical context of 'perfect' competition. The 'competition' within the all too common loosely cartelised situations such as banking provides what the financial institutions and not their customers - particularly the smaller ones - want.

Outside of the narrow financial context there are the deep seated issues of the abandonment of manufacture and a widespread unwillingness to see the long term interests of the nation and local communities at the very least alongside 'shareholder value' and executive bonuses.

As a result other ways need to be sought to provide ordinary people with the simple and trustworthy services, particularly related to saving, that they so earnestly desire and which need to be provided in their interest and that of the common good. One way of achieving this would be the establishment of what I term Exemplar Institutions set up by the public sector (or conceivably by the third sector) that provide just such services.

A start could be made in terms of banking services with the re-establishment of municipal banks. 'Security with Interest' was the worthy motto of the late lamented Birmingham Municipal Bank from its foundation around 1916 right up to its closure on 31st March 1976. I have been campaigning for the re-establishment of a Municipal Bank based in Birmingham for several years. Never was it needed more than now - and indeed the City Council accepted (with support from all parties) my resolution that consideration be given to setting this up. Alas to date there has been insufficient resolve to follow through on the resolution.

There is a desperate need for a real alternative operating on near-forgotten principles of service with fairness and responsibility. Many people recall the Municipal Bank (and still cherish their ageing passbooks) and the security that it offered with the council guaranteeing deposits. The idea would be to offer complete security to small savers and fair and consistent interest rates for saving, to encouraging thrift - even explaining what this is to some younger people today. There would be no sales pressure and harassment to move to 'better', and for the banks more profitable, financial 'products'.

As well as “Security with Interest” (note the order) there are mottoes inside the former headquarters building on Broad Street reflecting virtues 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 you don’t have to be miserable while you’re doing it! The mottoes are couched in language that is heavily Victorian/Edwardian but the underlying message would be real news today.

The Council no longer owns that building but there are plenty of alternatives, especially as the Council plans to reduce the number of buildings it occupies. Furthermore, a Birmingham Municipal Bank could keep both money and jobs in the city and be the means through which the oft-suggested ‘Brummie Bonds’ could be issued to allow ordinary folk to support civic projects (the Town Hall restoration would have been a good example) while offering a secure return. There will be some way to travel however since Government legislation has made the establishment of civic banks difficult and restricts the services they offer.

But a start could be made with a savings bank (as was done in 1916) with the scope broadening later if lobbying of the Government to restore former powers proved successful. This would be complementary to existing Credit Unions, which perform valuable if small-scale services. And while it is true that the commercial banks could attempt to stifle such an initiative (as they tried to do in 1916) such resistance could be overcome.

Birmingham could lead the way again - just as it did back in 1916 and indeed in the earliest days of commercial banking. We are often told that the City should distinguish itself. What better way than by knocking aside the obstacles and putting people first with the renaissance of our own Birmingham Municipal Bank?

This is all very much to be desired in the interests of ordinary people, and of course it would apply to other cities and surrounding areas throughout the country. Since they got their snouts severely bitten by something nasty in the sub-prime trough, the commercial banks have been finding ways to pass on the punishment for their greedy and imprudent conduct to ordinary people. So many of the nefarious things that they do are ‘industry wide’ moves. In effect the banks act as an informal cartel.

There is, admittedly, cut throat competition - to see who can get the most money from people like you and me. This avaricious and profit-bloated ‘industry’ competes only to the extent of how longstanding customers can be denied fair rates of interest on their savings, can be hit with imaginative and often outrageous charges and are provided with low quality services including opening hours that suit the bankers, lunchtime queues in deliberately understaffed branches, the absence of receipts when making deposits, high and unwarranted charges for currency exchange, compulsory use of call centres and much else besides.

Municipal Banks would keep both money and jobs local and be the means through which local bonds could be issued to allow ordinary folk to support civic projects (the restoration of Birmingham Town Hall would have been a good example - that was how its building was financed) while offering a secure return.

There are flies in this healing ointment. Government legislation in 2000 made the establishment of civic banks more difficult (Municipal Banks still exist in name in a few other local authorities but they offer only very limited services to their own staff). Governments have had an almost exclusive focus on access to credit and such like ‘financial services’. What we are 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’).

In terms of services that put ordinary people first, my view is that direct intervention of this kind is essential and that there is no better way to start to do this than with Municipal Banks. 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 long overdue. The rest have not been afraid to be unfair to the public.

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

Going beyond banks, if such sectors had a publicly owned firm acting as an exemplar, treating people in a fair, respectful, honest and straightforward fashion this would introduce competition that is socially worthwhile. It would offer security and fairness to ordinary people, presently abused by commercial predators pedalling complex and confusing ‘products’ frequently designed to deceive. Commerce should not be a morality free zone, nor need it be if there was confident, principled intervention.

In a compelling novel, The Historian, a surprising number of librarians turn out to be vampires. Few would turn to this mild profession to find bloodsuckers, there being a richly populated necropolis of bankers, power companies, fuel firms and telecomm providers. BT clearly has the contagion with its hikes in charges for those, typically thrifty and older people, who do not wish to be drawn into direct debit.

The corporate ethics and social responsibilities of yesteryear are but a fading memory and national government similarly usurps its citizens - security of vital data about individuals being discarded for petty cost cutting. So where are we to find the vampire slayers? Enter the unlikely (potential) heroes in the form of local Government.

We need not resort to garlic or even Christian icons and, in taking the brakes off devolution, we could avoid a stake through our global city’s innocent local heart. We must ensure that our services put the ordinary people first, bemused and exploited as they are, and we should restore former services such as a Municipal Bank that would offer a simple and trustworthy alternative to the financial creatures of the night.

Oh for the days when the City of Birmingham also had its own water, gas and bus companies and a highly visible and locally accountable police force. Surely a line-up that would ward off the bloodsuckers and remove the 'need' for savage cuts in local government.

The spread of moral contagion in the financial sector went beyond the banks of long standing as evidenced by the sorry saga of former building societies that ill advisedly threw away their trusted mutual status. If only it would also bring to an end the intemperate behaviour and worthless values that riddle the financial sector today.

We hear much too much about ‘creation of value’, usually for institutional owners and bonus besotted managers and operatives. We don’t hear half enough about the destruction of values that is the core reason for the whole financial and economic crisis. This latest tale of woe is symptomatic of finance as a value-free zone. We now see the breathtaking extent of the pushing of deceptively cheap mortgages in the United States to those who manifestly could not afford them.

But similar things had been going on here. For example ‘self certification’ - where often desperate people seeking a home were offered the tempting chance to lie about their incomes - was almost equally devilish.

In the United States the resulting financial ‘assets’ were mixed up with others in what were deliberately complex and obscure packages which were hawked to lazy, greedy and incompetent bankers abroad.

And how could we as a nation have produced leaders who have over decades allowed - and indeed encouraged - the loss of ownership and the evisceration of the real economy that make us so dependent on such dubious ‘services’?

In 1986 the government allowed building societies to cast caution to the winds, throw away their mutual status and cave in to carpetbaggers. Behaviour contradicting the principles of thrift on which ordinary people are brought up was thus rewarded. But a hopeful fact is that a majority of ordinary people still hold firmly to these values. Indeed these are the very people on whom the greatest cost of the financial turmoil will fall.

What is needed is more opportunity for them to put the principles into practice. This is one of the reasons for the re-establishment of trusted and trustworthy Municipal Banks and other exemplar institutions. I am convinced that there is a major role for the public sector as well as the voluntary sector in the realm of savings and loans.

It should not be confined to clearing up private sector messes, picking up liabilities and organising fire sales. The Government was right to intervene, if only there was a prospect of continuing public involvement in good times as well as bad.

One reason for this, apart from the value of co-operation as well as competition, is that it will take far longer to infuse values rather than value into the financial sector. And please don’t tell me you can’t change ‘human nature’, whatever you might mean by that. If you take this view, expand the company you keep, get out a bit more and speak to ordinary decent people who would never dream of acting like feckless financiers.

It is the nature of such people that is inspiringly human and whose example should be followed. We also need to ensure that remaining Building Societies stay mutual and return fully to their traditional values and approaches. There are continuing signs of unprincipled contagion from the banking sector - particularly taking advantage of, rather than respecting, the loyalty of their savers when it comes to interest rates.

All of this could be done and extended to other sectors if the commitment was there. An economy is not an abstract entity to be worshipped - it is what we choose to make it. The common good can be enhanced with or without economic growth if we choose to do so. Exemplar institutions could be created and moral re-education begun, but I fear it will take more than a long weekend or two to put together.