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Andy Wimbush is nef’s Communications Assistant and blogmaster.
“A map of the world that does not include Utopia,” wrote Oscar Wilde, “is not worth even glancing at, for it leaves out the one country at which Humanity is always landing. And when Humanity lands there, it looks out, and, seeing a better country, sets sail. Progress is the realisation of Utopias.”
A map from Thomas More's Utopia
“Progress is the realisation of Utopias.” Can you imagine Peter Mandelson saying that to the CBI? Would Gordon Brown produce such a quip at the World Economic Forum? Even Barack Obama might have problems with this level of political lyricism. Progress might be the realisation of ambition, enterprise, or even dreams, but not utopias.
Utopianism tends to be a pejorative term these days. It’s associated with religious and political myths which we now might find naive and old-fashioned: be it the New Jerusalem of Christianity or the promised revolution of Marxism. The quotation from Wilde comes from his 1891 essay ‘The Soul of Man Under Socialism‘, a political polemic with a curiously evangelical and redemptive tone.
We’ve witnessed too many failed or dangerous utopias to be taken in by such rhetoric anymore. How many of the 20th century’s worst atrocities started with a vision of a perfected world? And even when they haven’t ended in totalitarianism, utopian mindsets have collided with the wall of reality sooner or later. The global financial crisis of the last eighteen months has put paid to the neoliberal belief that history “ended” with the rise of free market capitalism.
Today we’re inclined to agree with the political philosopher John Gray, who writes that “utopia is the projection into the future of a model of a society that cannot be realized.”
And yet, somehow, I still have some sympathy with Wilde’s vision. Even once we accept the danger of utopianism and see through its mirages, we still need to chart a course for our societies to follow. We will always need some sort of compass to guide us.
The sociologist Stephen Lukes came up with the idea of a ‘concrete utopia’. Unlike John Gray’s definition, the concrete utopia is based on ‘the knowledge of a self-transforming present, not an ideal future’.
There is no doubt that we are currently in a ’self-transforming present’. Thanks to a century and a half of industrialisation powered by fossil fuels, the world’s climate is changing – not somewhere else or at a future date, but right here, right now. The biggest economic crisis since the Great Depression has shaken all economic and political orthodoxies. And as inequality has risen in developing countries, so too has social instability and unrest. If we do nothing about these things, the present will transform itself for the worse. nef has calculated the costs of carrying on with ‘business-as-usual’ until 2050: the UK will be faced with a £1.6 to £2.5 trillion bill for climate change, and a £4.5 trillion bill for social problems arising from income inequality.
In order to steer clear of these threats, we’ll need something like a concrete utopia. Our new report The Great Transition attempts to put in place some clear steps towards the kind of economy which works for people and the planet. The Great Transition is undoubtedly utopian in spirit: we call it ‘the tale of how things turned out right’. But its recommendations are based right here in the present moment. There are things we can do immediately to tackle climate change, restore economic stability and create a more equal human settlement.
For the concrete utopian, it isn’t enough just to draw utopia onto Wilde’s map. First, you have to do some scouting, to see if that country actually exists, to glimpse its shores, even from afar. At nef, we’ve been able to do so through the vast array of practical projects we’ve been involved with over the years. Timebanking, complementary currencies, new methods of participation and democracy, Transition Towns, our BizFizz project for budding entrepreneurs, co-productive public services and barter economies all constitute, as we said in our pamphlet From the Ashes of the Crash, part of a ’sleeping architecture of a new, diverse and resilient local financial system’, human-scale and low-carbon. And it’s on these foundations that we’ll start to build our concrete utopia.
If you’d like to glimpse the beginnings of the Great Transition, and help make it a reality, make sure you head along to The Bigger Picture: Festival of Interdependence, this Saturday 24 October, at the Bargehouse, South Bank, London.
of a new, diverse and resilient local financial system
Andy Wimbush is nef’s Communications Assistant and blogmaster.
Large parts of the City have grown too big and need to be cut down to size, if necessary by imposing new taxes, according to the chairman of the Financial Services Authority.
Lord Turner of Ecchinswell, an influential figure in the reform of banking rules in London and beyond, said that the City had grown “beyond a socially reasonable size”, accounting for too much of national output and sucking in too many of Britain’s brightest graduates.
“I think some of it is socially useless activity,” he said, adding that the financial sector had “swollen beyond its socially useful size” and seemed to make excessively large profits.
Lord Turner named fixed-income securities, trading, derivatives and hedging as areas that have grown beyond socially optimal levels, adding that fund management and share trading might also have grown too big.
Lord Turner added that he would favour City-specific taxes if his proposed new rules on capital failed to shrink investment bank balance sheets and curb the more useless or reckless trading. “If increased capital requirements are insufficient, I am happy to consider tax on financial transactions, Tobin taxes,” he told a discussion organised by Prospect magazine.
nef has been long been proposing that regulators curb the power of the financial sector with taxes, and using the revenue generated to finance more socially beneficial schemes. Back in 2001, when the current recession was just a glint in the speculator’s eye, we wrote a report with War on Want in which we proposed a “Robin Hood Tax” or Tobin Tax to divert funds away from the global currency market into funds for peace and international development.
When the report was released, nef Policy Director Andrew Simms argued that a tax of this kind would be “an automatic and politically painless way to help pay for international targets on sustainable development”. Today, when the voting public are still furious about continued bonuses and profiteering in the City, the tax would not only be politically painless, but politically therapeutic. And there are even more uses for the money raised: it could be used to power a Green New Deal, create an adaptation fund for poor countries who are feeling the effects of climate change, kickstart a Post Office Bank which would help small businesses and financially excluded communities… the list could go on.
We’ve also repeatedly said that the banks need cutting down to what Turner calls a “socially reasonable size”. Our post-crunch reports From the Ashes of the Crash and I.O.U.K. both propose de-merging the biggest banks, and separating speculative trading from the retail, high-street banking that all of us rely on.
Such proposals remain radical, but they’re no longer marginal. In an FT column that begins “The Climate Camp has come to Canary Wharf”, Turner is nicknamed “Swampy” for his ideas, but the article concludes that
Lord Turner has a perfect right to start stirring up discussion about how to shrink a wholesale financial sector that has, he says, “swollen beyond its socially useful size”… Let the debate begin.
Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.
The topic of the day is unemployment. At the moment, more people in the UK are unemployed than they were before Labour came into power. Not a nice reflection on the track record of the current Government. Why were so many jobs lost? Of course, the financial crisis. Always the financial crisis. However, looking at the types of jobs that are lost, many of those would have been low-skill jobs in the service sector that are expendable when the going gets tough. Demand for dry cleaners, office cleaners, caterers and sandwich sellers disappears quickly when the people demanding these services (i.e. those working in financial institutions) find themselves out of a job as well. So, all we have to do is make sure these financial wizards get their jobs back, so that those caterers and cleaners can get back on track, right? Wrong. What the crisis very clearly shows is that a lot of the employment created through the bubble was fleeting, just as the billions or even trillions of pounds that have now vanished into thin air. The jobs were not embedded in the real economy, the manufacturing of goods or the provision of services that we all need every day – for example good quality child care. Instead, people worked hard for measly incomes, were mostly unable to save, and loose the few assets they have, e.g. cars (which are often needed in order to get a new job). At the same time, they can’t honour credit commitments any more, meaning they are frequently over-indebted – or have already applied for personal insolvency. The latest stats show another increase in this
number.
So what we need to do as part of the recovery is create jobs that allow people to build greater resilience against such crises in the future. There is little point in having millions of people relying on the hire and fire jobs that are so dependent on the economic cycle. In addition, people need help in building savings, skills and aspiration – now more than ever. However, as we discovered in recent research, many efforts to build assets and thus to improve crisis resilience are eroded during the current crisis. Governments across the EU are cutting back social support to the unemployed, and cancel grants to organisations that seek to help people in dire straits. Instead of nurturing the efforts of aspiring entrepreneurs and savers, there is little to no effort to help people help themselves. Particularly in the UK, asset erosion is happening on a large scale. Banks repossess houses at the earliest possibility instead of trying to find a solution with the client. Even worse, debt is sold off to debt collection agencies that sometimes use threats and psychological warfare to recover money, with an added fee on top. Credit card companies often refuse negotiations with debt advice organisations and insist on immediate payments. None of these practices are challenged by Government. Everything plays second fiddle to the financial institutions – it’s for them to get their books back in order, and the quickest way of doing this is to get rid of bad debt. In the long run, this practice entrenches existing and new poverty.
Our research found that organisations such as Toynbee Hall and Fair Finance see a huge increase in demand for their services. Scarily enough, many of the people now seeking advice and help are those that were considered well-placed in society: low- and middle-income families with a house and a steady income. Despite this increase in demand, not a penny of the stimulus packages has been allocated to these and other organisations to meet the increased demand. The consequences: bankruptcy and hardship. Poverty and destitution. This will cost a lot more in the future to rectify than investing in advice and support services now. The overwhelming majority of people wants to work and is seeking work – but they have to have the ability to do so. An undischarged bankruptcy, homelessness and a pile of debt and worries will not be helpful to this end.
Our report thus calls on the Government to support asset building efforts and to recognise how helpful they can be in helping people through tough times. Asset building should be part of mainstream politics, not a niche as they are now.
It is always better to make people self-reliant rather than having to feed them in times when money is tight. Cutting budgets for asset-building activities now is the worst way of going about it.
Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.
A light at the end of a tunnel - or is it an oncoming train?
Barclays is said to be already recovering from the credit crunch whilst most of its clients, and the population at large, still are not even seeing a sliver of the light that could indicate the end of the tunnel is in sight. Small businesses still face cuts in their existing overdraft and credit facilities despite of the fact that their businesses are structurally sound. People with consumer debt still face increased interest rates. Personal insolvencies, as a result of redundancies, are at an all time high (link to insolvency services). Mortgage holders see their interest rates rising. Banks reposess houses more quickly than ever, and debt collectors are also becoming more aggressive.
So what does this increase in banking profits actually mean? Are we seeing a rehabilitation of our broken financial system? Or are we simply on the way to returning to business as usual, with the toxic loans written off?
The simple answer is – no-one knows for sure. There was certainly a gradual return of confidence, meaning that people will want to invest again. But there remains also a certain amount of question marks. As Robert Peston from the BBC argues, banks are reducing the amount of money they lend, so that they simply have more on their books.
In addition, however, the way that banks post their profits can change quickly as they can use different methods of valuing their assets. Asset valuation is not an exact science, and there are various ways of doing so.
Be that as it may, everyone is sighing a breath of relief that at least two banks don’t appear to go the way of Northern Rock (although there are interesting ideas around to breathe new life into it. That relief could be (and in certain quarters, is) giving way to complacency and a return to BAUBAB: Business As Usual and Bonuses Are Back. Despite Barclay’s assurances that bonus payments are reformed, an average of bonus £100,000 for staff at Barclay’s Capital still makes me think that this is more cosmetic.
We probably will have to repeat this until we’re blue in the face – but banking reform has not gone anywhere near enough to create a stable financial system in which systemic crises such as the current one are less likely to happen. And anyone who thinks that the crisis is over forgets that for the millions of unemployed, and those steeped into debt, it’s only the beginning.
Josh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.
After the storm: what will replace the neoliberal consensus?
The financial crisis which erupted almost two years ago has led to the biggest shake up in economic policy since the Oil Crisis of the 1970s. Neoliberal economics lies in tatters, with the UK Conservative party dismissing the notion of the ‘utility-maximising rational actor’ as a fantasy and Martin Wolf of the FT pronouncing the end of the dream of global free market capitalism. The question is what will come next.
Sadly, there are few signs of a new approach which takes seriously the ‘triple crunch’ of the financial, environmental and energy crises. Rather, governments are turning back to tried and tested state-led growth strategies to reflate national economies, pumping liquidity into credit markets and creating new or bringing forward existing public spending plans. In other words, there has been a return to post-war Keynesianism – the doctrine that the state could and should regulate the market and step in to boost demand whenever required. This thinking lies at the heart of Obama’s $787 billion fiscal stimulus package, as well of those of Europe and China. China is embarking on what is possibly the biggest Keynesian experiment in history, with the government attempting to create a welfare state virtually overnight so as to maintain demand as well as pumping billions of yuan into mainly state owned industries, as Newsnight’s Paul Mason recently revealed.
Aside from the fact that the proportion of this new funding that will be spent upon green investment is rather small (very small in the case of the UK), there are bigger questions about whether this whole approach will prevent another, bigger financial crisis and help us move towards to the low carbon, low throughput ’steady-state’ economy required to prevent catastrophic climate change.
As Walden Bellow, the Phillipino intellectual and activist, points out in a recent article, today’s crisis requires us to move beyond Keynesian demand management at the national level to address global problems of inequality, overproduction and over-consumption. For Bellow:
“The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North. All the talk of replcaing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible.”
These are issues nef has addressed in our interdependence reports but currently they are not even on the ‘any other business’ agendas of the finance ministries of the world’s great powers. Rather, we are seeing a return to a ‘Growth as Usual’ policy which flies in the face of global inequalities and serious attempts at a transformation to a low carbon economy. It is about time that economists began to look at some of Keynes’ less well known policies, such as that economies should be primarily concerned to consume only what they are able to produce, outlined in his essay on “National Self-Sufficiency“. Globalisation, in particular the globalisation of capital flows, is a major part of the reason we are in this mess – a bit of de-globalisation will be required to get us out of it.
David Boyle is a nef fellow, a writer and the editor of nef’s newspaper, Radical Economics.
“Future students of history will be shocked and angered by the fact that in 1945 the same monetary system that had driven the world to despair and disaster [in the Great Depression], and had almost destroyed the civilisation it was supposed to stand for, was revived on a much wider scope.”
So wrote the French economist Jacques Rueff in 1964. It feels much the same now: we would be insane to go back to the same disastrous banking pattern we had before the bail-out, but – thanks to the government – we probably will.
Only a miserable 0.6 per cent of the government’s stimulus package is going on green measures, to genuinely shift the way the economy works.
Lord Mandelson has come out as a born again defender of the financial status quo.
But worst of all, the latest Bank of England assessment shows that, despite everything, business lending to small and medium-sized businesses is down again. Differential interest rates and fees are both still rising.
Local bank managers who know their community well are largely a thing of the past.
It has become a lot more expensive to borrow money, even for the lucky few who make it through the approval stage.
One of the many tragedies about the Westminster expenses scandal, as Vince Cable pointed out last week, is that it robs MPs of the moral authority to tackle our dysfunctional banking system.
Ministers daren’t say anything too interesting, or too bold, in case heir colleagues assume they are throwing their hand into the ring for the Labour leadership. It is a miserable prospect, and it may guarantee a swift return to banking business-as-usual.
To start with, it is time we broke the all-party consensus that somehow the government can use their holdings in the big banks to kick-start local lending again. It hasn’t worked, and seems unlikely to work any time soon.
This is not only because banks won’t lend, but because they can’t lend using their current infrastructure and systems.
They have been consolidated to the point where they point towards the speculative economy and have little local lending infrastructure left. Their lending decisions are taken by computerised systems which, because we are in a recession, naturally recommend against.
There are no longer bank managers, or local staff with the authority to pick out the success stories, using their knowledge of their local economy.
Our businesses are now in a far weaker position than American or German competitors, and potential competitors, because we have no equivalent lending infrastructure. There are only 170 branches per million people in the UK, compared to 520 in Germany and 960 in France.
Now that the elections are over, this is what politicians need to do immediately:
- Break up the banks in government ownership, not just by dividing domestic high street banks from risky investment banks, but to rebuild an effective local lending infrastructure to kick-start local enterprise.
- Launch a new bank based in post office branches, along the lines of the successful postbanks on the continent and in New Zealand, using the latest mobile phone technology.
- Invest in a new generation of community financial institutions, funded by the big banks, as they are in the USA, under a British version of the Jimmy Carter’s Community Reinvestment Act.
Why is this still not top of the agenda? I think this is partly because, in this country at least, people don’t understand the money system. Their mental map of it is nearly a century old: safe reliable Captain Mainwaring and vaults full of money.
I was assured some years ago by the Washington correspondent of a national newspaper (admittedly it was the Sun) that all money is based on gold. It hasn’t actually been since 1931.
This is my excuse for writing an accessible guide to the way money works: Money Matters: Putting the Eco into Economics.
I hope (no small ambition this) that it might help dispel some of the bizarre mystique that bankers continue to exercise over the minds of the English. Because what we really need to do is abandon the idea that our current useless system was somehow placed there by God, and demand the new local banking infrastructure we need.
Andy Wimbush is nef’s Communications Assistant and blogmaster.
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Here at nef, we like to talk about the triple crunch: the interlinked crises of climate change, economic meltdown and diminuishing supplies of fossil fuels. But that’s not the whole story. The breakdown in economic consensus in the wake of the credit crunch points towards other crunches: evapourating trust in established politics and a coming ’social’ crunch, as the gap between rich and poor gets wider.
Our friends at Compass will be exploring these latter aspects of our current predicament at their major conference No Turning Back happening later this month. The aim is to forge a new political and economic settlement for the 21st century with democracy, equality and sustainability at its heart.
nef will be joining the fray. Our policy director Andrew Simms will proudly commit what he calls ‘the final heresy’ by questioning the justifications behind economic growth. Juliet Michaelson, a researcher at nef’s centre for well-being and one of the brains behind our National Accounts of Well-being, will be talking about work, happiness and democracy. And finally Dr Stephen Spratt, nef’s chief economist, probably won’t be grieving too much as he joins a panel on The Death of the Free Market.
Non-nef highlights include Jon Cruddas MP, Chukku Umana, Billy Hayes of the CWU, Prof Richard Wilkinson and Dr Kate Pickett (authors of The Spirit Level), Polly Toynbee and John Harris of the Guardian, Nick Hildyard from The Corner House, and plenty more besides.
Tickets for the conference are going quickly, so make sure you book as soon as possible if you want to be there.
Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.
Browsing through the papers and reading about different ways that governments seek to help enterprises of all kinds recover from the economic crisis, I noticed just how paltry the UK Government’s efforts are.
What made me realise this is the difference in the size of loan guarantee schemes. I blogged about these before, but here’s a short reminder:
Loan guarantee schemes provide a state guarantee to lenders when they extend credit to businesses they would normally not lend to. This is to circumvent overly cautious lending and over-reliance on schematic credit scoring indicators. In the current circumstances, they are used to get banks lending again.
One look at the graph below show why the UK support will just not be anywhere near enough to safeguard UK enterprises:
Spot the difference
It has to be stressed that the US section of the bar doesn’t provide the full extent of the Obama administration’s efforts to support US companies. The $60bn are for loan guarantees in the green sector ALONE. There are further hundreds of millions set aside to support small and micro enterprises. Plus, the US administrating is channelling an additional $243m to CDFIs, community finance organisations that successfully invest in communities traditionally neglected by banks.
In the UK, we too have CDFIs, and they do a sterling job despite the fact that UK support is much less generous. How much less generous?
Look at the chart below. It will tell you.
US: $243m in 2009. UK: Zero. Zilch.Nada.
But that’s not the end of the depressing story. Not only does the UK provide the lowest amount of loan guarantees, not only does it not help the CDFIs, the recent reform of its loan guarantee scheme actually decreases security for the lender.
I refer you again to my blog in March to read up the details, but the industrial policy of the UK can be summed up as follows:
- Provide a shoddy loan guarantee that will not help those most in need, do not support CDFIs that have continued to provide finance where banks have long withdrawn, and pretend that business as usual can be restored.
Doesn’t sound as convincing as a formula for success, right?
Let me hence suggest an alternative:
- Extend and increase the loan guarantee to provide real incentives for lenders, massively support CDFIs as banks have failed so catastrophically and introduce a community reinvestment act that will force lenders to invest where they get their money from – in local communities.
Andy Wimbush is nef’s Communications Assistant and blogmaster.
nef will be at the Hay Festival Wales from Tuesday 26 May presenting a series of talks called Surviving the Crash. Our event on the Transition Towns movement is already sold out, but it’s not too late to get tickets for the rest of our programme.
We’ll be exploring how Cuba survived its oil crash of 1989, examining the power wielded by city investors in deciding our environmental fate, dbeating the potential of the Green New Deal and discussing what Britain’s homefront during World War II can teach us about a national response to climate change.
We have a host of fantastic speakers including the economist John Kay, gardening guru Monty Don, London Food czar Rosie Boycott, Guardian journalist John Vidal and our own Andrew Simms and Stewart Wallis.
At every event, the onehundredmonths clock will be ticking down in the background, bringing a sense of planetary urgency to an otherwise sleepy, secluded part of the country.
Sargon Nissan is a researcher in nef’s Access to Finance team.
When George Osborne, Shadow Chancellor, called for the break-up of Lloyds and RBS, he echoed the recommendations of our report I.O.U.K. on the failure of British banks to provide credit appropriate to our economy’s needs.
It seemed inevitable that this issue would rear its head again, and now we finally witness the financial sector’s response, via its ever-willing ally, the Government and Treasury. Their response came today with a Treasury report – commissioned before the worst days of the current crisis – that staunchly defends the right of big banks to get bigger. According to today’s Financial Times, the Chancellor and the authors reiterated the report’s findings that “an industry constrained on narrow lines would find it harder to develop new products”.
What does not seem to be acknowledged in the current debate is that the failure of overly-consolidated banking pre-dates the crisis. As we discussed in I.O.U.K., the inability of the banking sector to provide the necessary credit for thoses small businesses and sectors of the economy which do not enjoy unwavering Government support is not a result of the credit crunch and economic crisis. The reality is that banks have been withdrawing from communities, closing their branches and abandoning relationship-driven banking for over two decades now. And it is this retrenchment from the real economy which has made them so vulnerable to the kinds of economic shocks we have seen in the last eight months. Northern Rock and Bradford & Bingley used to be mutuals, but they abandoned old-fashioned banking and converted into shareholder-owned institutions in search of better returns. And the result of this shift? They both went bankrupt and had to be rescued by the taxpayer.
It was selfish herd-like behaviour seeking the easiest profits, encouraged by policymakers since Margaret Thatcher’s 1980s reforms, which thoroughly undermined our financial system. Perversely, it is now the Tories who seem to perceive the contradiction of a banking system with a permanent Government get-out-of-jail free card for banks that are, in the Shadow Chancellor’s words, “too big to fail, too big to bail”.
Perhaps the Conservatives are willing to contradict the prior orthodoxy just to win political points? Or maybe Osborne is just concerned about how big a headache a banking system in need of permanent subsidy will be when he has to present the next Budget?
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