As the financial vortex sucks down HBOS and Bradford & Bingley, many ask, ‘Where is a safe haven for our savings?’ Trust between banks has disappeared and they will no longer lend to each other as the credit crunch bites. Ann Pettifor, executive director of Advocacy International, guesstimates there is a $17.5 trillion tottering tower of unsecured, dodgy debt, and that the $700bn bailout for US toxic debt agreed by Congress on 3 October may not halt ‘debtonation’. While hoping such measures work, how can the crisis also be used to reclaim banking and money for people and society?
Fortunately, there are practical, tried and tested ways of reinventing banking and the financial system, both nationally and locally.
Our financial system is a socially created and stewarded ‘commons’ that should work for all of us, not just a private financial market enclosure for the banksters. The light-touch regulation of successive governments has allowed our commons to be stolen in the most grotesque credit bubble in history. It is clear that we need a system redesign; in the interim, government should use nationalisation and preference shares in banks to secure the public interest. Only a publicly owned People’s Bank should be allowed to spend new money into circulation – say for permanently affordable homes –rather than the Government continuing to allow private banks the massive annual subsidy of £21bn from making loans.
The ‘greed is good’ philosophy drove the casino financial markets, with astonishing bonuses paid for dodgy deals. This neoeconomic liberal dogma destroyed the ethical and social values, such as mutuality between people, trust, confidence and interest, so essential for a healthy financial sector. Once-proud member-owned mutuals such as Abbey National, Alliance & Leicester, Northern Rock and the Halifax were demutualised, benefiting directors, stockbrokers and current members at the expense of thrifty previous generations. These are all now bust.
So people are switching to established mutuals like the Co-op Bank, to building societies such as Nationwide, the Britannia and our own Stroud & Swindon, or to an ethical bank like Triodos. Their money is safer because mutuals are limited in what they can borrow from the inter-bank market: the limit is 50 per cent, but the average proportion borrowed only 30 per cent; they also have clear values and lend responsibly. The foundation of mutuals is that we rely on each other – the very principle that should be applied locally to reclaim money.
Mutualism is an approach to economic life that means co-operating rather than competing, and it underpins an economy based in the heart of a community. It is exactly 150 years since Robert Owen, the foremost social and economic innovator of the 19th century, cashed in his labour notes and took up residence in the ethereal Harmony Hall, whose earthly equivalent he had spent a lifetime trying to create. When he is remembered at all, it is as the founder of the co-operative movement, but Owen’s first economic experiment was with money itself.
Along with many political economists of his time, Owen held to a labour theory of value, i.e. that the value of goods should be equivalent to the labour invested in their manufacture. Although a capitalist manager himself, the profiteering by middlemen enraged him. To address this inequity, in 1830 he set up an Equitable Labour Exchange, where the medium of exchange was ‘labour notes’. These were denominated in hours, and goods exchanged for the number of hours they took to make. The scheme was an instant success among producers, and perhaps a thousand artisans were involved in the Exchange.
Owen is also considered to be the founder of the co-operative movement, and many of the forms of people’s banking follow his tradition, including the Robert Owen Credit Union in his birthplace of Newtown, Powys. Credit unions form a growing movement that allows people to save and borrow money within a defined community. This close connection builds a sort of trust that is not possible in global financial institutions.
There was no monopoly on legal tender 150 years ago, and there were a huge number of banks that could issue money. The growth in monopoly money began with the Bank Charter Act of 1844, but was not complete until 1921. The design of new local currencies produced by Transition Towns Lewes and Totnes is based on local money from the previous era. The financial crisis makes clear how vulnerable we are when we allow monopoly control over the issue of money.
When this money system fails – and its failure is inevitable given the way money is created as debt – everyday economic exchanges cannot take place and the real economy is forced to a standstill. This lesson was clear from Argentina where, after the economic collapse of 2001, money was sucked out of the economy. Within months, people in Buenos Aires had pounced on a LETS currency called the arbol (tree), and it rapidly became a significant medium of exchange. In the 1980s Stroud had a thriving LETS economy that was killed by the Treasury not allowing tax exemption and the DHSS docking benefits.
Stroud has its own Exchange, a sizeable Cotswold stone building that Stroud Common Wealth is converting into a centre for social enterprises. We are also working on plans for a local currency, which we hope will be made available through the Exchange. We are more likely to follow the model of the Chiemgauer (launched in the Bavarian region of Chiemgau in 2003) than the US BerkShares model followed elsewhere, and plan to use the currency to build up local production of food and crafts to substitute for the global products available on the supermarket shelves.
Stroud Community Assets is being set up for local people wanting to see their savings receive a fair rate of return and be invested positively for community benefit they can be proud of. Local people will be encouraged to save a small amount regularly; like the original mutual societies, because we are many this will eventually build a significant fund. The aim is to build common wealth – for the benefit of individual and community alike.
Molly Scott Cato is a reader in green economics at the Cardiff School of Management.
This article first appeared in the Ecologist November 2008