How to get credit flowing? Nationalise the banking sector, say Tories

(Only kidding about the Tories bit! The rest of it is true, but please, stay with me…)

Wonko, for one, is not happy. No wonder: Paul Mason noted that on Friday

Wrekin Construction – a business with £50m of orders reportedly on its books – went into administration. It told the press that RBS had refused to extend an overdraft: it needed £3m. Now 600 civil engineering and railway construction jobs are at risk – and we’re supposed to be in the middle of a government-driven civil engineering boom.

It was partly Paul Mason’s insightful post that made me pen the following comment atDuncan’s Economic blog

Arguably the best way to get credit flowing again is for the banks to be nationalised. I think this worked in Sweden quite well and here’s why:

Commercial decisions will still be made on who to lend to and at what cost to the lender – but public ownership will get around the one big obstacle, which is that the people running banks are looking to provide returns to the owners and so make decisions on lending in a different way. Instead of being cautious about lending because they are mindful that their job is to give a return to investors, they will be more eager to lend, but nonetheless mindful of risks, etc. We can see the government has reversed its previous policy with Northern Rock.

With public ownership it’s not about the sectional interest of shareholders (or even, the government as shareholder) but about the interest of the whole of our economy in the long term – ensuring that productive enterprises get the financing they need.

The big problem with all of this will be the EU’s rules on these matters. Sweden’s banking crisis and it’s recovery happened prior to the country becoming a member of the European Union. The political right likes to paint the EU as some kind of warmed-up Soviet Union, but in fact EU institutions would probably oppose nationalisation of the private banking sector on several grounds (competition rules, the rights of shareholders, etc.).

Now, it’s the kind of measure that might need EU approval, and might take a damaging length of time (look at the govt assistance to our car manufacturers – it was held up while the European Commission vetted it). But the government will have to be tough and say it will take the consequences from the Commission.

As to the future ownership in the banking sector, I think we would be wise to learn the lessons of this crisis: the shareholder-as-owner has proven dangerous.

Which financial institutions have been responsible and have not needed public money to bail them out? The building societies, owned by their customers: no one expects from building societies anything other than boring banking – no financial wizardry. Indeed, many of the failed institutions were once owned by their customers – Bradford and Bingley, Halifax, Northern Rock, etc.

As a customer and member of a building society, I don’t ask much more than a good service, either as a lender or saver; I certainly don’t demand of the people running it that they come up with more ways of making money. Now it might be argued that this kind of old-fashioned high-street banking doesn’t apply to the financing of bigger businesses – but my question would be, why not?

John Lewis Partnership – socialism in action

As capitalist-owned enterprises lay off workers and cut wages, the worker-owned store John Lewis – consistently voted one of the best for customer service by consumers – pays out a 13% bonus to staff. Why? Because they own the business – they won’t be asking themselves to take a pay cut!

I’m not saying that John Lewis is some kind of paradise in a sea of exploitation – it isn’t, but clearly, workers owning the enterprises in which they work is no impediment to building successful businesses (sales are up!) and responding to consumer demand (Waitrose are brining out a budget range, for example) whilst at the same time “sharing the proceeds of growth”, to coin a phrase.*

From Wednesday’s Guardian:

The annual bonus paid to John Lewis’s 70,000 staff has shrunk by almost a third after profits at the partnership were hit by the recession.

But staff still cheered the news that they will receive a bonus of nearly seven weeks’ pay, down from 10 weeks’ pay a year ago.

Because John Lewis is owned by its staff, every one of them – from the boardroom to the shop floor – receives the same percentage payout. This year it is equal to 13% of basic salary for staff at the Waitrose supermarket chain and John Lewis department stores.

At the John Lewis store on Oxford Street this morning, more than 1,000 shop staff hung over the balconies to learn what their annual bonus would be.

In the well of the atrium, Noel Saunders, managing director of the store, worked the crowd like a game show host, hinting the highest partners could expect was a 12% payout.

At 9.28am, as partners counted down from 10, his assistant Paul Thomas – who has worked in the floor coverings department for 20 years and was selected for scoring excellent results from mystery shoppers – fumbled with the envelope before pulling out a giant card bearing the figure 13%.

As customers peered through the doors, partners erupted, celebrating the bonus payment after a tough year on the shop floor.

The total bonus payout for 2008 is £125.5m, down from £180m for 2007.

“The key difference is this is a genuine bonus based on profit-sharing,” said Andy Street, managing director of John Lewis. “The word ‘bonus’ has become discredited in the economy, but for us it is something to celebrate. Our partners have worked harder than ever to achieve these results.”

The feel-good atmosphere pervaded all six floors with no grumbles from partners that the bonus fell short of last year’s bumper payout.

“Last year, 20% was a fantastic result, but in the current climate we are really happy to get a bonus as we see people around us losing their jobs,” said Charlotte Deane, who will use her bonus to catch up with her sister, who is travelling in California. “However much it is, it is a bonus, not a benefit, and I feel lucky to get it.”

Most staff canvassed expect to use the extra cash on a holiday. Indira Vakeria said she was planning a trip to India to visit her parents. “We are really pleased with 13%,” she said.

The company reported that its profits fell by 26% in 2008 to £279.6m. Chairman Charlie Mayfield warned that 2009 would be “another very difficult trading year”.

“Trading conditions worsened markedly during the year as the problems in the financial sector reduced consumer confidence to a low level,” he said.

The partnership conceded it would no longer be able to hit its target of opening 10 stores in 10 years. It has already opened four, including branches in Liverpool and Cambridge, but beyond its new Cardiff store this autumn, and a shop at the Olympic site in Stratford slated for 2011, it said its aggressive growth plan would be “delayed”.

The company said it remained optimistic that two stores across the Irish Sea, one in Lisburn in Northern Ireland and one in Dublin, would open as planned but warned that other projects, including stores in Crawley and Portsmouth, might be held up. Retail schemes around the country are being mothballed as property developers grapple with funding shortfalls and collapsing asset values. Mayfield said the retailer was “working actively with developers to maintain our rate of growth” and remained committed to the expansion plan.

It is just over a year since John Lewis first admitted that its sales were being hit by the high street downturn. By the autumn, when the UK economy was contracting, the company was reporting double-digit falls in weekly sales.

* Please, don’t misunderstand me, I doubt that the Tories – expected to win the next UK election – will fulfill their promise of “sharing the proceeds” by forcing Tesco to become a cooperative. This is something the unions need to take up with New Labour, though…

Liam Byrne backs coops… or sneaky privatisation?

Read the following and consider two questions:

1. Do we need to expand cooperative ownership into the private sector or the public sector?

2. If Mandelson is involved in a social enterprise summit, and Byrne is talking about a role for social enterprise in “accelerating public service reform” (privatisation), can we assume that the government could be looking to rebrand unpopular policies (the Royal Mail sell-off, for example) using the pretense of cooperative values?

Social thinking can pull UK out of recession
March 11 2009
The Minister for the Cabinet Office, Liam Byrne, said that social enterprise had a key role to play in helping the country out of recession.

“There will be a debate about the type of economy, society and country that will emerge from this recession,” he said. “I predict that social enterprise will become more, not less, influential because people are asking: ‘How on earth did we end up here?’

“A demand for answers will follow,” he told delegates at Birmingham’s International Convention Centre. “One answer will be that markets will need more morals like yours. We need business for the public benefit not the personal bonus. This country will look more for ethos with its enterprise – not just cut and thrust but care and trust.”

Mr Byrne said that social enterprise was an integral part of the Government’s New Opportunities white paper, which outlined how new jobs could be secured for Britain in the decades ahead.

He added that the Business Secretary Lord Mandelson would soon be chairing a social enterprise summit to ensure that that the sector plays a bigger role in the new British economy.

“If we want to re-balance Britain’s economy in the years to come, then the role of social enterprise has to expand. We will bring together the brightest minds and the most progressive thinkers – and even some politicians – to join us in this task.”

He said there would also be a bigger role for social enterprise in the delivery of public services: “In the last ten years we have rebuilt institutions in our communities — new schools, colleges, universities, health centres, surgeries and youth centres.

“In the next ten years we have to hand over the reins to local people, and we’ll need your help. When we publish our plans for accelerating public service reform, I will set out clearly how I want to see the role of social enterprise expand.”

In terms of new jobs, Mr Byrne said that he wanted to see 25,000 more people working in social enterprise in the months ahead.

He said that the “soft power” of social enterprise would grow when “investment in British youngsters is seen as more valuable than short-term bets on America’s sub-prime debt”.

Govt response to recession’s mental health crisis is all talk

No, really. Talking therapy.

As the UK economy slides further into recession, the prospect of millions out of work is putting pressure on individuals and families. Health secretary Alan Johnson and the minister for work and pensions James Purnell have announced more funding for mental health services to assist those made redundant by the economic crisis.

But what help is “cognitive-behavioral therapy”? Is it just a way of pacifying people who will be angry and upset that their hopes of prosperity are being ruined by the chaos of the capitalist system?

CBT encourages people to think about what they can do as individuals to improve their situation. Obviously, New Labour types like Johnson and Purnell would not naturally be promoting a therapy that encouraged people to look at how they can collectively overcome social problems – nor acting to prevent a mental health crisis by intervening in the economy to defend workers – but surely the failure of market fundamentalism to deliver “an end to boom and bust” should encourage politicians to think outside the box…

The Mental Health Foundation is calling on the government to treat the mental health epidemic caused by the recession as a public health issue:

The growing gap between rich and poor has caused a “social recession,” leading to low educational achievement, increased violence and poor community cohesion [...]

The Foundation warns that “perpetual stress” and depression linked to public concern over excessive earnings has led to widespread social and health problems.

Radical shift

The charity’s report, Mental Health, Resilience and Inequalities, calls for a “radical shift” in understanding mental health as a public health issue, citing research from around the world that shows that affluent but unequal societies can have many problems.

It also recommends assessing all future public policy for its impact on people’s mental health.

Social problems

The report’s author, Dr Lynne Friedli, said individual and collective mental health and well-being depended on reducing the gap between rich and poor.

“A large divide leads to a mentally unhealthy society, and many associated social problems. In the UK in particular, we’ve failed to acknowledge this link, preferring instead to blame the health and social conditions of those living on or near the poverty line on their own lifestyle choices. This in turn further stigmatises poverty, making disadvantage even harder to overcome,” she added.

Dr Andrew McCulloch, chief executive of the Mental Health Foundation, said living with inequality had “very real effects on the mind and body,” adding: “Given the huge social costs of poor mental health, it’s vital we begin to treat it as a public health priority.”

TUC calls for Green New Deal

Printing more money to give to banks isn’t going to save our economy – wealth is created by workers, not bankers…

Only Government can create the green jobs we need, says TUC

In advance of the Government’s low carbon economy summit later today (Friday), the TUC has called for bold government action to create green jobs and secure a transition to a low-carbon economy.

At the summit, the TUC will call on the Government to:

* Set demanding targets across the economy. While the overall target set in the Climate Change Act is welcome, the Government must follow up with detailed targets for individual sectors if behaviour is to change.
* Accept a central role for the state in creating demand for green products and services, using public procurement, providing green information to consumers and intervening in markets that are failing to encourage green behaviour.
* Invest in innovation, research and development at levels that allow us to catch up with those European economies.
* Invest in the skills needed in a green economy, and ensuring that skills shortages are not a block on future green developments.

TUC Deputy General Secretary Frances O’Grady said: ‘Even without recession we would need decisive action to drive down carbon emissions. Preventing climate chaos can give added purpose to government action to tackle the downturn. Moving to a low carbon economy provides an opportunity to create jobs across the country from high-tech industry to public services.

‘But pre-recession tools and techniques will not work. Regulation, government grants and direct government activity may have been unfashionable in the boom years, but they are the only way we can green the economy in the midst of bust.

‘This will be a key demand for the trade unionists attending the Put People First march for Jobs, Justice and Climate on 28 March in the run up to the G20 summit.

‘Germany has half a million jobs in renewable energy, while the UK has just 7,000. One and half million work in the wider green economy in Germany compared to a paltry 400,000 in the UK. That must change with investment in taking the carbon out of energy generation and reducing energy use in the workplace, the home and transport.’

The TUC will draw on the research in its Touchstone pamphlet Unlocking Green Enterprise: A Low Carbon Strategy for the UK Economy which says that to push the UK in a greener direction, the Government must first convince business that it is serious about the environment and that green issues will be at the top of the political agenda even after the economy recovers. Ministers should be promoting the environmental message to the public, and where necessary introducing financial incentives to encourage both consumers and business to go greener.

The Touchstone pamphlet also urges the Government to assess the kind of workforce and skills that will be needed in the green economy. The UK will need more designers and engineers, and also workers qualified to install and maintain the new renewable energy technologies. Ministers need to act to ensure suitable degree courses and training schemes are in place, says the TUC.

One of the current barriers to unlocking green enterprise in the UK, says the TUC, is down to the current cost of goods and services not reflecting their actual impact on the environment, leaving companies with little incentive to introduce costlier, greener alternatives. This in turn makes it less likely than firms will invest in new green products and keeps consumer demand low.

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