Allowing Adair Turner to create the post-crisis regulatory framework for our banking sector would seem to be a clear example of leaving a gambling addict in charge of the casino. He has been a non-executive director at Standard Chartered Bank and Vice-Chairman of Merrill Lynch Europe, and boss of the lobby group for UK corporations, the Confederation of British Industry. In the turmoil of autumn September 2008 he was brought in to lend weight to the Financial Services Authority, which had demonstrated its utter ineptitude at ensuring standards of probity and had played its own part in destroying the credibility of the banking sector.
I feel the need to establish his track-record before saying that many of the proposals in Lord Turner’s review of the banking sector are rather good ones. He proposes, along with many greens, that government should take more control over the banking industry, both domestically and internationally, to ensure that social benefit is achieved, not just private profit. He does not, as we green economists do, argue that credit should be channelled towards sectors most likely to facilitate the move towards a low-carbon economy, but he does argue that governments should influence decisions about who is able to borrow the limited amount of money banks are now making available.
Beyond Turner...
Green monetary policy would be designed to move us towards a sustainable economy. This means reining in the uncontrolled creation of money to fund speculative transactions and its redirection towards investment in our low-carbon future. It would mean, as implied by the Turner Review, the retaking of political power over the financial corporations which was given up at the time of Big Bang in 1986. Strict controls on financial instruments would permit only those that are transparent, that offer limited risk of financial destabilisation and are clearly beneficial to society at large.
Turner’s proposals are a good start, but green economists have a more radical vision of how a money system should operate: what would be the role of banks in such a vision? The commercial banks’ pursuit of interest poses a challenge for the green economist because, within a steady-state economy, it seems fairly certain that interest rates will be fixed at 0 per cent. Interest represents the accrual of extra value, and that value has to come from somewhere. Where it comes from at present is the body of our poor old mother earth. Perhaps we could squeeze some marginal extra value out of the economy via greater human ingenuity or higher energy efficiency, but once the economy is in equilibrium with the planet, interest will be only a memory.
Interest-free loans
So can we imagine a bank that functioned without interest? In fact we don’t have to because that bank already exists and is found, unsurprisingly, in Sweden. Rather than paying interest on their loans, borrowers pay after-savings (to keep the bank well capitalised) and when they have repaid the principal this is returned to them as a lump sum. The fact that this enforced saving accrues an amount of money more or less equivalent to the sum they originally borrowed indicates the iniquity of the interest-banking model, where that money would have been claimed in interest and redirected to the bank’s shareholders.
As the Channel 4 debate between the Chancellors amply demonstrated, these fundamental questions about money and banking are not part of the public debate. All three refuse to question the instability and unsustainability of the capitalist system. All three refuse to countenance debate about whether it was right to give billions to the banks, when that is the direct cause of worse-than-Thatcher spending cuts. Rather than shuffling the deckchairs on the Titanic, they are shuffling the pack of cards in the global casino. The clamour for justice, both environmental and social, does not penetrate its walls.
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