Charter for a New Financial System?


I read a post from Positive Money, for whom I have a lot of respect, on a “Charter for a New Financial System” with mixed feelings.

It is a report on a conference called Transforming Finance, held in London just last week. The Charter they produced is supported by many far sighted people, concerned not just with finance, but with environmental and social change issues: The Finance Innovation Lab, New Economics Foundation, Share Action, Positive Money, Move Your Money, Friends of the Earth, Ecology Building Society, SPICE.

There is a lot that I like in this Charter. It says:

  • Since the crisis of 2008, the failure of our financial system to deliver benefits for society, the economy or the environment has been a perennial feature of mainstream political debate.
  • the conditions for transforming finance are now in place at European and national level, and that, with sufficient political will, 2013 could be the year where it starts to happen
  • a new wave of financial providers, be they ethical banks, new entrants, state sponsored entities, social finance or peer to peer platforms, is being proved in the marketplace

Their proposals are that the banking sector needs to be transformed in the following ways:

  • There should be no bank in the system which is too big to fail, so the taxpayer is not underwriting their costs with an implicit subsidy.
  • Retail and investment banking should be regarded as entirely different businesses and separated accordingly.
  • There should be increased competition and diversity within retail banking allowing for frequent new entrants, and exits, multiple ownership models including mutuals, credit unions, local banks and sector banks.
  • Banks should ensure they invest a far higher proportion of their balance sheets to the real (non-financial) economy and for productive uses. Policy should be actively used to reduce speculation and the creation of asset bubbles.
  • There should be a permanent and legitimate role for the state in banking, at a local or national level, either to reduce the cost of risk capital for socially desirable activities and innovation, or to influence the overall allocation of credit to the economy.

and especially:

  • investment institutions should understand and take into account the social, environmental and other systemic consequences of their investments; the legal framework must support and encourage this.

These are very significant changes to the financial system and I’m sure would reduce some of our current difficulties.

So then, what is it that I am unhappy about?  I suppose it is the sense (which is implicit in their vision) that the overall shape of the economy will be largely the same as it is now.  There will be companies and institutions competing in a market place, funded by banks and some new financial institutions, regulated by governments.

For me, the deepest problem now is that we have an ‘upside-down economy’ where the purpose (enshrined in law and their governing articles) of our major companies and other productive enterprises is to provide financial return to their shareholders. This is very different from a purpose which is to serve human and natural wellbeing in their area of operation, which comes out very much second best, if it is addressed at all.  I don’t see this charter as addressing that explicitly, although there are nods in that direction.  Without that deep change of purpose, I can’t see how there will be a change away from the increasing wealth inequality and environmental destruction that characterises our current economic system.

Moreover, if it is wellbeing and not financial return that is the driving force for productive enterprises, and if we are to optimise our economy for that, it will need to be largely co-operative, not competitive, and locally-based although regionally and globally co-ordinated.  I spell all this out extensively in my book, eGaia, Growing a peaceful, sustainable Earth through communications. (Available to download on this website, and I’m currently working on an up to date second edition.)

None of this is addressed in this Charter, well-meaning as it is, and in its own terms, deep and radical. And so, this Charter will be seen as a radical document, attracting the enthusiasm and zeal of many people, who will campaign for it as though it really were the solution we need!

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