I was a bit flummoxed after being taken to task on Lib Dem Voice last week for being anti-business. What had I done? I had been criticising payday loan companies for hoovering up money away from local companies.
There are two underlying problems here, confusions which muddy the political debate on business.
The first is the misleading idea that somehow all business is always on the same side. Organisations like the CBI claim to speak for business while actually promoting the interests of the biggest. It isn’t the way the world is.
The second problem is this idea that people who attack the profiteering of the biggest banks are somehow attacking business. Quite the reverse. The main block in the path of enterprise in the UK is that they no longer have the support of our big banks, because there are too few of them and because their business model no longer encompasses serving any but the biggest companies.
It follows that the one thing any government can do to improve UK enterprise, and the rise of small business and the independence of thriving local economies, is to build a more effective local banking infrastructure.
I set out some ways that might be achieved in practice in my recent report Re-banking the UK. Important new evidence for this has now emerged in a report for the New Economics Foundation on local co-operative banks across Europe.
This is what they say:
Local co-operative banks outperform shareholder banks on a number of key measures: they generate more stable long-term profits, they provide better customer service, and their more prudential approach to managing capital allowed them to weather the financial crisis better than the commercial banking sector – helping to stabilise the economy.
This is important for the UK, given that we have no local co-op banks at all. In fact, co-operatives can’t be banks yet in the UK (the Co-operative Bank wasn’t a co-op; it was owned by a co-op).
Compare that to our competitors. As much as 47% of lending in France is done by co-ops, 33% in Austria, 32% in Italy, 29% in the Netherlands and 17% in Germany (but 28% of the market share of lending to SMEs). Despite this, their losses in the bank crash amounted to a combined total of 8%.
The most important reform we now need to make for rebalancing the UK economy is to build our own diverse local banking sector.
I’m hoping this will be at the heart of the Lib Dem economic policy in the next few years.
* David Boyle is a former Lib Dem parliamentary candidate and the author of Tickbox (Little, Brown). You can buy the book from Hive or Amazon.
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7 Comments
Hi David,
I am a bit flummoxed too, because you say you are not anti business, but in the space of approximately a week you have written two articles promoting co-operatives/mutuals over private and public companies. It seems to me that rather than find out what is wrong with payday lending and banking, that you think the problem is the profit motive?
I am a fan of trade unions, but I don’t think co-operatives and mutuals can ever become mainstream. Unless they receive more money from the taxpayer, which most of the time I don’t think is fair.
By the way, I am also a fan of state ownership. I just have a problem with using public money to set up and run co-ops.
I’m just trying to find another model for local banking which might support small business better – I don’t think that makes me anti-business. Nor do I think that all banks ought to be co-ops. I just think we ought to borrow a model here which has done the job rather more successfully abroad than we have been able to do here. Not sure why co-ops shouldn’t make a profit either – Waitrose does…
Thanks for commenting though – it looks like just us this time!
I understand. In a longer chat I am sure we could agree on much more. For instance, I can’t stand the inequality of the employee-employer divide and I don’t even like the word entrepreneur, but I think the main solution is contracting. Mutuals are fine too, I just want them to be mainly self-financed. 🙂
I also think we need to ensure that worker co-ops and mutuals are actually worker co-ops and mutuals. I get annoyed when I see co-ops heavily promote their mutual image, whilst most of the pay still goes to the top. It seems misleading and unfair to compete against.
The economy is not going to be rebalanced until we do something about the fact that our financial sector actually destroys the stability of the rest of the economy by encouraging the maximum “churn” possible. Takeovers and mergers destroy value in companies. Long term growth plans are discouraged by the three to five year time horizon of the financial sector.
It’s all a lot more complex than setting up a few co-operative banks, desirable though these may be.
David Boyle
“In fact, co-operatives can’t be banks yet in the UK”
Can you point me to the rule where it says that, I have always assumed that we had opted for the mutual model of building societies by it being an easy fit for a similar purpose.
Also I am concerned about your pure focus on equity finance as the only part of the financial services market that can help businesses.