In addition to usual localisation issues within the finance sector is the need for financial transactions to relate closely to the productive, ‘real’ economy – productive work and real assets.
Negative trends
- Bank mergers have created huge institutions large enough to create havoc when they fail
- In the UK our central banking has no regional representation, brief or accountability in its scrutiny or other roles, which makes it less responsive to local conditions and basic banking principles and much less publicly accountable .
- Many building societies have demutualised and become banks
- The UK taxation system is one of the most centralised in Europe, almost entirely controlled by central government.
- PFI schemes put public services in the hands usually of transnational companies, reducing local multiplier and accountability. The PFI approach also makes shorter-term gains at the risk of longer-term public debt.
- Stock exchange funding for enterprise is volatile, so that otherwise secure jobs can be lost due to a panic.
Positive trends, good practice and opportunities
- Building societies are better for local multiplier effect and accountability as they are mutually owned enterprises. They are less exposed on international finance markets as 70% of its funds must come from members’ deposits, and so have been protected in the current crisis.
- Islamic finance: as well as anti-usury, follows the principle that every financial transaction must involve an underlying asset or service and if you trade an asset you have to own it first. The UK’s only Sharia-law-compliant Bank, the Islamic Bank of Britain, is based in Birmingham.
- Credit unions: 39 in the West Midlands. Localised financing structure, co-operatively owned and controlled, offering financial services to all (including the financially excluded), with responsible lending principles and advice. Have had credit available during credit crunch. Offer current accounts, benefits direct, ISAs, child trust funds and mortgages.
- Local authority bonds potential for investing in the public good; more secure returns than many investments. A good route for local pension funds.
- Birmingham’s local stock exchange www.investbx.com – enables local companies to connect to investor community for sums between £500K and £1.5bn. One advantage stated on their website is that “local investors can benefit because.. local knowledge can lower perception of risk.” But is it more stable than other stock exchange funding?
- Worker-owned business models including worker buyouts: no examples of major companies in West Midlands but clear advantages in terms of accountability, power, job satisfaction, stability, local multiplier. www.employeeownership.co.uk. Community buyouts of local shops and pubs also – see retail section.
- Aston Reinvestment Trust (Birmingham) and similar Community Development Finance Institutions offer financing for local business, often with social objectives. (Their website currently says “At ART there is no crunch”.)
- Community Alternative Currency schemes – around 33 in the West Midlands. Services are exchanged for community credits which can be exchanged with other members for other services. Whilst always secondary to mainstream money, these can be genuinely useful, redistributive and more stable in times of financial hardship – or for the less well off in an affluent area.
Potential recommendations
- Encourage mutual models such as building societies and credit unions
- Ensure a greater degree of banking is centred on productive work and real assets;
- Provide options for people’s individual savings and mortgages that are protected from the global finance casino.
- ‘De-merge’ the bigger banks
- Investigate local stock exchange and CDFIs as more stable finance for enterprise
- Greater use of local government bonds as investment, perhaps for pension funds.
- Mainstream finance should follow ‘real asset’ principle from Islamic finance
- Follow EU Charter of Local Self-Government recommendations on tax
- Regional representation on our central bank; closer public interest scrutiny of banking practices
- Investigate the further role of complementary currencies in the West Midlands economies particularly in the light of the recession.