Town & Country Planning, June 2010
I have spent more time than seems quite sane getting in turns excited, and then terrified, about the new government. Anything new is exciting, and we haven’t been ruled by a Lib-Con alliance since – oooh well, 1922. And even then it was really Conservative-plus-David Lloyd George.
It hardly needs saying that I am also excited and rather confused about the localism rhetoric. Everything seems to need qualification.
On the one hand there is clear evidence of ever tighter Treasury control. Whitehall still seems to be under the impression that tight control is a way of saving money; I believe it is a way of wasting it.
On the other hand, we have the ‘star chamber’ approach to wide local consultation about the spending cuts.
Which is it to be, local or more central? I’m sure that, even in 10 Downing Street, that isn’t yet clear.
But one thing does strike me, right across government and lying behind so many of the coalition’s commitments is the same thing: the urgent need for some kind of infrastructure capable of lending money.
I don’t just mean the scarcity of banks, important as that is to the local economy – and to dragging ourselves out of recession. But from renewable energy to the Big Society, it all implies a serious shortage of lending.
Three generations ago, Franklin Roosevelt got his emergency New Deal WPA up and running, and employing people within weeks – right across the country – and amazing performance by Harry Hopkins in the art of cutting red tape.
The Cameron-Clegg government seems unlikely to do it that way. They need money ready to lend, and huge amounts of it, when we all think it isn’t there. It’s there in the City of course – economic centralisation of the worst kind – but not where it is needed.
So in case nobody in government has worked this out yet – though I’m sure they have – here is an aide memoire about where we might conjure up the new lending institutions we so desperately need, to kick-start local business, social enterprise, local energy, and all the other aspects of localism we so patently lack.
1. Break up the banks in public ownership: not ‘split up’, you notice; I mean to divide them into their original parts to provide the local and regional lending networks we need.
2. Set up new national institutions: we already have commitments for a Green Investment Bank and a Big Society Bank, but we also need a Postbank and much else besides.
3. Launch a Community Reinvestment Act: the CRA is Jimmy Carter era legislation in the USA which forced the banks to reveal where they were lending money, and – if it wasn’t where they were taking deposits – they were expected to funnel lending into those areas via a new generation of community development finance institutions. We need the same.
4. Encourage Mission related Investment: philanthropic institutions and quangos like the Big Lottery lend a small proportion of their funds, but keep the rest stashed away in big banks. It is time they started investing this money somewhere more useful, and probably safer.
5. Launch a series of local pension funds: these would be invested in local infrastructure, as they are in other countries, which is a good deal safer than the money markets.
6. Drag it out of local authorities: where do local authorities keep the money they don’t need now that the Icelandic banks have turned out a little dodgy? Would it not be more useful to funnel this money into a series of local loans that helped local enterprise and infrastructure?
This last idea emerged from a conversation I was having last year from the leader of an urban local authority I know who was puzzling over this very issue. The money markets were no longer quite as reliable as they should be. Perhaps the safest place to keep the money would be in mortgages for council staff, he said.
The point I’m making is that this problem isn’t quite what it seems. There is actually a great deal of money doing little or nothing, occasionally earning a pittance in an offshore bank. It ought to be doing something useful, if not for the good of the nation then for the good of the neighbourhood.
The problem isn’t money. It is infrastructure. We need a huge influx of new institutions capable of funnelling this money somewhere where it can do some good and get a reasonable, reliable return.
We also need some system to encourage this process from the government.
For that we need some national institutions. But most of all, we need ones with local knowledge. In short, we need financial institutions like insects – reliable and imaginative – not the great lumbering dinosaurs we have at the moment.
David Boyle is a fellow of the New Economics Foundation. His new book The Wizard: A new kind of Oz for the age of derivatives is published by the Real Press. www.david-boyle.co.uk
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