Rethinking Finance

Creative Ideas at National, Global and Local Levels

Molly Scott CatoProfessor of Strategy and Sustainability

University of Roehampton

What Mervyn King said . . . What Mervyn King said . . .

‘Unemployment is up, businesses have closed, and the direct and indirect costs to the taxpayer have resulted in fiscal deficits in several countries of over 10% of GDP – the largest peacetime deficits ever.’

• ‘Of all the many ways of organising banking, the worst is the one we have today.’

Public Investment Bank?

• Project Merlin: targets missed

• Funding for Lending: risk transfers to taxpayer

• We hold controlling stakes in two banks

• Why £1bn. From taxpayers?—for high-risk securitised loans?

What is financialisation?

• ‘The financial growth of the past few decades does not represent a subordination of public authority and political capacity to the expansionary forces of global financial markets but has rather been a process whereby new organisational linkages were forged and particular relations of institutional control were constructed and consolidated.’

• Expansion of financial markets: the ratio of global financial assets to global GDP has risen three times, from 1.5 to 4.5;

• Expansion of complex financial instruments;• Companies focus on their financial activities and

‘leverage’ borrowing on their own account;• Increasing power and wealth of rentier class (their

share in the US increasing from 16% of domestic corporate profits during 1973-85 to 41% in the 2000s: Johnson, 2009);

• The artificial extension of consumption through expansion of credit/debt;

• Banks had resisted separation of retail from merchant banking

• Abolition of exchange controls in 1979: when Thatcher came to power you could only take £500 out of the country at one time

• Big Bang in 1986

And in the UK?And in the UK?

Laughing all the way?

• The lubrication of a fully functioning economy is the most basic role

• But it is incompatible with the role as a commodity in international speculation

What really happened?

What really happened?

Citizens’ Audit Committee

• The concept of ‘odious debt’

• Transparency to facilitate a public debate

• Prioritise citizens and not the financiers

• Irish audit led to ‘zombie banks’ campaigns

Who Owes Whom?

Money: Unstable and Unsustainable

97% of money is created as debt by banks: 95% of money transactions have no contact with real

goods Allows people to make a claim on future value

Financialisation and the Environment

Bretton Woods

Bretton Woods ConferenceNegotiations during the first three weeks of July 1944Dominated by the US and UK negotiations: Harry Dexter White and John Maynard Keynes

And a Global Currency?

•Keynes had argued for a neutral global currency: the Ebcu•The domination of the dollar has resulted from its role as a global reserve currency•Its abandonment of this power should be made the condition for its imminent default

Dollar dominationThe Conference established the World Bank, set the Gold Standard at $35 an ounce and chose the American Dollar as the backbone of international exchange.

Dollar Domination

Euro as a Political Project

• Compete as reserve currency with dollar: ‘I cannot resign myself to the decline of Europe and of France’—Delors

• Force the pace of integration

• Not ideal currency area

• Greeks would still be able to spend Euros, and the tourism industry, for example, might continue to accept them

• Traders would prefer to have Euros

• Euros would limit imports and exports but the national economy could function on its own currency

Euro as Common Currency not Single Currency

Banking on the Local Economy

• Break up the nationalised banks and create local banks

• Mutually owned with a board of local businesspeople and citizens

• Local multipliers and benefits of finance stay local

Local Bond• Rates of return can

outstrip bank interest rates, especially when supported by the FiT

• Creates an investment vehicle for savers who receive virtually no return from banks

• Especially powerful on a local basis

Ecotricity’s EcoBonds• Launched in October 2010 to secure up to £10

million of funding for its Green Energy projects• Ecotricity challenged the profit rates required by

banks• By the deadline more than 1,800 people had

applied for almost £15million worth of EcoBonds, oversubscribed by nearly 50%

• The most successful private bond ever issued in the UK.

Mutual Home Ownership

• Creation and fair sharing of equity

• Also provides a pension• Balances asset holding

over the life course

Peer-to peer lending• Zopa has lent more

than £200m since 2005

• Makes equity sharing available on a small scale

• Shared risk but no significant commitment or relationship

• Shift consumption into the local economy?• Encourage activity in the core economy?• Reduce rather than increase inequality• Counteract recessionary pressures?• Reduce consumption?

Can we create money for a green Can we create money for a green economy?economy?

Can we change the velocity of circulation?

• Interest encourages people to hold money and slows it down

• Negative interest (demurrage) might speed it up

• Silvio Gesell (1862-1930)• Do we want to speed up

circulation?

Uses principle of demurrage

Electronic and paper money

Back one-for-one by eurosCan be exchanged back

for a 5% feeMore than 500,000 in

circulation generating transaction volume of €0.5m

The ChiemgauerThe Chiemgauer

Design of the Stroud PoundDesign of the Stroud Pound

Bristol Pound

• Heavy involvement with local council• Partnership with credit union• Good support from businesses• Powerful media coverage• Can it compete with the pound sterling?

Find out more

www.greeneconomist.org

gaianeconomics.blogspot.com

www.greenhousethinktank.org

Green Economics (Earthscan, 2009)

Environment and Economy(Routledge, 2011)

The Bioregional Economy (Earthscan, 2012)