At the weekend, I participated in a session on what to do about the banks at the Momentum conference (The World Transformed) in Liverpool, England. For those readers who do not know what Momentum is, it is a campaigning group within the British Labour Party that supports more radical measures in favour of labour and backs the current leftist leadership in the Labour Party of Jeremy Corbyn. The Momentum conference takes place alongside that of the official Labour Party Conference and complements it with debates, discussions and events.
The session on banking took place at the same time as Corbyn was speaking with other big names in a separate session. Nevertheless, we got over 100 hundred along to discuss what to do about the banks. It was chaired by Sarah-Jayne Clifton of the Jubilee Debt Campaign. The Jubilee Debt Campaign is part of a global movement working to break the chains of debt and build a finance system that works for everyone. Founded in 1996, it is a UK-based charity focused on the connections between poverty and debt.
Matt Wrack, the general secretary of the British fire fighters union (FBU) led off. The fire fighters have a socialist clause in their constitution and have campaigned since the end of the Great Recession for Labour to nationalise the big banks. The FBU commissioned a pamphlet called Time to Take over the Banks (co-written by Mick Brooks, a Labour economist and myself). Matt Wrack pointed out that Labour had a great opportunity to act on the banks when the global financial crash ensued, but the then Labour leadership, infused with ‘neoliberal’, pro-market, pro-finance ideas, did nothing, except to bail them out.
Indeed, Labour leaders adopted ‘light touch regulation’ of the banks, praising the City of London. When Chancellor, in 2004 Gordon Brown even opened Lehman Bros’ new Canary Wharf office, saying “Lehman brothers is a great company that can look backwards with pride and look forwards with hope”(!). As we know, the bankruptcy of this rapacious American investment bank was the trigger for the global financial meltdown. And it seems, said Wrack, that even now the current trade union and Labour leaders are unwilling the grasp the nettle and deal with the big banks.
Fran Boait of Positive Money spelt out how ‘neo-liberal’ pro-market ideas dominated thinking on finance. Mainstream economists did not see the global financial crash coming and on the whole have not offered any real changes, except to suggest more capital backing for banks. Positive Money campaigns for “an economy that isn’t driven by housing bubbles, stock market booms, and a bloated financial sector and where wealth isn’t concentrated in fewer and fewer hands. Instead, investment in productive sectors of the real economy, such as affordable housing, helps to boost incomes, bring down inequality and serve society’s needs.”
Ann Pettifor is a well-known UK-based analyst of the global financial system, director of Policy Research in Macroeconomics (PRIME) a network of economists concerned with Keynesian monetary theory and policies; an honorary research fellow at the Political Economy Research Centre at City University, London (CITYPERC) and a fellow of the New Economics Foundation, London. She is an important adviser to the current Labour leadership on economic policy. Ann argued for the Bank of England to be brought under democratic control and then used to provide funds for the big banks as long as they were committed to use it ‘productively’ in investment and jobs etc. This would go alongside the current Labour proposal for a National Investment Bank (NIB).
In my view, none of these approaches is likely to deliver what we need: namely, turning banking into a public service for the many and not a speculative, tax evasion tool for the few rich investors and corporations. Surely, the history of the period leading up to the global financial crash – the wild credit boom, the sub-prime mortgage crisis, the ‘toxic’ derivatives etc – has shown that the big banks will not be a public service without them being publicly owned with democratic accountability. And the period since (the last ten years), only confirms that view.
In my contribution, I outlined briefly how the big banks even after the end of the global crash and the bailouts, have carried on just as before – it’s business as usual. Or as Lloyd Blankfein, the head of Goldman Sachs, the world’s most predatory investment bank, once said: they continue to do “God’s work”. And what has doing God’s work entailed over the last ten years? A never-ending litany of scandals – particularly by British banks.
Take RBS, Britain’s largest bank, partly nationalised after the crash. Before the crash, it was run by ‘Fred the Shred’ Goodwin (so named for his penchant for slashing lower ranked banking jobs and bank branches). Sir Fred Goodwin was knighted for his “services to the banking industry” by the then Labour government. He was noted for his bullying of staff and his love for risky ventures and huge bonuses. After driving RBS into near bankruptcy in the crash, he left, but not without taking a fat pension and handshakes from the RBS board, as have all the senior executives of the banks when they have been asked to ‘step down’ following a scandal.
After the crash, RBS was prominent (while still part nationalised) in the notorious Libor-rate rigging scandal, where bank traders colluded to fix the interest rate for inter-bank lending. Libor sets the floor for most loan costs across the world. That rigging meant that local authorities, charities and businesses ended up paying billions more than they should for loans. The rigging activities of RBS appeared to have been even worse under the ‘watchful’ eye of Stephen Heston, appointed when the bank was nationalised. For two years after Heston got the job, the Libor traders in this publicly-owned bank carried on rigging the rate knowing it was illegal.
Then there is Britain’s next biggest bank, Lloyds Bank (also part nationalised), which took over the scandal-ridden Bank of Scotland in the crash. Along with all the other banks, it has had to compensate customers for mis-selling them personal injury insurance to the tune of £5bn.
During the crash, Barclays Bank was run by Bob Diamond. It has now been revealed that when Barclays was threatened with partial nationalisation, the Barclays board loaned money to Qatar who then invested in the stock of the bank to the tune £12bn. In this way, the bank avoided state control by issuing more loans for equity. It is still not clear what “commissions” were paid to Qatari investors.
And then there is HSBC. In the US, HSBC was fined $5bn by the Federal authorities for ‘laundering’ money for Mexican drug cartels! In Switzerland, former chairman, Stephen Green, was also doing ‘God’s work’ for HSBC. Reverend Green, an ordained vicar, published Good Value in 2009, an extended essay on how to promote ‘corporate responsibility and high ethical standards in the age of globalisation’! The good Reverend was in charge of HSBC’s private banking division based in Switzerland. The Swiss division was engaged in hiding the ill-gotten gains of thousands of rich people in many countries who did not want to pay tax. HSBC arranged various schemes to enable these rich people to recycle their cash back to the UK and other countries without tax payments.
Indeed, tax evasion is just what privately-owned, not democratically accountable banks get up to: providing tax avoidance and evasion for very rich people and corporations. Take the very latest scandal emerging from Danske Bank, Denmark’s largest. After the global crash up to 2015, Danske’s Estonian branch laundered over $200bn of Russian and British corporate cash to avoid tax. UK corporate entities were the second-biggest proportion of customers, behind the Russian mafia, of 15,000 non-resident customers at the Estonian branch of Danske. making it one of the biggest money-laundering scandals ever. Surely we cannot let this continue?
A proper banking service should take our deposits, look after our savings and offer loans to households and small businesses for big ticket items at reasonable interest rates. But the current banking system is much more interested in speculating in financial markets for big bucks, making corporate finance deals and helping the rich evade payments; while top executives take home huge wages, bonuses and pensions.
Britain’s banks cannot even do the basics properly, because they do not spend enough on their staff and systems. There has been a stream of outages and failures in internet banking systems. As current Conservative minister, Nicky Morgan put it: “It simply isn’t good enough to expose customers to IT failures, including delays in paying bills and an inability to access their own money. High street banks justify the closure of their branch networks on the basis that they are providing a seamless online and mobile phone banking service. These justifications carry little weight if their banking apps and websites cannot be relied upon.”
As for providing credit for productive investment in the economy; it’s a joke. In our report for the FBU we calculated that less than 6% of bank assets go to industry for productive investment. The big five British banks control 60% of all lending; their firepower for investment is much greater that Labour’s proposed NIB will ever have. But the big five banks do not use that credit productively. The NIB will not succeed in turning the British economy around if the big five continue to do ‘God’s work’. Instead, another financial crash and recession is more likely.
So public ownership of the big five is essential. Even if the government bought all the shares at market price it would cost only a one-off 3% of GDP (not that full compensation to shareholders is merited). That could easily be financed by the issuance of government bonds and serviced easily with the revenues and profits from the big five. The top executives of these banks would then be paid civil service salaries and have no shares – bank workers and trade unionists would sit on the boards to ensure accountability. Public ownership does not mean more bureaucracy – on the contrary, it means more democracy.
What can public service banks do? Well, take the example of North Dakota. The main bank in this right-wing US state has been publicly owned since the Great Depression. It looks after the deposits of customers and provides loans for households and farmers, and any profit it makes goes back to the state government. It does no speculation and no laundering. It did not suffer during the global crash.
As for investment, take the role of China’s state banking system. Whatever we might say about the autocratic, one party dictatorship in China, its state-owned banks provide credit to support a national investment programme that has transformed China’s infrastructure. I came up to Liverpool on one of Britain’s privatised train routes. It left one hour late because of ‘engineering works’and crawled up to Liverpool at a maximum speed of 75mph. On the same day, China launched a new high-speed service (220km/h) from Hong Kong to China linking it with 15 cities: punctual, modern and cheap. This high-speed rail service reduces the need for air flights and lowers the carbon footprint. And all this was financed by state bank loans and railway bonds.
It was argued at the Momentum session by Fran Boait and by several in the audience that we don’t want great big bureaucratic banks but more diversification: regional banks, coops, credit unions etc. I agree. Germany’s banking system is predominantly state-owned at regional level with savings banks and development banks. Linking the nationally owned big five with such regional and local banks would be the way to go. Indeed, I have even drawn up a plan for such a banking system.
But this will only work if we have the core of banking in public hands. If diversification means keeping the big five still owned by capital with just small banks and credit unions around the periphery and/or competing with the big five, then that would be like saying the health service should have at its centre big private health companies with only small public operations in the community.
There seems to be a reluctance to opt for public ownership at the centre of the banking system. Why only railways, energy and water? The lack of momentum on this crucial cog in controlling the economy for the many not the few seems be partly based on fear of the media and the City of London’s response. But breaking up the banks or taxing them, or giving workers shares in the banks as Labour’s finance leader John McDonnell is now proposing will provoke just as much antagonism from capital – but without delivering banking as a public service and a force for productive investment.
I don’t quote Lenin very often. But he hit the nail on its head (as he often did), when he said: “The banks, as we know, are centres of modern economic life, the principal nerve centres of the whole capitalist economic system. To talk about “regulating economic life” and yet evade the question of the nationalisation of the banks means either betraying the most profound ignorance or deceiving the “common people” by florid words and grandiloquent promises with the deliberate intention of not fulfilling these promises.”
20 thoughts on “More momentum on the banks”
An alternative approach is to view the electronic payments system, access to which is the main reason people use banks, as part of the national infrastructure network (like roads, railways).
It should be run on a non-profit basis (which means it’s going to have to be state-owned).
Financial service providers (like trucking companies using UK roads) can be organised differently, though ideally they should be employee-owned.
The financial system should be divided into two:
1 A nationalised national payments system free at point of use like the NHS
2 Privately-owned service providers.
The second reform involves restricting (or removing) the capacity of companies including banks/financial service providers to invest in non-tangible assets with the exception of National Infrastructure Bank or government bonds.
This arrangement would greatly reduce the capacity of corporations to game the payments system (including to avoid tax) and thereby cut the need for regulation. Perhaps the central banking function could go too.
Thank you for reviewing this important meeting. Hope you were not late on your 75mph train. At least that is faster than the 40 mph trains found on the US network. When we talk banking we need to address this question as an international question. Firstly, forty percent of UK wealth is held offshore. Secondly, why omit the City of London where £2 trillion passes through its high rise sewers every day and which remains the nerve centre for global capital. Nationalising UK banks while leaving the City untaxed makes no sense. Imagine if we taxed the City and used the proceeds for an international investment bank, helping workers in other countries. Would that not powerfully support the cause of internationalism and international class unity. Then there is a the issue of nationalising the Footsie corporations. If done we would be left with a number of ornate boardrooms and fancy desks, and if we are lucky, with some old masterpieces someone forgot to remove. Most of their assets are abroad not in the UK.
Finally to address nationalising the banks in order to perpetuate commodity production makes no sense. Leaving the market unchallenged, a nationalised bank would have to continue in the old way, lending money out at a rate of interest higher than it pays for that money. It does not matter if it is a large bank or a small bank or regional, or even one run by banking workers, they are all swimming in the same sea. These banks would still be guided by issues of profitability and if not profitability, then by issues of solvency. They cannot be driven by need if that need represents a loss.
In sum, the banking system came into existence to centralise individual hoards of unpaid labour, which was then lent out with only one consideration in mind, to acquire additional unpaid labour. Seen this way nationalising the banks is a mere means to an end, the abolition of unpaid labour and not managing the capitalist economy in the interest of workers, which is utopian. Still we should stand shoulder to shoulder with those who propose and are fighting for nationalisation so that our criticisms, observations and experiences can be better heard.
Good blog on the `Bank… I liked it. One key element was missing. The old merchant banks that provide daily credit to the government whenever they need to borrow. The old Rothchilds and the coterie around Rothchild, Warburgs … what were called Merchant Bank or Investment Bank saround them that used to determine government policy. These were the poeple whio used to determine policy behind the scenes. No mention of them.
Roger Van Zwanenberg Dr firstname.lastname@example.org
China’s state-owned banks provide credit to support a national investment programme that has transformed China’s infrastructure.” No, there is no unified program. There is lots of state investment, which is decided by contention and corruption among factions of officials and capitalists. You cite Chinese high-speed passenger rail, which has indeed expanded rapidly over the last fifteen years. The other side of the coin is freight rail: “China Rail’s investment target this year is the lowest since 2013, and mostly on high-speed passenger tracks. … The somewhat neglected freight network cannot handle the extra capacity. … The nation’s first north-south special coal line – the Inner Mongolia to Jiangxi Railway designed to carry 200 million tonnes of cargo and stretching 2,000 km (1,240 miles) – won’t be ready until at least 2019. … Existing freight tracks also don’t service the regions in dire need of fuel.”
And, in fits and starts, the Chinese government moves to privatize the state railway industry. See
Actually, the writer in you link (thediplomat.co) complains that China’s rail monopoly, rather than seeking privatization, actually throws obstacles in the way: e.g. by not allowing private investors in its ppp’s to have a say in running the particular enterprise (making them wary regarding profitability) and fearful of eventual nationalization.
As was stated, in fits and starts, the Chinese government moves to privatize the state railway industry. It is the general pattern in China. For thirty years now, privatization has sometimes been quick and brutal but often slow and piecemeal. A set of state factories are bundled into a “corporation.” A few years later, the corporation sells some shares. Later, more shares are sold off. It has proved a more effective way to go from socialism to capitalism than the orgy of plunder under Yeltsin in the former Soviet Union.
There is a five-year plan, with goals for each province.
With all due respect, Reuters and The Diplomat (both anti-China MSM) are not good sources about how China really works.
Besides, the link you provide on Reuters is one isolated case, about one specific aspect of China’s economy. It is like saying school shootings are an existential threat to the very existence of the USA: of course it is a problem, but how much a problem in the grand scheme of things (that is, assuming this is not fake news by Reuters)?
And about the second link: it isn’t the first time The Diplomat extrapolates some dubious data to bash the Chinese infrastructure. The tactic is the same: the headline is bombastic, but when you read the actual article, the data is few (when there is) and the official one provided by the same old Western institutions.
“There is a five-year plan, with goals for each province.” There is no unified socialist investment plan in China. State officials in league with private partners put immediate interests first. Province versus province, province versus central government, and factions within central government jostle and push for state investment funds. For example:
Can China’s Central Authorities Stop a Massive Surge in New Coal Plants Caused by Provincial Overpermitting?
September 20, 2018 by Ted Nace
Like an approaching tsunami triggered by a distant earthquake, a massive cohort of hundreds of new coal-fired power plants is on course to be added to the already overbuilt Chinese coal plant fleet. This wave of new capacity from late 2014 to early 2016 is revealed by new satellite imagery.
The report based on CoalSwarm’s Global Coal Plant Tracker, finds:
259 Gigawatts (GW) of new capacity are under development in China, comparable to the entire U.S. coal fleet (266 GW).
In 2016 and 2017, central authorities sought to rein in the surge through a series of suspension orders. Contrary to previous reporting and analysis, many of the restrictions only delayed new projects rather than stopping them.
China is on trajectory to exceed its own announced 1100 GW coal power cap through 2020, with coal power capacity already at 993 GW in 2018.
China’s coal fleet operates less than half the time. The 259 GW of additional coal power capacity represents US$210 billion in capital expenditures that could instead fund nearly 300 GW of solar PV or 175 GW of onshore wind power.
but capital will continue to dominate the lives of the working class since it commodity production apparatus still intact!!!
But most workers in advanced economies don’t produce commodities, they create services. The mode of production has irreversibly changed. What hasn’t is the institutional superstructure and the ideology.
A commodity can be either a good or a service, material or immaterial, provided it is produced for exchange and sold. In this case it is value forming. Mrs Smith has three jobs. She makes hamburgers in the morning for MacDonald’s which is sold to customers. Her labour is value forming. Later she prepares hamburgers in a school kitchen for kids on free school meals. Here her labour is unproductive of value because her labour is not sold. In the evening she prepares hamburgers for her family. Now her labour is private domestic labour. What is the difference? At Macdonald’s there are two exchanges, the purchase of Mrs Smith’s labour power and the sale of the product of her resulting labour. In the school there is only one exchange, the purchase of Mrs Smith’s labour power. Finally at home there is not even one exchange, Mrs Smith cooks for her family for free. Now it may transpire that Mrs Smith has a lovely voice rather than just able hands. So over the weekend she is employed as a singer in a venue or two. Here she produces an immaterial commodity which is consumed immediately and which if not recorded leaves no trace, her songs. But in this case she is producing a commodity, because her capacity to sing has been purchased by the owners of the venue and her songs paid for by customers. Marx always said the form of a thing had no bearing on whether it was a commodity or not, but what did provide this determination was its social context.
In Capital Vol 1, chapter 1, the German language version uses the word waere, which is a wares, though conventionally the it is translated as commodity.
It’s impossible to read C1 of vol 1 without concluding that Marx was thinking almost exclusively (and understandably given the dominance of tangible good production at the time) about tangible goods.
However, you can extend the logic of C1 of Vol1 to services, but this must involve recognising that value is created in services through constructive interaction at the level of the individual. What is created is intangible and inherently unquantifiable, though it is intuitively perceptible.
The point is that there is a qualitative difference between the mode of production deployed in tangible good (waere/commodity) manufacture and that used in intangible service creation.
In other words, the revolution has already occurred and economies dominated by service creation are radically different to those dominated by tangible good manufacture (including food products).
This adjustment is necessary to avoid sentences like this one:
“Later she prepares hamburgers in a school kitchen for kids on free school meals. Here her labour is unproductive of value because her labour is not sold.”
It is surely an error to argue that the person cited in this sentence is not creating value.
She definitely is.
The key question is whether she is exploited and that depends upon her relationship with the owners of the means of production employed.
“In Capital Vol 1, chapter 1, the German language version uses the word waere, which is a wares, though conventionally the it is translated as commodity.
It’s impossible to read C1 of vol 1 without concluding that Marx was thinking almost exclusively (and understandably given the dominance of tangible good production at the time) about tangible goods”
Well, yeah, but throughout Theories of Surplus Value, Marx also uses examples of services, singers if I recall correctly, and also teachers.
What is critical is not the materiality, the physicality of the object, but the social relation surrounding its production, the exchange that determines the conditions of labor.
Yes, ucanbpolitical is correct to state there’s no difference between service and a good from the point of view of commodity capital.
But Eddie O’Sullivan raises an important question here, because, in the case of the issue being discussed in the article here, we are talking about socialism in one country — this country being the UK, which is a rentier economy, very vulnerable to an international embargo that would surely ensue should Labour take power and implement a socialist transition.
If you offer compensation for the banks by offering government bonds for them, then the government has little choice but to maximize profits in order to make the investment “pay.” Unless you want to run it at a loss…which means taking from some other program.
Better to just go full MMT and print a bunch of paper pounds to buy it. And then when capital tries to flee the devaluation of the pound, imprison it with capital controls, forced saving of profits in state banks at near zero interest rates for their deposits—financial repression, basically.
The one missing ingredient that MMT job guarantees always forget about is the need for financial repression to de-fang capital’s ability to retaliate.
You end capital flight by obliging companies to invest mainly/exclusively in physical assets or National Infrastructure Bank/government bonds.
And if industrial capital lays people off and shutters facilities for more than a very short period of time, declare it idle property and seize it.
Mr. Roberts, the problem with your strategy is that it doesn’t take into account the necessity of amassing a military force capable of enforcing the expropriation of the “big five”.
The banks will never accept being expropriated. They will fight until the end. And there will be the entire British Armed Forces, plus at least half of the British population who is pro-capitalism, willing to literally die to defend private property.
So, what needs to be assessed first is the creation of a “red army”, capable of guaranteeing the execution of the expropriation. Without monopoly of brute force, there can be no socialism.
All of which again proves that common ownership and democratic control over the wealth of nations should be the strategic goal of a class conscious workers movement, one aimed at ending the bondage of the wage system and establishing production of wealth for use, with its distribution based on need while living in harmony with the ecosphere.
I’m new to this blog. It’s quality stuff and I’ll definitely follow it the future.
However, I don’t agree with the common refrain which Michael repeats that “…less than 6% of bank assets go to industry for productive investment.” The fact is that a bank will lend to absolutely any borrower who seems to be viable. To that extent, there is nothing stopping banks lending more to more businesses. But the sad fact is that the marginal business just ain’t all that viable: SMEs fail to repay loans twice as often as mortgagors. A borrower who cannot repay a loan is not “productive”.