Miliband must name this new, insecure era

New analysis suggests British society is prepared for a substantial shift in political orientation.

The Institute for Public Policy Research has published a very interesting pamphlet ahead of Labour party conference on the changing face of the British electorate.

It is a detailed analysis of what the author, Graeme Cooke, calls the "new political sociology" (it's a think tank pamphlet, so allowed to wear -ologies and -isms with pride). The kernel of the argument is that New Labour achieved political success and dominated the national debate by owning the optimistic national mood of the late '90s and early '00s. Cooke calls it the "modernisation era" and excavates some of the sociological and demographic changes that lay behind it: increased participation in higher education; changes in family structures; accelerated permissiveness in personal morality etc. (There were lots more students and they took lots of drugs -- my shorthand, not Cooke's, and clearly there's a lot more to it than that.)

It is certainly true that in terms of the lexicon, this was a time when "modernisation" and "reform" became the default imperatives and highest moral accolades that could be stamped on any political project. (No wonder conservatism was in the wilderness.) Cooke's contention is that this era ended with the financial crisis and that the centre-left (i.e. Labour) has to grasp what the equivalent sociological and demographic forces are that will shape the new era -- and harness them for a political project.

A lot of this chimes with Ed Miliband's focus on the "quiet crisis" unfolding in British households squeezed and disoriented by stagnant incomes and inflation, leading to a steady decline in living standards. Cooke's analysis also fits fairly snugly with some of the arguments made by Stewart Wood, an important strategic thinker in Miliband's shadow cabinet, in a short essay for the latest edition of the magazine. Lord Wood argues that the financial crisis signals the obsolescence of the neoliberal economic model and that the government's difficulties in responding to the crisis reflect Tory and Lib Dem inability to conceive of an alternative way of structuring capitalism. Ed's plan is to define that new structure and sell it to the country. "Building an alternative to the neoliberal settlement should be the frame for the debate within our movement" is how Lord Wood puts it. "Ripping up the rule book" is Miliband's distilled version.

The IPPR analysis offers some grounds for thinking that British society is in some ways prepared for quite a substantial shift in political orientation -- since I'm in so deep with the think tank wonkishness I'll go all the way and call it a paradigmatic shift.

In my column this week, I talked about the way coalition, by solving the technical problem of a hung parliament, has obscured the underlying issue of hung politics. None of the main Westminster parties has yet found a compelling language for addressing people's concerns about the way society and the economy seem to be drifting into a long, scary crisis. The coalition's message of "painful but necessary" austerity will wear very thin as it becomes clear how unevenly and unfairly the pain has been allocated.

Miliband needs to give a name to this new, insecure era just as he put the notion of the "squeezed middle" into general use. Then he has to portray a happier destination for the country -- a route out of the crisis -- and convince people that he has the strength and imagination to lead the country there (while hoping they forget that his party was in government when we plunged headlong into the crisis in the first place). In case that isn't enough, Labour conference delegates and the media are kind of expecting him to do this all in one speech next week. No pressure then, Ed.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation