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Civil society urges politicians to transform the finance system
Manifesto backed by 11 organisations calls on next government to create a
finance system that serves society, the environment and the wider economy

Original article:
Peter Burgess COMMENTARY

Peter Burgess
Civil society urges politicians to transform the finance system

Manifesto backed by 11 organisations calls on next government to create a finance system that serves society, the environment and the wider economy

Public outrage at the failures of the finance system were at their height during the Occupy protests Public outrage at the failures of the finance system was at its height during the Occupy protests.

Written by Chris Hewett

Monday 5 January 2015 02.00 EST

The 2015 general election will take place nearly seven years after the financial crisis of 2008, yet the root causes of the crisis have barely been addressed by mainstream politics. This week the leading civil society groups working on transforming finance are calling for this to change.

On Thursday, a statement supported by 11 organisations (pdf) – which include Share Action, NEF, Positive Money, Finance Innovation Lab and FoE – will set out the five major changes that the next government should put in place to create a finance system that serves the needs of society, environment and the wider economy.

Put simply, we’re asking for:
  • • more diversity in banking, using the Competition & Markets Authority investigation in retail banking to accelerate growth in mutuals, peer-to-peer lending, community and stakeholder banks
  • • more responsibility in financial markets, encouraged by joining the EU Financial Transaction Tax (FTT) designed to curb unnecessary speculation
  • • more transparency in savings and investment, backed by a new Responsible Investment Bill
  • • more sustainability through the expansion of the Green Investment Bank into a broader state investor akin to those in other developed countries such as Germany, France and Japan
  • • more democracy by asking the Bank of England to carry out a review of all monetary policy options available to government and central banks to influence the allocation of credit in the interests of the whole of society and the economy, and a debate over these options in parliament.
Each of these recommendations is backed by a specific campaign with its own coalition of support, but together they form the pillars of a new, sustainable approach to finance. When public outrage at the failures of the financial system was at its height during the Occupy protests, the challenge posed was “what is your alternative?” In the years since the crisis, civil society has begun to show how to create a financial system that is democratic, responsible and fair.

Alternative finance businesses – such as peer-to-peer lending, values banks and community finance – have been growing, consolidating and demonstrating their market strength. Figures from Nesta show that the size of the alternative finance market is growing at 150% (pdf) every year and was worth £1.74bn in 2014. In December, 20 alternative finance players submitted evidence to the Competition & Markets Authority on how its investigation into the banking market should look specifically to increase the diversity of business models.

The phrase “casino capitalism” was bandied about a lot immediately after the financial crisis. While we cannot eliminate speculation in capital markets, the very existence of practices such as high frequency trading undermines the assertion that investments are primarily about the long-term economic value of the asset. The EU proposed a financial transaction tax (FTT) as one measure to curb unnecessary speculation. The UK has not only opted out of it, but actively undermined the measure from the start. Nevertheless, the Robin Hood Tax campaign has built an international coalition of support for the EU FTT with nearly 1m signatories.

The investment industry, which looks after all of our pensions, is shockingly opaque and riddled with conflicts of interest. Campaigns such as ShareAction and True & Fair advocate legal safeguards to correct these market failures. ShareAction has drafted a Responsible Investment Bill, which would enshrine savers’ rights to transparency over where their money is invested and clarify fiduciary duty to make sure the fund management industry is truly making decisions in the long-term interests of individual savers.

Most developed countries have a state investment bank as a key player in their own financial markets to take on long-term risks and lever in private capital. In Germany, KfW played a crucial role in the rapid growth of renewable energy and improving the energy efficiency of their housing stock. The UK has a Green Investment Bank and the British Business Bank – neither of which are fully fledged state banks with borrowing powers. Groups such as Green Alliance, Aldersgate Group, IPPR and E3G have called for this to change.

Positive Money and others have highlighted the fact that the majority of credit created by banks in the UK is allocated to property or financial assets. Less than 10% goes to productive lending into businesses. Since the 1970s, monetary policy has had no view on where credit should be allocated, only how much. Now, Lord Turner and Martin Wolf are publishing ideas on how monetary policy could be used in more imaginative ways to help the real economy. NEF and IPPR have made specific proposals for credit guidance and strategic quantitative easing.

Changing the financial system isn’t just about avoiding another crash. We need to fundamentally rethink the purpose of our financial system to ensure that it delivers what we need for society, the environment and the wider economy. Civil society is leading the way. Will our politicians follow?

Chris Hewett is fellow of The Finance innovation Lab and convenor of the Transforming Finance Network of civil society groups focused on finance reform.

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