We continue the serialisation of our report, Policies for the City Region. In this installment we focus on money and exchange, again suggesting ways in which we, in our region, can improve the investments are made and value circulates. A similar proposal to ours on a regional community bank has also just come out from the University of Manchester – worth a look for some more detailed thinking. We also share our thinking on distribution of wealth at the national level, challenging some conventional narratives. There’s still more to come! But if you can’t wait: download it here. You can also see out policies page HERE and our publications page HERE.
6.1 Regional investment fund or bank.
Policy 6.1: Establish a council sponsored investment fund or bank, emphasising environmentally and socially friendly sectors.
The thinking behind it:
The banking and financial system in the UK is highly concentrated in a few “too big to fail” institutions. One consequence is that because profits are chased to satisfy shareholder (and executive) expectations, investment tends to flow to other financial vehicles, thus magnifying the finance bubble: it does not go to local industry which, especially in the case of smaller firms, finds it difficult to obtain investment. This contrasts with the situation in countries such as Germany and the Netherlands where regionally-based public banks (not state but not privately owned, rather like the UK building societies and former trustee savings banks) account for a significant share of banking.
It is not enough simply to establish local/regional banks and funds though. They would need to focus on the kinds of investments that a resilient, viable city region requires, not on sectors that by expanding will increase carbon emissions, traffic congestion, biosphere erosion and inequality.
We therefore propose the establishment of a council sponsored investment fund, or better, since less constrained in terms of money supply, a bank, supporting mostly SMEs and social enterprises working in broadly foundational areas, emphasising environmentally and socially friendly sectors. The form could be a public, municipal or community banking institution. Proceeds from fossil fuel divestment could be used to help establish the bank, which would also be somewhere for local investment and re-investment.
6.2 Infrastructure for alternative finance and exchange.
Policy 6.2: Prioritise an infrastructure for alternative kinds of finance and exchange by promoting and supporting credit unions, time-banks and other alternative financial and exchange institutions
The thinking behind it:
In addition to banking services that serve the needs of the viable economy, there is also a need for a richer support system to improve matters for people with limited income and wealth. At the same time, by sharing in the abundance of our over-productive global economy it may be possible to reduce demands on the ecosystem. There is already good practice on diverting overstocked food to citizens and community groups. Similarly more could be done to make surplus service capacity available (e.g. premises that are only used part of the day or week, empty seats on public transport and in private vehicles). Practical experimentation could be employed to identify effective ways of achieving the dual aims of making available under-utilised assets in the mainstream economy to people who are money-poor while recognising voluntary action in the community.
We therefore propose that the Combined Authority and the municipalities do more to promote and support credit unions, time-banks and other alternative financial and exchange institutions. This would also help release resources to support the many activities of the informal and core economies1.
6.3 Local currency
Policy 6.3: Establish a Greater Manchester Unit of Currency which would circulate within the conurbation.
The thinking behind it:
The parts of the economy we would want to support are beset by two problems. Firstly, under conditions of austerity, there is now a shortage of government money for anything but the most basic of services. Secondly, money leaks out of the local economy, because of the open nature of the economy and the way profits are extracted and invested elsewhere by some of the big corporate firms. To address these two things, one potential tool is the complementary currency.
We can start from the insight that there is not a fixed amount of money available: most money is created through the process of lending by banks, and State budgets do not function like household or company budgets, but are elastic in nature2. Moreover, it is entirely possible for the local State (e.g. metropolitan councils or the Combined Authority) to establish or sponsor parallel, or complementary monies3. There are some choices to be made in doing this of which the most critical are
* Should the complementary currency be linked to sterling?
* Should the quantity of such money be limited or open ended?
* Should the money have a limited shelf-life (demurrage)?
* Could it be used in payment or part payment of local fees and taxes?
It would be feasible to establish a Greater Manchester Unit of Currency which would circulate within the conurbation. It would be available to small enterprises in the form of micro-credit and could be used entirely or as part payment in transactions, including council rates, taxes and fees. This would increase the availability of finance for green and social business, would provide a source of liquidity for people disadvantaged in the dominant money economy and crucially would help prevent the seepage of wealth out of the region.
The GMCA could usefully mount a review of existing schemes (Bristol, Hull, Brixton etc. and international ones such as the Palma and WIR) and evaluate the feasibility of alternative options (e.g. fiat versus fixed supply, pegged to pound versus finding own value) and administrative infrastructure requirements.
Policy 7.1: Campaign, electorally, extra-electorally and via public political education for a fair settlement from Central Government, combatting propaganda on fiscal gap and government deficit.
The thinking behind it:
Redistribution is an integral part of the kind of alternative economic approach we are proposing. Mainstream discourse about Greater Manchester devolution makes much of the so called fiscal gap. That is the £6 to 7 Billion gap between government expenditure on the city region and the revenue raised from taxation in the region. This is seen to be a problem but it is far from being such.
Firstly, all national economies have a recycling mechanism whereby richer regions support poorer regions. London has always been a centre of accumulation for the surplus generated elsewhere. In the phase of British industrial capitalism, it was the labour of people in this region (and others) that enriched the capital. At present, as a consequence of the policies of the last thirty and more years, London has a hyper-developed economy largely based on the financial institutions of the City of London (but also aided by the property speculation bubble). In an era where everything is subject to unexpected change this wealth might not even last (at least at the present levels) and it is not something to be hoarded down there, but shared with the citizens of the country.
The idea of the fiscal gap, however, is based on a misunderstanding: the reasonable sounding idea that government expenditure is funded from taxation. The reality is different: government determines expenditure and then it taxes: it can indeed spend whatever it wishes, managing any untoward consequences through the powerful macro-economic lever of taxation4.
So the fiscal gap is a fiscal trap: it is a very big mistake indeed for political leaders and actors in Greater Manchester to fall for it. On the contrary, our locally elected leaders need to lead a broad-based campaign for national sharing of resources, building a movement against public sector cuts (rather than complaining and then implementing them) and for appropriate government capital and revenue expenditure.
…..to be continued, or if you want it now, download here: https://steadystatemanchester.files.wordpress.com/2017/03/policies-for-the-city-region-the-longer-version-v3-final.pdf
You can also see our policies page HERE and our publications page HERE.
1See Coote, A. (2014). People, planet, power: towards a new social settlement. London: New Economics Foundation. http://b.3cdn.net/nefoundation/eafb0135c69d8a9152_yum6bt9zh.pdf
2This is not the place to explore these insights and their background theory, or the inevitable controversies. For some key sources, see SSM (2016). So what would we do? Towards an alternative strategy for the city region. http://wp.me/a2xtmC-npE p. 22, note 46.
3For an overview of the legal and regulatory issues see NEF/CCIA (n.d.). An Overview of the Legal and Regulatory Framework for Complementary Currencies in the United Kingdom. http://community-currency.info/en/?smd_process_download=1&download_id=30668
4Lawn, P. (2010). Facilitating the transition to a steady-state economy: Some macroeconomic fundamentals. Ecological Economics, 69(5), 931–936. https://doi.org/10.1016/j.ecolecon.2009.12.013
Tcherneva, P. (2001). Money: a comparison of the Post Keynesian and orthodox approaches. Oeconomicus, IV, 109-114. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.194.6435&rep=rep1&type=pdf
Guinan, J. (2014). Modern money and the escape from austerity. Renewal, 22(3-4), 6–21. http://www.lwbooks.co.uk/journals/renewal/pdfs/Ren22.34_Guinan.pdf
Murphy, R. (2015). The joy of tax: how a fair tax system can create a better society. London: Transworld Publishers
Pettifor, A. (2017). The production of money: how to break the power of bankers. London: Verso.