A guest article by author Philip Monaghan. Philip argues that whilst Ed Miliband’s idea to reform the capital markets is well intentioned, it needs to be backed up with big and bold policy specifics if it is to boost UK prosperity
Philip Monaghan is a writer and strategist in the fields of economic development and environmental sustainability. He is the acclaimed author of the books How Local Resilience Creates Sustainable Societies (out February 2012) and Sustainability in Austerity (2010). Philip is Founder & CEO of Infrangilis.
Whilst the response to the Labour leader’s conference speech has been mixed, Ed Miliband’s contentious attack on “predatory asset-strippers” and subsequent campaign against alleged overcharging by greedy energy companies has chimed with hardworking but struggling households across the social spectrum. Yet a nagging concern is that Miliband’s emerging remedy for the “fast buck” ethos of the market vultures is destined to go the same way as the dodo unless it is thought through a little more.
A call for “long termism” as part of a better capitalism is all well and good. But people will quickly want more specifics for this vision. To be credible it needs be able to withstand the charge it is anti-business. To be sustainable it must make best use of diminishing resources as we embark on a long and slow recovery.
As my new book sets out, core to this is an understanding that reform on how we get money to work for the people (as opposed to the other way around) is a complex situation that requires global and local interventions as well as national ones. It has to be about more than just letting big banks go bust next time or forcing the bailed out banks to lend to small businesses. These are necessary but not sufficient. Let me take two cases in point here, where there is a gap in the current thinking on key leverage points.
Reigning in the credit raters: firstly, at the global level, it is time to downgrade the racket of country credit rating agencies. Firms like Moody’s, Fitch and S&P are profit-motivated actors that have the power to make nations go bust. When they downgrade the credit worthiness of countries like the USA, Italy or France, the cost of borrowing goes up, this slows the pace of recovery from the recession but more than this hurts the poor the most. Yet it is these very same firms that gave AAA ratings to Lehman Brothers, with disastrous results, and so helped to create the global banking crisis in the first place. To solve this power imbalance and get big money working for the public good again we need to force Parliament to properly scrutinise and regulate this invisible but corrosive industry. As a first step, this must involve rating each of the raters according to the transparency of their decision-making, competency to operate and avoidance of conflicts of interest. But to work, this UK action needs to be part of a transnational effort with liked minded reformers in Europe and the USA, to ensure there are clear and consistent global rules.
Re-directing the £143bn of local authority pension funds to the green economy: secondly, at the local level, we need to make it much easier for local councils to access their own municipal pension funds for local regeneration schemes. It is legal to do so already, yet this practice is uncommon due to the regulatory red-tape and a lack of awareness and competency. We not only need UK government to make it clear that this is possible but that it is expected, and as such will be monitored. This should include the presumption that any low carbon regeneration projects (e.g. district reneweable energy schemes which generate clean power and a healthy profit) that meet their investment criteria shall take priority for these funds. As part of this, local ‘low carbon enterprise zones’ should be widely established through existing local authority planning frameworks (similar to the ones springing up in Manchester, Zaragoza and Baoding). This zoning involves nurturing clusters of low carbon business start-ups, including the promotion of local apprenticeship schemes to get young and unemployed people on the jobs ladder. Additional benefits of this intervention is that it make our communities more resilient against national energy price rises, and frees up some of the money earmarked for the coalition’s (well intentioned but delayed) Green Investment Bank for other frontline public services like social care and education that are under threat during a period of financial austerity across our town halls.
This is an aggressive and progressive approach to boosting the UK’s prosperity. It not only makes best use of scarce resources at a time when money is tight, it also provides a fresh injection of life into our flagging manufacturing base, whilst protecting the planet for tomorrow’s generations. Do not listen to the naysayers who will argue it is too difficult. Fighting and winning the Second World War was also difficult. This is all very doable, but only as long as we have the appetite for the fight and the collective nous to make it so – regardless of one’s political colours.