Economic justice: Should Quakers speak out about banking?
Gill Westcott looks at what Quakers can offer that is distinctive
The features that made the international financial system a source of enormous instability for the real economy have, since the crisis of 2008/9, remained substantially unchanged. Of course, human wickedness has been pilloried; but it is the features of the system as a whole that make bubbles, crashes, currency speculation and the like inevitable.
It never occurred to me that Quakers might have something distinctive to say about monetary and financial reform. However, having spent a weekend recently thinking, with other Friends, about the kind of economy that might be compatible with our testimonies, I now think so.
Too big to fail
There are wrongs to be righted. They are urgent and remediable. People’s livelihoods, their savings and their homes are at risk. Whole currencies and countries can be undermined by the financial markets and brought within reach of punitive bail-outs and the decimation of public services and employment. Moreover, high street banks still engage in speculative transactions on a world scale. They are still ‘too big to fail’. This means that the taxpayer is likely, once again, to be called upon to rescue institutions whose profits are private but whose losses become public property.
The Vickers Commission has recommended an internal firewall between the investment and retail business of the high street banks. But many commentators doubt the adequacy of this precaution. If the profits are so much higher on the other side of the wall, will it not become somewhat porous? And this solution does nothing to remedy the way that investment funds are siphoned off the real productive economy into the world of complex financial instruments.
‘When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.’
John Maynard Keynes, 1936
So what needs to happen?
A full separation between investment and retail banking could be achieved by legislation similar to the US Glass Steagall Act, which limited the securities activities of commercial banks. Enacted in 1933 after the crash of 1929, the Act was increasingly emasculated by the Federal regulators loosening these restrictions from the 1960s onwards, until it was repealed in 1999. A separation is achieved in Germany by the system of local savings banks and regional banks, being prohibited from lending outside their area. These banks did not decrease their lending following the financial crisis as British banks did. In both cases separate institutions ensure that funds placed with retail banks are safe.
However, there needs to be a separation, not only in law but in the minds of depositors, between money that they need to keep safe and available, and deposits with which they are prepared to take a risk.
The proposal of the Positive Money campaign would achieve this by requiring a hundred per cent reserve for current account deposits (for instant access) and ensuring clarity that funds placed for investment were at greater risk and would be unavailable for a stated period.
These proposals have currency with many supporters at the moment. However, Quakers might have something stronger to say about the existence of the international speculative financial system. The economic justification for this system is that it spreads risk, and allows investment to be made that otherwise could not take place, insuring against losses and price changes through the futures markets and by instruments such as credit default swaps.
The system itself, however, appears to create risk. Further, it is undeniable that it creates great wealth for some practitioners and makes large losses for the unwary (whom Goldman Sachs staff are reputed to have termed ‘muppets’).
Gambling
Quakers have always opposed gambling. This is gambling with other people’s money and their future. You do not even have to own some shares in order to gamble with them. It is this system, too, that has brought about enormous instability in the prices of foodstuffs, to the detriment of millions of poor folk who find themselves unable to purchase food as prices spike. The system is also as far removed as one could get from the aspiration to simplicity and truth. The financial instruments and transactions are not transparent – their nature is opaque, even to those who use them.
There is now such creativity of new and very sophisticated financial instruments that we don’t know fully where the risks are located. We are trying to understand what is going on.
Jean-Claude Trichet
(president of the European Central Bank) 2007
Quakers might argue that these kinds of transactions should simply be prohibited. ‘Naked short selling’ for example is prohibited in many countries but is currently still allowed in London. A clear statement of this kind might be a useful contribution to the discussion. It might also help individuals seeking an ethical outlet for their money in good faith, within and outside the Society, though of course research would be needed to identify which of the multiplicity of instruments and markets might be outside the pale.
Robin Hood
A half-way house, already supported by many Quakers, is to implement a Financial Transactions Tax (FTT – in some forms known as a Robin Hood Tax), the levy of a tiny proportion of an international financial transaction as tax. The sums are so large that a substantial amount of money could be raised for use in the real economy, for instance, for climate change adaptation or for development aid. Such a tax is already favoured by some European countries, including France and Germany, and is opposed by Britain on the grounds that it would hurt the interests of the City of London. (Is this an adequate ethical argument?) In force, a FTT would slow down and reduce the profits from international speculative activity. But others disagree.
Tobin recommended [the tax] to slow the speculative trade down, not milk it. It’s a tax on speculation and I felt that kind of gambling should be stopped, not used as a golden egg. Also, while I appreciate that there is an argument for taxing speculation (like taxing tobacco or drink) should the activity of investment be taxed?
James Bruges
The Quaker position
So should we, as Quakers, be adopting a personal witness position, (similar to not doffing hats to power, or honestly charging the same price to all buyers) – a position that prefers not to support institutions that engage in ‘casino banking’? Friends could withdraw their resources from institutions which engage in international speculative activity, including the main high street banks, and place their funds with ethical alternatives, such as credit unions, Triodos Bank, the Ecology Building Society, and a host of, mainly local, mutual, cooperatively owned building societies and local social enterprises. Many have already done so, but there are often sentimental and practical costs in changing the banking arrangements of a lifetime – maintaining these arrangements is not purely an ethical matter.
I think, however, as Quakers we should give greater weight to the ethical dimension of this choice. Practical alternatives could be widely discussed and compared.
Were we to adopt this position we should also have to try, in some way, to ensure that our pension funds – some of the largest investors – also choose investments with these principles in mind. Avoiding institutions that speculate can be justified not only in terms of ethics but also on the basis of potential risks – in case of a further financial crisis. Writing letters to pension funds is one option, and another is to support the Fair Pensions Campaign, which aims to make this argument to pension funds on our behalf.
For further information: www.positivemoney.org.uk or www.fairpensions.org.uk
Ethical Consumer magazine provides a comprehensive guide to the most ethically sound institutions for current accounts, savings and mortgages. It can be ordered from the Friend by contacting George Penaluna at ads@thefriend.org. See how your bank compares!
Comments
Thank you for this discussion. Writing from the US, I have had a concern aspects of economic justice for some time now. I would like to share with Friends that I was very impressed by the work of the Jubilee USA Network and I know that there is also a Jubilee Debt Campaign UK. That organization calls for debt justice on the global level, thus not burdening impoverished nations with the bad behavior of their leaders and the bad judgement involved in international banking practices. They call for responsible assessments of existing loans, what is fair, what is feasible, and offer guidelines for responsible lending and borrowing in the future. Naomi Paz Greenberg, Forest Hills, NY
By NaomiPG on 14th June 2012 - 13:59
Please login to add a comment
