The Great Recession of 2008-9 destroyed an estimated $50 trillion of wealth worldwide and made around 35 million people unemployed. The trigger for this disaster was the failure of the American and European banking system. As an official at the Bank of England admitted the “banking crisis has been as bad for the economy as a world war.”
Before 2008 the banking sector was seen by the general public as a conservative and prudent force in the economy, guaranteeing security and stability. But the crisis revealed a financial industry driven by greed into high risk speculations and fraud on a scale never seen before. Using the income, savings and property mortgages of ordinary people as their base, the banks turned the world economy into one big casino until it all came crashing down at the expense of governments and citizens alike.
As if this wasn’t bad enough, the effects of the banking crisis have been turned into an excuse to drastically cut back the living standards and welfare services of the mass of the population, precisely the people who had nothing to do with the crisis.
In the midst of the crisis, politicians promised fundamental reforms to the banking system. But all we have seen since have been minor changes that have left the power of the bankers untouched along with rising debt and the potential of another financial crisis to come.
The Case for Democratic Public Ownership
The Great Recession of 2008-9 highlighted the key role of the banks in the national and international economy and placed them at the centre of public debate. The possibility of the banking system collapsing along with all of the economy forced everyone to recognise that the banks pose ‘a systemic risk’ to the whole of society. Or as it became popularly known, that the banks are just “too big to fail”. This problem has only grown worse since the crisis with the concentration of bank ownership now in even fewer hands. In the light of this, there is a powerful case for the banking sector to be taken into democratic public ownership. But not just for the important but essentially negative one of ensuring the stability of the economy. There are even more positive reasons for transforming the private banks into a democratic public banking service.
Not least, is that a democratic publicly owned banking sector can be an essential part of providing the finance for investment and sustainable growth as part of a democratic plan for economic development. A transparent and accountable public banking industry can bring an end to the massive corruption and tax evasion that is undermining the economy, government finances and the political system. A democratic public banking industry could also deliver much cheaper services for account holders, lower interest rates on loans and credit card charges, along with special assistance for individuals and small businesses to help them to better manage their finances and develop their plans, innovate and so on.
Equally important, a public banking service must be democratically run. Instead of the old model of government appointed civil servants running things from above, we need a banking service governed by accountable representatives of bank customers and policy holders, banking staff and small business representatives; working in partnership with ministers and members of parliament.