The views of the banking industry are drowning out those of wider civil society due to the financial sector's large donations to political parties - claims campaigner
Whenever major decisions are taken about the future of the United Kingdom, news cameras will be aimed at reporters standing in front of parliament. But is parliament really where the key decisions are being made today or has power shifted down the river to London's financial sector - the City? What we find now is a banking system that has more spending power than the democratically elected government, no accountability to the people and a massive concentration of power in the hands of a few individuals.
However, the greatest concern is that government has surrendered one of its most important powers - the power to create money and control the money supply - to the private sector with disastrous results. There has been no democratic debate about this transfer of power, and no law actively sanctions the current set-up. In the current system, banks create the vast majority of money in the UK, in the form of electronic bank deposits.
They create this money without regard to how much is needed for the economy and society as a whole to operate effectively. In recent times more than 90 per cent of this money has been put towards activities that do not contribute to the growth of the productive economy. Giving private sector banks a monopoly on the creation of money also means that whenever additional money is needed, only private banks can provide it. In effect, the entire money supply must be borrowed from the banking sector; at great cost to the economy.
Privatising the nation's money supply as debt in this way is inherently unstable leading to the need for state bail-outs. The cost of these bail-outs diverts revenue from other government activities, compromising its ability to fulfil its democratically mandated objectives. It has also led to austerity and social unrest. Leaving the power to create money to the private sector creates a serious democratic deficit. A process that many would consider to be the sole prerogative of the state is in the hands of corporations, who have no accountability to the wider public and whose interests are completely at odds with those of society.
Politicians and policy-makers fail to appreciate the true cost of the banking sector because they only look at the positive side of the sector's tax contribution to government finances. The crisis shows the direct cost to the public of bailing out the banks, but less attention is paid to the benefit banks gain from hidden subsidies such as government guarantees. This means that banks can borrow money at a lower interest rate. By giving up the power to create money the government forgoes an important source of revenue. This results in higher taxes, lower spending or a bigger national debt. Conversely, the banks benefit financially from the power to create money.
As 97 per cent of Britain's money supply emerges through banks, they allocate a much larger sum of money than the elected government and thereby shape the nation's investment priorities. However, banks are not required to disclose how they use this money. Just five banks hold 85 per cent of the UK's money, and these five banks are steered by just 78 board members whose decisions shape the economy. This is a huge amount of power concentrated in very few hands, with little accountability to wider society. Quite the opposite, the views of the banking industry are arguably drowning out those of wider civil society. The financial sector makes large donations to political parties with the Conservative Party receiving around 50 per cent of its income from financial industry donors. There is also a close relationship between the banking sector and its regulators. The revolving door between the banks and their regulators revolves faster in the UK than in any country other than Switzerland.
Professor Mary Mellor, author of The Future of Money,
argues that the privatisation of money supply has profound implications for the stability of modern money systems. Banks have always created money as debt - confusingly called credit - but this was traditionally balanced by the state's capacity to issue money free of debt, that is, spending money into existence. This is derided today as 'printing money'. Mellor argues that deficit hysteria and the demand for austerity to 'balance the books' totally misunderstands the dynamics of money systems. The whole money supply cannot be based on repayment with interest as this means that more money must be paid back than is issued.
To avoid a collapse in the money supply, there must be an issuer within the system who spends or allocates money that need not be returned. States and central banks are returning to this role through quantitative easing, but are compounding the problem by giving the money to banks to issue as debt. As the last few years have shown, the banking sector can have a serious negative impact on national economies. Leaving it with such a huge and unaccountable degree of power is no more likely to work in the best interests of society or democracy in the future than it has in the past.
Gary Brooks is a campaigner for Positive Money, a not-for-profit research group in the United Kingdom