A campaign is mounting for the remutualization of Northern Rock, the bank whose collapse heralded the financial crisis. A community-owned bank would serve wider social needs, rather than private profits.
It’s difficult nowadays to imagine that people ever felt affection for a bank. But listen to staff of Northern Rock and residents of the North East and you hear a story of a bank that was seen as a responsive and, in retrospect, even a loved public service.
It’s odd, therefore, to hear the one recent reference to mutuals by a government minister (Tessa Jowell in December) being applied not to overcoming the disasters of finance plcs but to the questionable benefits of breaking up the public sector. This included the laughable suggestion that a mutualised public sector could draw on ‘the efficiency of the private sector’.
Northern Rock’s collapse was the first visible sign of the wider financial crisis, which was the result of exactly the forces of profit maximization that the mutuality model was designed to challenge. These were typified by the company’s post de-mutualization CEO, Adam Applegarth, and his £700,000 pay off. Now the profitable parts of the company are set to be sold off to the private sector again. A tragic case of socializing debt and privatizing profit.
Northern Rock, saved by a government loan of £26 billion, has been split in two. On the one hand there is now Northern Rock plc, a potentially very profitable high street bank. Insiders reckon that annual profits will be over £250 million. On the other hand is an organization that is responsible for the risky mortgages, repayment of the government debt and for the existing staff pension fund or pension shortfall of £60 million. It will remain the responsibility of the government.
But all is not lost. The force of a strong pro-mutual regional tradition is joining with the strength of the economic arguments that start from the public good. A growing campaign is underway for the remutualization of Northern Rock. It began with a report by the Centre for Mutual and Employee-owned Business at Oxford University, written for the widely respected Building Society Association. This argues, for example, that a strengthening of mutual ownership would counter-balance the short-termist pressures of the City. It also argues that mutuals help to reduce the present concentration of financial sector resources and employment, dispersing wealth and welfare to local economies.
These arguments and more have been taken up by Alliance For Finance, an increasingly active confederation of 15 trade unions and staff associations working for UK financial services (with a total 200,000 members in all). Russell Greig, the Alliance’s secretary, is based in Chester le Street, the heart of Northern Rock country. He feels that the company would no longer exist if it hadn’t been for government aid. For him, ‘ it makes sense that this support should be returned to the community. It can’t be right that the financial support that was pumped into Northern Rock should simply be used to allow another plc to profit. The new company should be turned,’ he concludes, ‘ into a community owned organization serving the needs of the communities and able to re-invest into those communities.’
When Greig talks of ‘reinvestment in the communities’ he means investing the profits into giving loans to more people and on better terms. He also means giving more resources to the Northern Rock Foundation which before the crisis was a major funder of community projects in the North East. In sum: ‘Instead of pressure from shareholders in pursuit of profits and dividends the pressure will be from the community for a socially responsible lender, serving the needs of its customers (owners) and wider community.’
There’s a long term interest for the government here: as the mutual company becomes profitable it would steadily repay the government’s loan. But there’s also a case for the government returning a proportion of this value to the company as a government investment. ‘The government could then’, argues Russell Greig. ‘use the mutual to provide socially useful banking to overcome financial and economic exclusion. It could also use it as a basis to regenerate deprived areas again through the communities that it operates and would effectively serve.’
A lot of potential scope here then and increasing number of people working to realize it. 100 MP have signed an Early Day Motion calling for Northern Rock’s re-mutualization. An impressive alliance of academic, mutual financial organizations and trade unions have set up the Commission on Ownership whose brief will include forms of democratic company governance.
The danger comes, however, from short-termism by the government. Gordon Brown might well be tempted by a ‘good news’ pre-election headline that by selling of Northern Rock (Virgin Money are already showing eagerness to join what will be a buyers market ) he’s retrieved a fraction of the public loan. But a day’s poll boost would be a lost electoral opportunity. With the example of a well-worked out commitment to re-mutualize Northern Rock, Labour could show that it has the imagination to make a clean break from the financial sector of Mrs Thatcher and build on the century old success stories of co-operative and mutual organizations to move towards a financial system which serves its millions of ordinary customers, the voters. Such an initiative would be popular, tapping into people’s current anger towards the banks, equal only to their contempt for politicians.
Compass are currently working on issues of remutualization, and banking reform, looking at the case of Northern Rock and other nationalized banks. For details and to contribute contact [email protected]
Hilary Wainwright is a leading researcher and writer on the emergence of new forms of democratic accountability within parties, movements and the state. She is the driving force and editor behind Red Pepper, a popular British new left magazine, and has documented countless examples of resurgent democratic movements from Brazil to Britain and the lessons they provide for progressive politics.