The Root of all Evil: how the UK Banking System is ruining everything and how easily we can fix it.

Whilst no economics ‘expert’, it has become clear to Arkadian from evidence presented by organisations such as Positive Money and the New Economics Foundation that the UK Banking System is (i) rapidly driving us into a new Dark Age and (ii) not nearly as difficult to understand as those with a vested interest in it would have us believe.

As positive change depends on a general understanding, the current article aims to compare, in simple terms, how this system has worked in the past, and should work, and how it works currently to the detriment of you, your children, your community and your future.

HOW IT WORKED (THE VIRTUOUS CIRCLE): 

To begin, lets look at a diagram of how the UK economy worked in the years following WWII. At that time the country, as now, was stone broke but, unlike now, was driven by people-centred values sharpened in response to the Axis Power’s policies of dehumanisation. It is also a model of a ‘classic’ Capitalist System, as described by Adam Smith. Most people, and politicians, still mistakenly believe it works this way.

The arrows represent the flow of money, and the boxes: important ‘variables’ in the system. You can start anywhere, but it’s probably easiest to start with the box to the left.

1. Disposable vs Borrowed Income. You made a decent living in a secure job-for-life that allowed plenty of free time for friends and family. Your mortgage aside – which took around 10-15yrs max to pay off – you only bought things if and when you could afford them, thus putting money back into ‘circulation’ (arrow 1A). The remainder went into your savings account or share investments (arrow 1B) …

2. Money and Power: People vs Banks. …Banks were dependent on your savings to function as they were only permitted to lend in relation to their cash reserves. Their business worked by making money from the interest on these loans…

3. Lending for Productivity vs Quick-Win Low-Risk…As banks were still very much focused at a High Street level, much of their investment went into small businesses…

4. Healthy vs Toxic Economy…Thus your savings helped foster a growing, diversifying and stable local economy, which meant more secure jobs and, coming full circle, (1) more disposable income for other people to spend or save as well as a range of other social benefits associated with greater income equality.

5. Government, meanwhile, ‘governed’ the system to ensure it worked properly. In partnership with the Bank of England, they monitored the economy, periodically injecting new printed cash into the system to fill the ‘gap’ created by new growth, via public services that safeguarded citizens’ life dependencies (energy, social security, education, policing, health, telecoms, transport, postal service, military) and provided reliable employment for millions. They also regulated the banks to ensure they lent justly and responsibly.

And so it worked, by no means a well-oiled machine but still one guided by principles of fairness, general well-being, and economic restraint. So what’s changed?

HOW IT WORKS NOW (THE VICIOUS CIRCLE). 

1. Borrowed vs Disposable Income. Whilst you (unlike many) may still make a decent living, you and your partner work doubly-hard out of fear of losing your jobs and being unable to meet your mortgage and debt repayments.

In your absence, your children are raised largely by others. Even when you’re home, it’s tough to find energy for them when what you need is relaxation from the stresses and strains. The cost of a property sufficient to comfortably house your family has meant you’re probably destined to spend your whole life surviving on credit and without savings…

2. Money and Power: Banks vs People…But isn’t ‘no savings’ an issue for the banks? Not anymore! Now, when you need to borrow, they are free to tap the number into a spreadsheet and create it for you out of thin air, irrespective of the amount of ‘savings’ in their reserves  (arrow 1B) . They also decide your interest rate: the ‘money-for-nothing’ (quite literally) from which they’ve grown rich, politically-powerful and monolithic…

3. Quick-Win Low-Risk vs Lending for Productivity…And these global giants no longer have time for long-term, high-risk investment, such as small or ‘ethical’ businesses. They plough your ‘interest’ into quick-win low-risk high-return investments, which are safely recoupable should anything go belly up.

Around 90% goes int0 speculation, contributing virtually nothing to the economy, and, in the case of the food and currency markets, causing the suffering and deaths of millions in poorer countries. Much of the rest goes into property, and loans to big corporations that value short-term profit over the welfare of planet and people – fossil energy, mining, factory farming, mass media, consumer goods, processed food, the military etc.

4. Toxic vs Healthy Economy…Although in good times the economy appears to grow, growth no longer signifies health. Property prices inflate beyond the reach of many: notably, your descendants. Private monopolies supplant public services and local business, and we become increasingly dependent upon them for life essentials, employment, and a functional economy…

5. Government… So where are they in all this? Precisely! As mentioned in (2.), they’ve handed over the lion’s share of the responsibility for creating and managing the nation’s money to the financial sector. They’ve also permitted a few banks, and other monopolies, to grow so large and powerful that political success now hangs upon prioritising their interests over those of their electorate (with over half of Conservative Party funding now reliant on the banking sector and much of the remainder coming from defence, manufacturing and energy, is it any surprise that voter needs should come second to their sponsors’ return on their investment?) Whilst Whitehall may maintain the illusion of steering the British economy, technically they can’t because they’ve abdicated the controls.

And so the Vicious Circle turns, with each cycle the system becoming more unequal, uniform and unstable. There are three particularly vicious aspects of this system worth noting.

Firstly, it functions irrespective of recession. In boom, you borrow to get the things to which you aspire now rather than having to wait – using credit / store cards, bank loans, mortgages and the like – and the banks get rich and powerful. In bust, you borrow to make ends meet and the banks get rich and powerful.

Secondly, in a recession, because the vast majority of the money in the system is ‘borrowed’, to prioritise the repayment of the bank-invented debt (i.e. ‘Austerity’) over strategies for stimulating spending  is guaranteed to shrink the economy further. Simply put, if pennies are taken out of the national purse and vanish into thin air without any being put back in, there will be less money in the purse. Unless, of course, we can find a bank to lend us a more.

Thus, whilst the historically-proven formula for economic recovery has always been to kickstart the Virtuous Circle through public spending and corporate regulation, in this sick misshapen world, crashes, austerity, privatisation and price hikes are great because they force us to borrow more, which  indirectly results in new ‘imaginary’ money getting injected into the economy (arrow 1A).

And although a life of indebtedness for food, housing, clothes, education and so on, may promise an increasingly bleak existence for us and our children, for the environmentally-unconscious one-stop corporate shop that creates our credit, charges our interest, employs us as temps at the minimum wage, and is the only place where we can buy anything, it’s a field day.

Lastly, the unsustainability of this rampant money creation is largely irrelevant to the banks because, ultimately, the public debt is underwritten by the Bank of England, in other words, US! You, yes YOU, are effectively part-guarantor of everybody’s loan, including your own. The bubble will always burst, and more spectacularly each time, and it’ll always be you that is liable for the debt, never those that made billions from the recklessness.

Happily, fixing the system is remarkably simple. You have two choices. The easiest is to pick up the phone and (1) MOVE YOUR MONEY out of the Vicious Circle and into an ethical bank such as The Coop or Triodos, who maintain a responsible lending policy, consult you on your ideas for a better future and invest in them – organic farming, renewables, community development and so on – rather than whatever horror brings in the profits. Do it now and enjoy looking your children in the eye with a clear conscience!

(2) is to PUT PRESSURE ON YOUR GOVERNMENTAL SERVANTS to re-impose the vital framework that regulated the Virtuous Circle.

Most critically, this means returning the responsibility for money creation to The Bank of England. Exercise of this responsibility should involve the immediate injection of real cash into circulation (‘quantitative easing’) via investment in a growing public sector and green transition. This would reduce our economy’s toxic dependence on debt to function, generate employment and spending (the only way out of recession), and begin the change upon which a tolerable future hinges.

Close second, however, involves excising the corporate influence from our political system and allowing the democratic needs of citizens to determine Governmental decision-making, and not the insatiable greed of a small commercial oligarchy.

Thirdly, the ‘ecology’ of the financial sector should be regulated so that a significant percentage of banks are always focused on investment at the local level. This is the approach in Germany, and the greater diversity and stability of their banking system has enabled them to weather the present storm significantly better than most.

In short, if you wish to remain in a world where you are dependent on corporate monopolies for your existence, and where the conditions of your life and planet are certain to deteriorate, then sit back and do nothing. However, if you’d prefer a return to a financial system that works towards the common good then MOVE YOUR MONEY NOW!

A concluding thought: in The Early Middle Ages we were told the Bible was only comprehensible and communicable by The Church. It was a tale that, for a considerable time, maintained vision, interpretation, practice and power in the hands of an elite few.

Arguably, the translation of the Bible from Latin into English and its popular dissemination was one of the driving forces behind the development of the more market led and equitable society of later centuries. Knowledge, as they say, is power.

In the c21st our ‘mystery’ is The Economy, our priests: the politicians, economists and bankers.  Pah! Economics is easy, isn’t it? It’s just about how we can make money work best for us and our loved ones.

So go on: inform your friends and family. Ask them to move their money too. It’s time to debunk the ‘priesthood’ and reclaim control over our lives, planet and future. Forever and ever. Amen!

Want to know more? Arkadian highly recommends following Positive Money or the New Economics Foundation on Facebook, or watching the illuminating video below. Learn and share!:

Why Corporate Regulation is a Socioenvironmental Necessity. Part 4 of 5: Why does the current Economic System tend towards Uniformity and Instability?

Welcome to the fourth and penultimate episode of a five-part Arkadian analysis which works towards the conclusion in the series title by seeking the answer to a simple question: –

“What difference between natural / social systems and the current economic system causes the former to tend towards diversity and stability, and the latter, uniformity and instability?”

In Weeks 1 and 2, we explored why ecosystems and ‘civilisations’ tend towards diversity and proposed virtuous dynamics (the ‘Diversity Engine’) that power increasingly fine-grained specialisation / cooperation, whilst inhibiting environmental dominance by particular species or social ‘groups’. Last Week, we looked at three examples at different ‘levels’ (social group, societal, global) which illustrated why overall systemic stability and resilience, and, thus, the common good,  depends on a shared responsibility for productivity produced by this trend.

Today, we aim to get the crux of the issue at the heart of this series by investigating why the current global economic system behaves in the opposite way.

The last few decades have seen a dramatic global trend towards economic uniformity across most market sectors – most notably and worryingly, finance, media, food and agriculture, and manufacturing. A recent systems analysis by PLos One revealed that a network of 1318 companies directly represent a quarter of global operating revenues and, indirectly, via shareholdings in blue chips and manufacturing, a further 60%. Of these, a super-group of 147 companies, mostly financial institutions controls 40% of the total wealth in the system.

This homogeneity has also correlated with a spectacular increase in the scale and financial muscle of global corporations. A 2002 UNCTAD analysis, which used the sum of salaries and benefits, depreciation and amortization, and pre-tax income to compare firms with the GDP of countries, found that a third of the world’s 100 largest economic entities were transnational corporations. The biggest, Exxon, rivaled the economies of Chile or Pakistan; Philip Morris was on a par with Tunisia, Slovakia and Guatemala; and a more recent study research shows General Motors, DaimlerChrysler, Shell, and Sony to outsize Denmark, Poland, Venezuela, and Pakistan, respectively.

Many other corrosive trends have gone hand-in-hand with this expansion. According to statistics gathered  by the New Economics Foundation, income inequality is now higher than at any other time in human history with the CEOs of the 365 biggest US companies earning over 500x that of the average employee. Corporate strategies to augment profits – outsourcing, temporary employment contracts, mechanisation and process efficiency – have eroded wages, job satisfaction and security, and human labour productivity, with the world’s biggest 200 transnationals now accounting for a third of world economic activity but employing less than 0.25% of the global workforce.

So what are the dynamics underpinning this pernicious trend? MODEL 3 of our analysis below proposes an answer (N.B. If you have trouble reading the text, click on the diagram to open it in a new browser tab and then refer back to the explanation here).

Whilst Model 3 involves more-or-less identical variables to the Models 1 (Ecosystems) and 2 (Civilisations) we explored in Weeks 1 and 2 respectively, there are several critical differences. Firstly, we broaden the definition of ‘diversity’ to include both socioeconomic and natural systems. Secondly, the term ‘group’ (which referred to political elites in Model 2) now refers specifically to the small alliance of people for whom a given corporation is a vehicle of wealth-creation: board executives, major shareholders, higher management and, to a lesser degree, senior employees, i.e. the people who don’t lose their jobs or bonuses during cutbacks.

Thirdly, and most fundamentally, is a change in the polarity of the two arrows (coloured red) connecting variables (2), (3) and (4).  Unlike dominant species in ecosystems and ruling elites in political systems,  these ‘groups’,empowered by (7) policy and infrastructure that enable vast geographical reach, promote their self-interest and shield them against personal accountability for abuses, are able to reduce systemic diversity without their actions having corresponding negative effects on the stability and resilience of their own local environment.

Indeed, (3) the greater the ‘group’s’ impact on diversity, the more prosperous and secure their personal environment becomes. Thus, in the current economic system,  (1, 4, 5 and 6) the drive for dominance of rules and resources is invigorated by growing wealth, social mobility and political influence, unlike  ecosystems and civilisations, where it was curtailed by its weakening and destabilising impact on the environment  And so it turns: not a Balancing Loop, but a Vicious Circle: a feedback loop where one trouble leads to effects that aggravate the first trouble, and so on.

To exacerbate problems, the absence of limiting environmental feedback also reverses the dynamics of the ‘Diversity Engine’, turning it into its ominous alter ego: a Vicious Circle we’ve named the (6) ‘Benefits-of-Big Engine’.

Here, instead of a trend towards economic diversity facilitating healthy competition and new business opportunities, and making market domination progressively more difficult, a small group of dominant players is able to harness ever greater resources, economies-of-scale and mechanisms of influence (price, lobbying, political office, advertising, media, academia) to overcome existing competition and render future challengers increasingly futile and improbable.

Disturbingly, whilst in nature / society the weaknesses and instability resulting from systemic impoverishment ultimately defeat the dominant species and ruling groups responsible, thereby facilitating a new order, in the current economic system they increasingly further the interests of the corporate ‘groups’ that have caused them.

These giants can downsize, buyout or price-out smaller floundering competition,  and their huge economic significance means that, even if things get really bad, national governments are likely to intervene rather than risk the impact of bankruptcy.  As touched upon in Week 2, the crisis-stricken financial sector is a perfect example, where after the panic of insolvencies, public bailouts and recession, a run of mergers and buyouts gave birth to a more monolithic, powerful and fragile banking system than ever before.

Possibly the darkest characteristic of ‘The Benefits of Big’, however, is that the larger and more ubiquitous these corporate vehicles become, and the more competitively priced their products and services, the more difficult it becomes for us to avoid participating in their expansionary activities.

Thus, as customers, suppliers and employees, we all unknowingly or unwillingly, become complicit in dynamics that increasingly impoverish and endanger the systems upon which we depend.

In short, in the current economic system there appears to be no constraint on the wealth-creation of ‘groups’ at the helms of corporations other than a total socioenvironmental meltdown.

Happily, there is much we can do to change this. We hope you’ll join us next Friday for our final installment, when we shall use what we’ve learned from the virtuous ‘Diversity Engine’ of ecosystems / civilisations to propose interventions that could reverse the vicious ‘Benefits of Big Engine’ and create a self-sustaining economic system that benefits people and planet. 

What the One Demand of the ‘Occupy’ Movement should be and why.

Today was Occupy Wall Street’s first Global Day of Action. We’re on our way home from our local urban occupation, feeling inspired, hopeful and slightly unsettled. Inspired and hopeful because people of all ages and backgrounds from around the world joined in protest against a corrupt economic system; unsettled due to a heated difference of opinion about what to do and who to battle (thankfully, and topically, resolved democratically and peaceably).

History is strewn with social movements that imploded through infighting, or where, for lack of a clear aim, the chaotic forces of moral indignation were steered by groups, with a plan and organisation, towards their own agenda (and, usually, more of the same).  For either to happen to this beautiful movement would be a tragedy of inestimable proportions.

So is there a single aim that could unite the 99%?

The answer to this, we believe, lies in a further question: how is it that in a democratic system the 99% can be so flagrantly disregarded? This points to a problem with the machinery of Democracy itself. Perhaps, if we could locate the faulty part and fix or replace it, these diverse opinions would be enriching collective solutions rather than jeopardising their own vehicle for liberation?

There follows a 2-part systems dynamics analysis to this end. 

PART 1 proposes two Vicious Circles at work in the current system. These are series of events where one trouble leads to troubles that further aggravate that first trouble, and so on

(N.B. It’s easiest to click on the diagram to open it in a new browser and then refer back to the explanation here. Depending on your screen size, you may also need to zoom in-and-out in order to read the smaller text by clicking on the relevant area).

SYSTEMS ANALYSIS 1: THE VICIOUS CIRCLES

The best place to start is at the bottom where government policies that serve corporate interests are pursued at the expense of those that serve the 99% and the natural environment.

Whilst this enriches the 1% and motivates them to even greater future investments in manipulating Government policy (the 1st Vicious Circle – inner), it also exacerbates a range of hugely-profitable (in the short-term) c21st century ills: war, recession, inequality, loss of public services and assets, our increasing dependency on corporations for life’s essentials and, most critically, a severe threat to Earth’s life systems.

These factors, together with diminishing quality-of-life and broken political promises intensify our apathy and denial, and reduce time or inclination for political action, thus eroding a key constraining factor on the corporate policy abuses with which we began (the 1st Vicious Circle – outer). And so the Circles turn.

The analysis suggested two potential intervention points (highlighted in red) where action could positively transform the Vicious Circles. These are: –

(1) Dependency on corporate relationships for political success. In short, a business wouldn’t bestow cash or media coverage on a political campaign that didn’t promise a significant return on investment. A third of the world’s 100 largest economic entities are now transnational corporations. Without bowing to these giants, no party has a hope of achieving or maintaining office, irrespective of good intentions and promises. Why pursue a policy or preserve a public service, asset, safeguard or freedom when losing it stands to make somebody a tidy profit?

(2) Ability for politicians to benefit materially from political office as a result of corporate relationships. Whilst we do not share many of Plato’s views (on Democracy, for example), we do agree that the worst form of government is one where the actions that satisfy the desires of the ruler become law. A tyranny. It was with good reason that The Republic went to great pains to isolate its philosopher kings from the temptation of riches and military stardom, the great corruptors of wise governance.

Under the Republic, for example, a former Prime Minister who made $40bn out of a dubious war he instigated whilst in office or a secret council assembled to draft laws to serve its own self-interest would have faced certain execution.

To put it simply, if we wish our countries to be run by people motivated by a desire to serve its citizenry and not by material self-interest then, within the political sphere, constraints on the latter must be codified in law and regulated independently. After all, corporate management takes conflict-of-interest very seriously. They know, as Plato did, that a person cannot responsibly wear two hats when money is involved.

For PART 2 of the analysis the ‘Occupy’ Movement collectively waves its magic wand and divorces the public and private sectors, turning our Vicious Circles into its cheerful alter ego, a Virtuous Circle, where a delight leads to delights that further promote the first delight, and so on

(N.B. Again, it’s easiest to click on the diagram to open it in a new browser and then refer back to the explanation here. Depending on your screen size, you may also need to zoom in-and-out in order to read the smaller text by clicking on the relevant area)

SYSTEMS DYNAMICS ANALYSIS 2: THE VIRTUOUS CIRCLE

Here, diverse opinion (with better access to information about actual environmental and economic constraints) is braided via participatory democratic processes and well-behaved politicians into policies that best serve both public and private interest.

This leads to a host of positive socioenvironmental effects that increase faith in people-power, government and the future. It also confers the time to get involved, thus contributing to even greater participation and ever richer solutions. And so the  Virtuous Circle turns: driven by a commitment to a better world in the long-term.

Call us idealistic, but we believe this vision of an equitable sustainable society where stakeholders are actively engaged in Government is wholly imaginable, achievable and necessary. Moreover, It will not require earth-shattering change and would improve general quality-of-life.

However, we acknowledge that, as evidence of the Arkadian worldview – steady state economics, new economics principles, Just Transition , equality, environmental restoration, nurturing new values etc. – seeps in here, it would be best to declare the pertinent aspects. We ask that anybody who posts comments extends us the same courtesy as it makes discussion of opinions easier and so much more fruitful.

“Arkadian Systems Worldview: That the current economic system has been proven environmentally unsustainable and thus we must explore and enact alternatives or risk socioenvironmental collapse and extinction. That social and environmental justice are so intimately intertwined that treatment of one leads inevitably to reinforcing effects on the other. That decision-making is always wiser when all stakeholders with an interest in the relevant situation are meaningfully involved. ”  

We should also stress that it is only the last of these  – the principle underpinning a true Participatory Democracy – that should be considered relevant here. If Democracy is reformed and re-fired, we’re confident the rest will happen all by itself, the right way, and our opinion will be one of millions that make a contribution. So, to conclude,

The One Demand of the ‘Occupy’ Movement should be: 

“GET BUSINESS OUT OF POLITICS AND LET THE PEOPLE IN”:

Insert a robust legal and regulatory framework between the private and public sectors, which enables Government to draft policy and law without conflict-of-interest and according to the principles of Participatory Democracy 

Specifically, this framework should render it impossible for politicians to benefit materially from political office as a result of corporate relationships and should define equitable and corporate-independent alternatives to campaign funding .

For us, this is eminently preferable to smashing the bankers, police, politicians, Capitalism, Consumerism: THE SYSTEM. Trying to fight The System or one of its organs, inevitably results in giving oneself a bloody nose and the awful realisation that, yes, it also includes ME!