by Michael Roberts
As the scandals in the banks globally mount up since the financial collapse of 2008-9 (see my post, http://thenextrecession.wordpress.com/2013/02/01/the-never-ending-banking-story/), with the latest being the Cyprus disaster (see my post, http://thenextrecession.wordpress.com/2013/04/11/cyprus-aphrodite-into-hell/),
you’d think that at least the more radical elements of the economics
profession would see the merits of taking into and keeping key banks in
an economy in public or common ownership. Then they could provide a
proper public service for households and small businesses and provide
financial support to any national plan for investment in infrastructure,
the environment and jobs.
And yet there is little sign that most radical policies for reform of
the financial sector would include public ownership. Instead we are
offered more effective regulation, tighter capital adequacy minimums, or
divorcing speculative activities from retail banking, or breaking the
banks up into smaller units so they are not ‘too big to fail’. Take the
position of leftist economist Yanis Varoufakis (http://yanisvaroufakis.eu/). In a recent post on his blog (27 March), he explained his position on what to do about the Cypriot banks.
“I have noticed that a number of commentators have misunderstood my
position on the Cyprus debacle and, more generally, on the question of
how failed banks ought to be dealt with. As I made clear yesterday,
I am all for bailing in the creditors, even the uninsured depositors,
of failed banks. In fact I have been arguing this case for three years
(see for example our Modest Proposal)
so as to avoid the zombification of Europe’s financial system. BUT, I
have also insisted that this must be accomplished centrally, by an ESM
which, in collaboration with the ECB, takes equity in the failed banks,
shrinks them appropriately, recapitalises the viable parts and then sells off the latter to private investors at a profit (TARP and Sweden circa 1992-like – my emphasis).
I have highlighted in bold that part of Varoufakis’ explanation. Even
he sees no reason to keep the banks in public ownership once they have
been cleaned up. His solution is the ‘Swedish’ one, where banks were
nationalised, cleaned up at taxpayer expense and then sold back to the
private sector to recoup the public money – in Sweden’s case that deal
broke even for the taxpayer. But why reprivatise these viable banks and
return them to a new set of people set to commit the same disasters and
scandals as the previous owners? Indeed, that is what happened in the
financial collapse of 2008, with many banks in different countries owned
by the state originally but sold off.
I am reminded of what Lenin said about public ownership of the banks in contrast (Nationalisation of the Banks, Lenin Collected Works, Progress Publishers, 1977, Moscow, Volume 25, pages 323-369): “The
banks, as we know, are centres of modern economic life, the principal
nerve centres of the whole capitalist economic system. To talk about
“regulating economic life” and yet evade the question of the
nationalisation of the banks means either betraying the most profound
ignorance or deceiving the “common people” by florid words and
grandiloquent promises with the deliberate intention of not fulfilling
these promises.
It is absurd to control and regulate deliveries of grain,
or the production and distribution of goods generally, without
controlling and regulating bank operations. It is like trying to snatch
at odd kopeks and closing one’s eyes to millions of rubles. Banks
nowadays are so closely and intimately bound up with trade (in grain and
everything else) and with industry that without “laying hands” on the
banks nothing of any value, nothing “revolutionary-democratic”, can be
accomplished.
What, then, is the significance of nationalisation of the banks? It
is that no effective control of any kind over the individual banks and
their operations is possible (even if commercial secrecy, etc., were
abolished) because it is impossible to keep track of the extremely
complex, involved and wily tricks that are used in drawing up balance
sheets. founding fictitious enterprises and subsidiaries, enlisting the
services of figureheads, and so on, and so forth. Only by nationalising
the banks can the state put itself in a position to know where and how,
whence and when, millions and billions of rubles flow. And only control
over the banks, over the centre, over the pivot and chief mechanism of
capitalist circulation, would make it possible to organise real and not
fictitious control over all economic life, over the production and
distribution of staple goods, and organise that “regulation of economic
life” which otherwise is inevitably doomed to remain a ministerial
phrase designed to fool the common people. Only control over banking
operations, provided they were concentrated in a single state bank,
would make it possible, if certain other easily-practicable measures
were adopted, to organise the effective collection of income tax in such
a way as to prevent the concealment of property and incomes; for at
present the income tax is very largely a fiction.
The advantages accruing to the whole people from
nationalisation of the banks would be enormous. The availability of
credit on easy terms for the small owners, for the peasants, would
increase immensely. As to the state, it would for the first time be in a
position first to review all the chief monetary operations, which would
be unconcealed, then to control them, then to regulate economic life,
and finally to obtain millions and billions for major state
transactions, without paying the capitalist gentlemen sky-high
“commissions” for their “services”.
This seems like an excellent summary of the benefits of public
ownership of the banks, including stopping privately-owned banks from
helping tax dodgers avoid tax and criminals launder money, apart from
losing and stealing money themselves.
And would taking over the banks and keeping them in public ownership
once they are viable and clean again be popular? Well, a recent poll in
the UK found that fewer than one in 10 voters would back a swift return
of Royal Bank of Scotland
to the private sector and more than three-quarters believe it should
stay in public hands for the time being (according to a new YouGov
poll). This stands in direct opposition to the UK government’s plan to
sell off its 82% stake in the bailed out RBS before the general election
in May 2015, even though – on current prices – this would involve a
loss of around £20bn. Only 9% of respondents told YouGov they would
favour “a sale in the near future” to recoup whatever money is available
now. Some 44% favour holding on to the stake in the hope that the share
price will eventually climb, while a large minority of 32% favour
holding on to RBS “for the forseeable future” and running the
Edinburgh-based institution “as a nationalised bank”. Together, that
means 76% are against the option of early disposal – a crushing overall
majority.
The views of the British public are eminently sensible. In its latest Fiscal Monitor,
the IMF calculated that around $1.7trn had been spent directly by
taxpayers in the advanced economies to ‘bail out’ the banking sector in
the financial crisis and so far only €914bn has been recovered through
the sale of assets and other revenues collected from the bailed out
banks. So 7% of 2012 global GDP has been used and only 3.7% of GDP has
been recovered. Indeed, only in the US is the taxpayer anywhere close
to getting its money back (at 4.2% of GDP compared to a bailout of 4.8%
of GDP spent). In most other economies, the recovery rate is less than
25% after five years.
Most taxpayers are never likely to get their money back. But
governments are waiting for the first opportunity to sell the taxpayers
stake in the banks, even if it is at a loss. And, of course, the idea
that the state should own and run these banks in the interests of the
majority is an anathema.
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