In the past 30 years a great number of utilities in the developed world have been privatised. That trend seems likely to be reversed. Why? Because the ideology which drove the project—in particular, the notion that the private sector is always more efficient than the public sector—is collapsing. Effective public ownership is being reconsidered not just for the banking sector, but in rail transport, in water and power provision, in communications—in short, in a range of industries where large scale privatisation and deregulation over the past decades has been tried … and found wanting.
Banking provides the most dramatic example. Deregulation and demutualisation, particularly in the USA and Britain, led to a near-meltdown of the financial system in 2008 and, in consequence, a major and on-going recession—-in Britain, one longer than that of the 1930s. Willem Buiter, chief economist at Citi, argued in favour of taking the biggest banks into public ownership in 2009. Although there was a period of recovery after 2009, recession seems to be returning—and with it ominous signs of another financial and economic crisis, a ‘perfect storm’ potentially far more serious than that of four years ago.
After the banks were bailed out in in 2008, there was much talk of regulation. Today, new revelations and scandals (eg, Barclays’ fixing of LIBOR, HSBC’s money laundering) have again raised the issue of regulation and public ownership. While it is true that in the UK, the public owns two of the largest banks (RBS and Lloyds) and that Labour wants to set up a British Investment Bank, in reality almost nothing has been done to take effective control of the largest banks.
The simple truth is that the financial sector is too big and powerful to regulate effectively. In the US the sector’s ‘lobbying power’—the problem of regulatory capture —is now acknowledged on both the political left and right. And even if the biggest banks are broken up, as Professor Gar Alpervitz of the University of Maryland argues, it is likely that they will come back in even more concentrated form.
Britain is less transparent than the US, but few can deny the baleful influence of the City of London in emasculating the 2011 Vickers Report. Instead of calling for the physical separation of commercial and investment banking, Vickers called for ‘ring-fencing’—and then, only by 2019.
Typically, the argument against publicly-run banks is that they are inefficient; ie, that ‘civil servants cannot run banks’. But the key issue is not one of public efficiency—there are many well-run publicly owned or mutualised banks in the world. The issue is of private efficiency.
Can we afford not to take the largest players into public ownership, particularly if there is another financial crisis? The big private banks have cost the taxpayer trillions and brought about economic depression, resulting in a massive loss in output and jobs throughout the OECD. By speculating against sovereign bonds, private banks are a major player in the current Eurozone crisis. One might add, too, that these same banks have been a major driver of growing inequality: the culture of bankers’ bonuses has worsened since 2008!
Note that it is not being argued here that all banks should be publicly owned. But if banking scandals multiply, if the advanced economies continue to stagnate, if jobs are scarce and unemployment grows—and particularly, if the taxpayer is asked once more to bailout the banks in the wake of another financial crash—then it is a near certainty that within a decade, the largest banks will become public utilities.