Only mutuality can save us from the bankers, argues Rob MacGregor
Financial services in this country were not always dominated by faceless multinational enterprises run by the greedy, incompetent and corrupt. There was a time when governments of all political persuasions believed that plurality in financial services constituted good business and was essential to retain balance in a prosperous, diverse society and economy.
Britain’s building societies originated in the self help movement of the 18th century. The first known society, Richard Ketley’s, was formed in 1775 at the Golden Cross Inn, Birmingham. It began when working people pooled their funds in organisations from which they could borrow to build homes.
In the early days, once every member had a house, that society would be closed. These organisations were known as terminating societies and the last of these only ‘terminated’ in 1980.
There were other societies, known as “permanent” building societies, and these began when they started to accept deposits from members who had no intention of building homes. They became institutions for saving and borrowing, as well as mortgage providers.
Building societies were fully mutual. They were owned by the members and run for their benefit. Mutuality was one of the most successful and popular business models in the 19th century. By 1900, there were more than 2,000 societies in Britain with more than 626,000 members.
The mutual movement thrived and prospered, surviving two global military catastrophes and a worldwide depression. However, the liberalisation of markets, the development of the financial services industry from the 1970s onwards and the lessening of democratic control of the levels of the economy created the conditions for the huge changes which overtook many of these societies.
In the 1980s, Margaret Thatcher’s Government began the process of loosening the bonds of mutuality. This led, in the 1990s, to the rush to demutualise.
First Abbey National, then the Halifax, the Woolwich, Alliance & Leicester, Cheltenham & Gloucester, Bradford & Bingley and Northern Rock shed their mutual status and converted to banks.
These conversions were heralded with considerable fanfare. Conservative economists claimed they signalled the next chapter in the “democratisation” of capital.
In little more than 10 years, that process of market liberalisation has led to the demise of all those institutions which rushed to shed their mutual status.
Abbey National and the Alliance & Leicester have been swallowed up by Spanish bank Santander. The Woolwich, Cheltenham & Gloucester and Birmingham Midshires are now brand names only. Their independence, staff and branch networks have long since been closed down or absorbed by larger and faceless corporations.
Bradford & Bingley had to be rescued by the British Government. It was then broken up. Northern Rock, once the pride of its native north-east of England as a symbol of economic regeneration and financial maturity, was reduced to a global laughing stock when it became the first financial institution in a generation to experience an old-fashioned “run on the bank” in this country.
Northern Rock is now fully owned by British taxpayers and is in the process of a major restructuring, presumably in preparation for sale to the highest bidder on the open market.
Many smaller societies cannot and will not survive. The collapse in confidence in financial markets has imposed an intolerable strain on those institutions wishing to remain independent.
The Scarborough has merged with the Skipton. The Barnsley has joined forces with the Yorkshire. The Cheshire and the Derbyshire have been forced into a merger with Nationwide. The biggest society in Scotland, the Dunfermline, collapsed.
From a proud history that measured its numbers in the thousands, there are now only 52 building societies in Britain. A once diverse and regionally-based finance community is under the threat of extinction. However there is still strong support for the remaining mutual societies. And the reasons for that are very simple. They offer tradition and dependability – important factors in a fast-changing financial market. They offer cross-generational support. The investments of parents and grandparents are passed on to children and grandchildren. They are owned by their members – ordinary working people who have a direct say in who sits on the board and over the key decisions the institution takes.
Every member is entitled to have a vote and to have the society working for the interests of its members alone, not those of shareholders and financiers.
These societies exist to provide investment for the long term, to offer security and dependability; not fuel the short-term, selfish interests of spivs and speculators.
The Labour Government now has a chance to re-launch mutuality. It should break up the banks that are state controlled and give them back to their savers and borrowers.
Northern Rock was a strong and vibrant building society. It can be again – if the state gives it back to the people of the north-east.
Cheltenham & Gloucester, recently targeted for closure by its owners, the Lloyds Banking Group, should be sequestered and handed back to the towns and communities in the south-west of England. It should be returned to its roots, where it was most successful.
Only a diverse, community-based finance sector can prevent a repeat of the economic crisis for which our generation and those who follow us will have to pay for a very long time.
We need a finance sector which recognises the importance of civic and local pride and invests in society, rather than views it as a perennial meal ticket.
Promoting mutuality will go some way to reclaiming the finance industry for the communities it is meant to serve and who deserve nothing less.
Rob MacGregor is the Unite union’s national officer for the finance and legal sector
