Where is the social in social enterprise?

A good colleague of mine, Len Arthur, raised this question during work we were conducting into the theory of social enterprise. What we found is that is a portmanteau term: when almost anybody can claim to be one, the term itself becomes pretty meaningless.

This has become a live issue in my local community of Stroud, where the local health authority produced a plan during the summer to transfer a range of non-emergency health services to a community interest company. There was almost no consultation and what there was took place in August when most people had other things on their minds. During an emergency debate at Stroud District Council, Green Councillor Martin Whiteside produced a copy of the registration document for the 'social enterprise' he had obtained from Companies House. It indicated that there was only one shareholder: the Chief Executive of our local health authority.

Our story has now made the national media, thanks largely to the dedication of our Green mayor, John Marjoram, and the eloquence and determination of Michael Lloyd who is testing the legal process of transfer in the courts. Once local people got wind of what was afoot they were immediately activated, joined the rally, and spoke passionately in support of keeping their health services public.

So how do we answer the question with which I began this post? Again I think we do have a method for finding and answer: the useful scalpel in this dissection is made up of ownership and control. If you are being offered a social enterprise instead of a public service the questions you need to ask are: who will own it? and who will control it? If the process of being elected to the board is straightfoward and open to all, and the assets transfer to members then what you have is probably a multistakeholder co-operative and may have a good chance of providing you services that are responsive and meet your needs without extract value for somebody else's profit. If not, then you may be being handed a pig in a poke: beware of imitations.
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Currency War Lurches Towards Trade War

The growing power of China over the US resulting from its ownership of US treasuries, not to mention its superior productive capacity, is the driver of the currency wars that have been the subject of a series of posts of this blog. Earlier this week this power struggle took a dangerous new turn, with a bill that was accepted onto the floor of the US Senate by a big majority.

According to the Guardian website, 'The Senate bill, which does not specifically mention China, sets in motion a process for imposing punitive tariffs against a country with misaligned currencies. The bill also makes it easier for specific industries to seek higher tariffs on foreign competitors when undervalued currencies become a means to subsidize exports.'

The US it attempting to fight back against China's decision to keep control of its currency. This is of course a root cause of the under-valuation of the Yuan, but what would be the appropriate value. In a global trading system dominated by the US, its allies and the international organisations such as the WTO that they control, why would China feel any inclination to fight fair?

This is a high-risk strategy. Given that China is the US's largest creditor by far, it is only its decision to continue to hold and buy US government debt that keeps the country afloat. In a fair market the US looks almost as unsaleable as Greece, given its vast national debt and low levels of productivity.

The only safe way out of this situation is via international negotiations in which countries and their interests are fairly represented. The removal of the dollar as the global trading and reserve currency would be a necessary first step if China is going to accept an invitation to such a negotiation.
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George Makes King Mad

Proof that the economic crisis is still, fundamentally, a monetary crisis came during the Chancellor's speech to the conference yesterday, when he announced that he would be experimenting with another novel policy, which the policy advisors have decided to call 'credit easing'. This represents a worrying incursion by the Treasury into the realms of monetary policy traditionally reserved for the Bank of England.

You may have noticed the media pressure in recent weeks from 'financial commentators' attempting to force Mervyn King, governer of said bank and therefore the chap in charge of the nation's monetary policy, to resort to another round of quantitative easing, a policy that the media usually refer to as 'printing money' but which has actually consisted of the bank buying up a lot of corporate debt, thus making it easier for the corporates to take on more debt. Since that is the way that this form of capitalism considers appropriate to create money it is a novel but predictable response to a squeeze on credit.

It seems that King and his eight wise men of the Monetary Policy Committee (for such they are - no sign of skirt in the room when such decisions are made) have refused to put more money into the economy in this way, and so the Chancellor has found a way around this block by inventing a system of government guarantees of corporate IOUs, allowing them to issue bonds and get the liquidity flowing. Few details have been given yet, but it appears that the process of creating money through issue bonds is being privatised, with corporations now being allowed to create money in this way.

The Treasury will guarantee this process, which appears to mean the we, as taxpayers, will become entangled in the securitisation corporate debts that was the process that led to the credit crunch in the first place. With bank debts looking so dodgey, only debt backed by our obligation to work is acceptable. The problem is we have no say over who is allowed to create this debt, how they bundle and sell it, and what it is invested in. These deeply political decisions have been privatised and devolved to corporates.
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I must confess that the arcane niceties of what is referred to in textbooks as 'open market operations' baffles my mind, but the political economy of this seems clear: the debt crisis has resulted in the sucking of money - liquidity - out of the economy at all levels. Everybody is clamouring for investment, whether in hospitals or from the corporate sector: it is a political decision that money will be allowed to be created in the private sector while the public sector will continue to be starved of cash.
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Banking Mad

Holmes and Watson pursue an errant banker

So the Vickers Commission has reported and made its bland recommendations. In view of the apocalyptic views expressed about the behaviour of the banking sector by Bank of England Governer Mervyn King earlier this year the proposals seem mild indeed. More telling is the eight years that the banks have been given to wheedle, wangle, and reorganise their business to avoid the legislative changes that are proposed having any potential to curb their room for manoeuvre.

Given the devastating consequences of the banks' nefarious practices over the past 30 years the only conceivable response is one of rage. But while rage seems to me quite appropriate, and proposals along the lines of a national audit committee to repudiate much of the debt that is presently destroying our society may be a way of channelling this rage, there is also a need to engage in the debate about the future shape of the banking sector in the UK.

My Green House colleague Thomas Lines has done this with admirable grace and restraint (not to mention some wit) in his recent report The Dog that Didn't Bark. As its subtitle indicates it provides useful historical background to the present limited debate by analysing 'when banking crises did not occur and what we can learn from that'.

Lines reaches some rather unexpected conclusions. If I may risk mixing his extended metaphor (over which he himself is quite scrupulous) he finds that the focus on competition between banks is a red herring. During the nearly three decades following the end of the Second World War when there were no significant banking crises, British banks were not very competitive and operated more like an informal cartel. This was elitist and resulted in the rationing of credit, but it did achieve stable banking.

Interbank lending was also rare during this period. It was the interconnectedness of banks, as much as their size, Lines argues, that left them so vulnerable in the period leading up to the 2008 crash. Its origin lay in the laziness of bankers, who sought easy profits without effort:

'An uncharitable way to describe inter-bank lending would be as lazy banking, since the wholesale markets make it possible to build up a bank's assets without the hard work of developing a customer deposit base.'

The report recommends that banks return to their function within a stable economy: that of unglamorous utility banking, providing a haven for savings and a source of reasonably priced loans. A key recommendation is one that finds a comfortable home on a blog on the theme of Gaian Economics:

'Ecological theory suggests that a system will be most resilient when it is divided into compartments to protect it from external dangers. The banking system should be set up in this modular way too, without financial interconnectedness between banks. For this reason we proposed severe restrictions on interbank lending and derivatives trading, and a reintroduction of exchange controls designed, among other things, to sharply reduce international flows of money between banks.'
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Stability Facility Two-Step Reaches Conclusion

After weeks of rising political rhetoric the outline of a plan for the Eurozone appears to be emerging. The road that involved further debt guarantees from the wealthier nations of the EU, primarily Germany, and a consolidation of all Eurozone debts into one Eurobond, appears to have been abandoned. This was presumably because Chancellor Merkel refused, or argued successfully that this was politically impossible and might lead to a less market-friendly government in her country—perhaps even a Green one.

Since the debts cannot be absorbed the new plan is that some will be turned into losses, with a negotiation between the banks that unwisely took on Greek bonds and the Greek government that cannot repay them: the so-called hair-cut, which is now moving down to a number 2 on that automatic machine that muscular men with early hair loss so often favour. It was the Argentinians back in 2002 who taught us that it takes two to tango: serious debt crises require losses to creditors as well as pain to debtors.

The other side of the plan is more interesting: a larger bailout pot, now tastefully renamed the European Fiscal Stability Facility. This will be available to support governments whose national debt is so large as to undermine market confidence. It is assumed that it will never be used: its existence is intended to be enough to underpin confidence. This means it will have to be a very large pot indeed. And once the money is in the pot you can guarantee that the financial market makes will find some way to provoke a crisis and make it their own.

The argument now seems to be about where the money will come from to fill the pot. We must keep very close attention on this. If the money comes from national governments then our obvious question should be: 'How can there be money to put into a bailout pot when there is no money to pay for hospitals or children's services?' If, alternatively, the money is created directly by central banks—in a process akin to quantitative easing—then our question should be: 'Why not create enough money this way to repay all the national debt and so remove the need for the pain of spending cuts?'

This is the most interesting question of all. We know that the Bank of England is under pressure to quease more money into the economy at any time. Some of that money has previously been spent buying back our own debt; a similar process has been undertaken by the European Central Bank to buy Italian debt. So why not go the whole hog? Could it be that this would make it clear that there really is no need to create money as debt in the first place? That money could be directly spent into the economy as needed. The reason for resisting this is the power of those who live by lending money: without debt they would have to go to work like the rest of us.
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Explaining PFI

Scandals about the extortion of public money by private companies seem to arrive daily, as the decade of corporate governance begins to unravel. The political conclusion is clear: we need to keep the public and private separate.

This morning's news is about the disastrous economics of the PFI policy. Money that was created from thin air in the private sector was loaned to the public sector to build hospitals. Over time the interest on that money will have to be repaid from the public money that is taken from taxation and paid to hospitals to support patient care. The quality of health services will decline so that the financial interests of private corporations can be served. According to Department of Health figures, 22 trusts face bankruptcy because the payments on their PFI contracts cannot be met.

The fact that the PFI contracts the private companies who loaned the money became obvious when they started to be sold in a 'secondary market' - the companies who set them up were selling the income stream on to other investors. Serco has been assiduous in keeping its investors up to speed with the growing concern in government about the disadvantageous PFI contracts entered into by health authorities and the possibility of renegotiation. Dubbed by the Guardian as, the biggest company you have probably never heard of, Serco is all over the public sector, profiting at the public expense.

The PFI deals are just the most obvious example of how the claimed efficiency of private sector arrangements to provide public services were a front to enable the embezzlement of public money. The most charitable interpretation is that corporations and consultants have used politicians' ignorance about finance and about IT to profit at the public's expense.

When the operation of private values and private finance in the public sector has been so devastating it demands one to question why this has happened. The answer appears to be simple greed, the chief motive of the private sector, and which privatisation allowed to swamp the public sector too. Most seriously, we can observe the greed of ministers who foresee their own nest-eggs as directors on the boards of the companies who have destroyed the public interest they were supposed to serve.
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Sunshine State or Resilient Region?

Those of us who are active in Transition Towns have been disappointed by the government's inability to respond to the impeding food crisis that will result from the exhaustion of oil supplies. So I was surprised, I'm not sure whether or not it was a pleasant one, to find that the Department for Business, Innovation and Skills employed some consultants in 2008 to develop a range of scenarios in response to the need to radically reduce our national use of energy.

The scenarios are based on a series of 2 x 2 matrices arising from two ‘axes of uncertainty’. The x-axis ‘describes the significant uncertainties in the global political and economic context in 2050’, while the y-axis ‘looks at the type of innovation which attracts investment’. On the x-axis are represented possible assumptions about the extent of co-operation between nations, while the y-axis marks out the continuum between investment in optimising existing systems or developing wholly innovative solutions.

This process results in four possible scenarios: Green Growth, Carbon Creativity, Resourceful Regions and Sunshine State. Two of the scenarios have commonalities with a bioregional future, although both are based on this relocalisation as a response to a failure of global solidarity which is by no means the basic assumption of a more regionally based economic future. In the first, the Resourceful Regions, ‘The key distinguishing feature is that English sub-regions have a high degree of autonomy, matching Scotland and Wales’:

‘The countryside is used more intensively than in the past, for food production, mining
and other activities. Within built up areas, retrofitting rather than new build is the
preferred approach. Any new buildings are increasingly built in a local vernacular
style, and there is considerable emphasis on urban green space to tackle overheating. People in this Britain like to think they are self-reliant, and are proud of being British, even though the country is closer to breaking up than any other time in the previous century. Their living conditions vary widely as regions have their own economic structures and differing levels of economic success. But acceptance of the situation is underpinned by strong regional identities and the effectiveness of most regional government’s moves to support vulnerable groups and public services such as public transport.’ (Foresight, 2008: 14)

In the Sunshine State scenario, ‘Government has fostered an emphasis on localism to respond to energy problems’ and there are other aspects of the imagined future that could find resonance with a bioregional approach: ‘There are more local shopping streets and other community resources, partly because of planning decisions intended to promote local autonomy and partly because of municipal enterprise.’

I cite these examples not to support their vision of the future, which I think is limited by the nature of the underpinning assumptions, as well as the method used, but to indicate that government is considering the future design of economic systems that must result from rapid reductions in energy use. Policy focus has been most strongly on the Green Growth scenario, with profit-driven companies providing technological solutions, and to a lesser extent the more co-operative Carbon Creativity approach, but these are political choices. In a democracy, visioning the future is a job for all and these scenarios make clear that a bioregional future of the sort I am proposing frequently on this blog is a realistic possibility already under consideration by policy-makers.
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