One of my favourite think thanks is the New Economics Foundations, because for the last 20 years it has been tackling global problems in an integrative and integrated way, thinking together solutions for the economy, the environment, and the politics of participative innovation.

Now that many governments actually have unprecedented control of the banking system, there is a great opportunity for systemic reforms. So, Stephen Spratt and David Boyle have outlined a detailed policy prescription with measures in 6 categories, which I’m not going to reproduce here.

But please read their intro and conclusion, followed by what they say about innovation and democratic participation, to get a feel of this important approach.

The material is UK-centered, but readily applicable elsewhere as well.

1. What kind of policy change is needed?

“If nothing else, the crisis provides an opportunity to rebuild a financial infrastructure which does the job, which means investing – not just bailing out failed banks – but in loan facilities for an interdependent network of productive local economies that genuinely underpin life and works within the tolerance levels of the natural environment. This is now possible because the state owns a large slice of the financial system.
The priority of politicians is to restore the normal functioning of the banking and financial system. A rapid return to ‘business as usual’ is the plan, which will hopefully be accompanied by an ‘upside’ for taxpayers as governments are able to sell their equity stakes at a profit when normal market conditions return.

This is all very comforting of course, but is it actually such a good idea? After all, it was ‘business as usual’ that got us into this mess in the first place. We now have a unique opportunity to pause and consider what the financial sector is actually for and to put in place institutional and regulatory structures that enable it to perform these functions well.

new economics regards finance as a means to an end: to support inclusive, equitable and sustainable economic activity that creates real value – economic, social and environmental. It is difficult to argue that much of what the financial sector has been focusing on relates positively to these factors, or that a return to ‘normality’ would change this.

If our current system does not support these outcomes, the question arises as to what would. The following six principles are the starting point for rebuilding the financial system so that it supports, rather than corrodes, the real economy.”

And from their conclusion:

“We need to combine these measures with an ambitious ‘Green New Deal’ which allows us to tackle the combined financial and climate crises in a co-ordinated way; to fight the recession whilst tackling energy insecurity and climate change.

A key test is how, in economically stressed times, affordable finance can be made available in a targeted way to kick-start new, low-carbon, energy, transport, food and housing sectors and to provide much-needed jobs. One of a number of useful precedents is the example of South Korea. Over many years it channelled lines of low-cost credit to strategic parts of its economy. The success of this policy can now be measured by how many of the sections of South Korea’s industry which benefited are now ‘world leaders’. We need similar vision today.

While the UK Government is not sitting down with a blank piece of paper to design an optimal financial system, it is closer to this position than at any other time in living memory.
We have a unique moment of opportunity.

If we want to draw a line under the mistakes of the past and build a financial system that supports equitable and sustainable economic activity, we need to take this opportunity, for it surely will not come again. The Government should reconfigure ownership and diversify the financial sector to appropriate scale to make sure that it becomes a driver of real and sustainable value creation that ensures we will not be condemned to repeat the mistakes of the past.”

2. Democracy and Participation

This actually reproduces section 6 of their policy proposals:

“The crisis has highlighted the need for institutions that can take a global view but we also need these to act in the interests of all, not just the most powerful groups. This requires new mechanisms for real political participation at the supra-national level. Locally, we need different ownership models, such as mutuals and co-operatives, that work in the interests of their members, owners and local communities, rather than simply seeking out the highest returns. This adds diversity to the financial system and also enables local priority setting, accountability and participation.

We need a more pluralistic system of ownership, designed intelligently to align the interests of financial institutions with the broad public interest, locally, nationally and internationally. None of this will just happen. Left to their own devices, financial markets tend towards greater size and homogeneity of ownership and practice, rather than to appropriate scale, regional or sector specialisation or to a plurality of ownership forms. That means the Government must:

* END the use of tax havens, many of which are actually British Crown Dependencies, and tackle corporate tax avoidance.

* INSIST that the IMF and World Bank are governed as mutuals, with one member one vote not as profit seekers with one share one vote, because – just as governments and central banks around the world are showing – the profit motive is not able to extricate us from this mess and central banks and multilateral financial institutions must prioritise stability over returns.

* INTRODUCE a moratorium on crash-related home evictions, and radical innovations to prevent a repeat of destructive house-price inflation. The credit crisis is inseparable from distortions in the housing market. While the Banks, which are at fault, have been bailed out to a previously unimaginable degree by the tax payer, thousands of hard-working home-owners face the daily insecurity of potential eviction as the recession makes it harder to meet repayments. This is deeply unjust, destabilising and imposes a huge burden on society. Evictions could be stopped and in their place could be put long-term plans for restructuring householders’ mortgage debts.”