20 first steps to rise from ashes of crash: nef responds to Brown’s call for new ideas

Today, Wednesday 5 November 2008, think-tank nef (the new economics foundation) has responded to Prime Minister Gordon Brown’s call for “fresh and innovative intervention that gets to the heart of the problem” by publishing a set of 20 proposals which would breathe life into a phoenix-like new economy.

In the 2003 book, the Real World Economic Outlook – that included contributions from Nobel-prize winning economists – nef first predicted the scale, and consequences of the global credit bubble. Now that the bubble has burst, the think-tank has launched a set of proposals intended to both immediately stabilise the economy and lay the foundations for a phoenix-like new economy.

And, nef says this doesn’t mean starting from scratch. Just beneath the economy’s surface is the sleeping architecture of a new, diverse and resilient local financial system. The same is true of Britain’s neglected and undermined network of small shops and local enterprises that contribute disproportionately to job creation and help create the social glue that holds communities together during hard times.

Now that the Government is set, in effect, to own great swathes of our financial system - Northern Rock, RBS, Lloyds TSB, HBOS - there are immediate opportunities for decisive government action in the public interest.

nef says that the Government must act immediately to:

• Demerge banks that are ‘too big to fail’:The discredited financial institutions that have needed so much public money to prop them up should be reduced to a size where their failure would not jeopardise the system itself. Retail banking should be split from corporate finance (merchant banking) and securities dealing. The demerged units should then be split into smaller banks. Instead of institutions that are ‘too big to fail’, we need institutions that are small enough to fail without creating problems for depositors and the wider public

• Introduce a moratorium on crash-related home evictions. The Government, which now owns vast swathes of the UK housing stock, should introduce a moratorium on credit-crisis-related home repossessions. The banks, which are at fault, have been bailed out to a previously unimaginable degree by the tax payer, yet thousands of hard-working home owners face the daily insecurity of potential eviction. Evictions could be stopped replaced by long-term plans for restructuring householders’ mortgage debts.

• Create a secure, accessible local banking system for people by growing the role of post offices.In the context of building new, stable, secure financial institutions to meet local economic needs, such as mutuals, credit unions and cooperatives, the Post Office should be grown into a national banking system that delivers stable, accessible and dependable services to the public and businesses. It stands to be one of the best guarantees underpinning economic resilience, promoting financial inclusion and allowing people to invest and save with confidence and security.

Government’s new role in the banks means it can also set new directions for investment to tackle the other great challenges we face: climate change and oil depletion. nef calls on the Government to:

• Launch a Green New Deal to fight the recession while tackling energy insecurity and climate change. Such a plan would use a range of new fiscal tools, new measures and reforms to the tax system such as a windfall tax on the oil companies. The resources raised would then be invested in a massive environmental transformation programme that could insulate the economy from recession, create countless new jobs and allow Britain to pay its part in meeting the climate change challenge.

The tragedy is that the financial system has long since failed to do the basic job required of it – to underpin the productive economy and the fundamental operating systems of family, community and the environment upon which we all depend.

What is new is that these proposals are no longer distant dreams on a hopeful wish list. Because the state owns a large slice of the financial system, these are things we can do now. The argument that they are impossible because the state cannot intervene directly to shape the financial system has fallen. Massive intervention has already occurred but more innovative and decisive action is needed if government is to get to grips with the problem.

This year has been finance-led capitalism’s 1989. It is now as broken as the old Soviet Union. It didn’t work for the real economy. It put people in rich and poor countries alike into debt for short-term profit. It was uncontrolled and grew in power until the tail was wagging the dog.  Now there is a huge opportunity to develop a new model for a real economy that does work for people and the planet.

	join us
	Join nef online or make a donation

	nef newsletter sign-up
	Register now!

	clone town fight back newsletter sign-up
	Register now!

	related
	at nef The Guardian: Cassandra's lethal paradox The Guardian: How Labour could fix the financial system
	Publications From the ashes of the crash: 20 first steps from new economics to rebuild a better economy

	contacts
	Andrew Simms