Panahpur

With the misery index in Greece moving ever upward, it feels odd to be going there on holiday. And with the elections looming there, the time is right to revisit what was written on this blog on Armistice Day 2011 – nothing has changed since then, other than the issues being visible in sharper focus:

They that can give up essential liberty
to obtain a little temporary safety
deserve neither liberty nor safety

- Benjamin Franklin, Historical Review of Pennsylvania (1759)

So the most revealing week of the Eurozone crisis ends, on Armistice Day of all days.

The ‘Greater Europe’ project is as old as the hills. Ironically it was the Greeks who had the first proper go, followed by the Italians (aka Romans) and then a Belgian (Charlemagne, was born near modern day Liege).

Hitler was an Austrian opportunist who took advantage of fertile ground in post-Weimar Germany to pursue his personal and well supported Greater Europe project – which latterly became inseparable from his toxic anti-Semitism and general insanity.

Whatever the original motives of the current European Union, it has in the last few weeks become (whether by accident or design) the Greater Europe project of our time. The way in which a Eurocrat (albeit a ‘Greek’) has been installed in Athens by Brussels has stirred memories of Herod and Quisling. There is a similar process underway in Italy, where like in Greece there is absolute intolerance of any suggestion that the electorate might be consulted.

If a Greater Europe is to be finally established, where European countries are managed by a federal government operated out of Brussels (instead of Athens, Rome, The Vatican or Berlin), then Brussels needs German financial firepower.

Britain, along with the rest of the world, is encouraging the Germans – with their stacks of cash – to cough up and give Brussels what it wants. From the perspective of the economic realist, simply take the Euro to its inevitable and logical conclusion. And as one investing into a distress situation, write your own terms. What’s not to like?

Doing this is, say the markets, the mother and father of all no-brainers. It is demonstrably in the best economic interests of everyone – be you a creditor nation within the Eurozone, or a trading partner reliant on Eurozone economic health (and debt repayment). Most of all, it is in the best economic interests of Germans. By saving the Euro, you prop up the value of the money that you are owed, you prevent your own currency from appreciating and so leaving you uncompetitive, and you prevent meltdown in the economies of your key trading partners.

And yet, obstinately, the Germans hold out. Why?

As the only nation within the Eurozone with the firepower to save it, the Germans have a stark choice – cough up or leave.
Coughing up would be to give immense power to Brussels. It goes against all the anti-authoritarian, pacifist, democratic instincts that characterise their magnificent response to the national nervous breakdown of 1945. To do what is demanded would be to collaborate with everything that they now stand against.

But the alternative is to exit the Euro. Were they to choose this alternative, they would sacrifice their killer economic hand and exchange it for bad debts and an appreciated currency in an economic train smash. They would be cutting off their own nose.

Yet in doing so they might, just might, take power directly away from an emerging authoritarianism, and in the same move they may return it directly to the voters of Eurozone countries. Such an option could leave the Brussels emperor with no clothes.

Today, on 11.11.11, could it be Angela Merkel and her discussions in Berlin that stand alone against a global consensus that would sacrifice “essential liberty to obtain a little safety”.

In Britain, today, we took a minutes silence to remember those who gave their lives to stand against the forces of tyranny both in 1914-18 and 1939-45. Perhaps it was a minute for us to consider the way in which the great wheel of history turns.

Tommorrow, the issue of Payday Lending is likely to hit the news as Stella Creasy MP’s campaign against the practice reaches a crescendo when her ammendments to Clause 22 of the Financial Services Bill are debated.

Panahpur are very pleased to have provided capital to help Fair Finance to grow their lending.  I had the chance to spend a day at Fair Finance’s offices in Dalston last year, and saw their superb work at the front line of the battle to help financially excluded and exploited people out of a hole.

The way that the finanically vulnerable in our society are preyed upon by legitimate businesses who profit by feeding on their vulnerability is worthy of challenge.

One response, championed by Stella Creasy, is to regulate predatory lenders.

Another, led by the likes of Fair Finance, is to out-compete exploitative lenders. If predatory lenders cause misery, then surely a competitor whose loans help those excluded from mainstream financial services to get on their finanical feet will be prefered. As a social investor, we would see that competition is likely to be more effective than regulation.

Faisal Rahman, founder of Fair Finance is the expert here, not me. He said in one of his Guardian articles that “we might look at the choices people make and think that they are wrong because they seem expensive, but if we’re going to be serious about creating alternatives then we need to understand why people use them”.

Making judgements and then seeking regulation is a natural response. But it may not be the best or only one. Over the last 3 years, Faisal has written a number of articles in The Guardian on the subject, which illuminate many of the issues as often only someone working on the front line can.

In early 2009, this warned how payday lending was growing but was not being taken seriously.

In 2010, this – based on the indepenent report by Consumer Focus on payday lending – explained why alternatives to predatory lenders were finding it tricky to make progress.

Later that year, this explained why some people choose high cost lenders.

And this explains why payday lending is booming and who the real culprits might be.

It is well worth taking the time to see the issue through the lens of someone working on the front line. When one does, things start to look different. As with most things, the issue may not be as simple as it first appears.

A few weeks ago, in the business I co-own with my brother, a newly recruited senior chef in a leadership position made an error whilst cooking a dish by adding the wrong ingredient. Rather than immediately acknowledging the error (I would never have heard about it if he had), he attempted to cover it up and falsify paperwork. This required him to involve his subordinates in the cover up. They blew the whistle, he was sacked the next day.

When people join a project without buying-in to the goals, they can be at risk of shooting themselves in the foot. This is what happened with our chef.

The proposed imposition of a cap on tax relief available for charitable giving has revealed the extent of a similar problem at the heart of government. At first glance the measure looks like an appropriate ingredient to stop the rich from exploiting tax reliefs to avoid paying income tax. But it doesn’t take long for it to become obvious that it is the wrong ingredient.

Tax relief on giving is an important principle because it suggests that citizens have a role to play in putting their shoulder to the wheel alongside the state to solve social problems. We’re all in this together – if you want to give your income away to help solve social problems and improve life for your fellow citizens, you can do this without being taxed on it. Tax relief on giving suggests that we live in a Big Society.

Capping this relief implies a limit to the degree to which citizens can get involved in the Big Society, saying instead that at a certain point the state takes over and citizens have no further role to play.

This is the opposite of the Big Society. It might be justified by belief in the Big State to solve society’s problems – which is unlikely in the case of the current Chancellor. Or it may be justified by individualism … the belief that civil society organisations do not really matter – that ‘there is no such thing as society’.

At the launch of Big Society Capital earlier this month, the Prime Minister’s belief in civil society organisations appeared sincere. Yet it is interesting to reflect that at the event, and in the months leading up to it, the Treasury have been conspicuous by their absence. The agenda appears instead to have been led by the Cabinet Office in something of a vacuum, in isolation of the purse strings in Treasury.

We can all understand that an error was made with the charity tax allowances – the chaotic, leaky lead-up to the budget was bound to result in mistakes. We can make allowances for the political realities of coalitions. But when you make a mistake – and this is a big strategic mistake because it strikes at the heart of one of the Prime Minister’s signature themes – you correct it quickly.

Does the Chancellor’s failure to do so suggest that he has not bought into Cameron’s Big Society Big Idea?  The safety catch has been flicked. The trigger must not be pulled if the Big Society is to retain any credibility.

There may now be more scrutiny on other areas where the government may be pointing a gun at its own foot. For example, the Government is currently blocking amendment 72 of the 2012 Financial Services Bill, an opposition amendment that seeks to introduce the requirement for the new Financial Conduct Authority (FCA) to go about its business “in a way which promotes the growth and development of social finance and social investment” – as long as this doesn’t contradict with its other responsibilities. This amendment is wholly consistent with the government’s own Social Investment Strategy, and by opposing it the Treasury is contradicting the Cabinet Office.

Is this further evidence of a lack of buy-in to the Big Society idea from Number 11? Who knows. What we can say for sure is that if it is to stand a chance of succeeding, the emergent social investment market needs to be understood and valued by the Treasury.

Hopefully we will see the Chancellor opening his well stocked larder to see what value might be cooked up by the emergent field of social investment in our straitened times.

Launched today at the Oxford Jam:

Return of Capital? from Kevin Burgess on Vimeo.

Publicity clip for the Return of Capital? project.

Download the publication here:

Great to see that today the Social Stock Exchange, which is planning to launch as an FSA regulated Recognised Investment Exchange (RIE) in Q1 2013 has launched an information site for investors, brokers and issuers to learn more. Watch this space …

“On capitalism we lefties are clueless – it’s not just a rightwing caricature” is the headline of Zoe Williams’ comment piece in todays Guardian. She wrote it following a discussion with Bruce Davis who, she explains, is about to launch Abundance – an investee company of Panahpur. It is well worth reading and is reproduced below:

“Imagine if everything the right said about the left were true. All the personal stuff – where we’re never quite hair-shirted enough to be truly leftwing; or if we are, then we’re unbearable – I don’t mind. I am big and ugly enough to stand accusations of being patronising and naive, of not understanding economics and having a beard.

But there are specific charges laid against not just socialism, but all left-leaning politics, that if true cannot be waved away. In the broadest terms, where leftwing equates to an over-weening state and a bloated public sector, we are against enterprise: not only does the left fail to innovate, but it strangles innovation in others; it is very good at spending money, no good at generating it; when it sees other people generating money, all it can do is whinge; its ideas produce this circle-jerk economy where the money just passes from the bureaucratic state to the inert individual, then back to the state. Nothing is produced; nothing ever grows.

This is a caricature, of course, and some of it you could disagree with straight off – the economist Mariana Mazzucato wrote a dazzling slim defence last year of The Entrepreneurial State, which she kicked off by demonstrating that the private sector has its own deficiencies in the area of enterprise, it is quite risk-averse, and new technologies often could not get off the ground without state support.

“How many people,” she writes, “know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant? Or that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council labs in the UK?”

There’s an argument I’ve heard in sectors from wind energy to IVF that the problem with the state is not that it won’t fund innovation, but rather that it illogically funds the uphill slope, then backs off to let the corporate sector do the fun bit.

However, there’s some truth in the caricature that I can’t budge: looking at Emma Harrison, the disgraced former chairman of A4e, I can’t help thinking: where is her leftwing counterpart? Where is the person who tried to win those government contracts (and, let’s remember, welfare-to-work was originally a Labour project) not for their own financial aggrandisement, but because there was work up for grabs and they thought they’d do it well?

And, to ask some larger questions: how is it that we complain like mad about banks and yet continue to bank with them? How is it that we object so vehemently to the 1% having all the money, and yet persist in giving them our money (no, not from governments, but from our own pockets, our own savings, our own pensions)? Real wages in this country have been falling since 1968. Muhammad Yunus‘s ideas – that poverty can only be ended by the horizontal economics of production, not the vertical economics of consumption – have been around since the 70s. Where’s our micro-credit? Where are our horizontal exchange enterprises? What’s taking us so long?

Immediately I feel I have to make the case against micro-finance, distilled by some startlingly horrible cases in which people were driven to suicide by Indian micro-lenders’ loan-shark tactics.

But that doesn’t dent the main point: at the moment in this country, I’d go as far as the developed world (how long we stay “developed” is an open question), the left cannot deal with the idea of capital. Faced with a project for which investment is inevitable, it either parcels it out to the private sector, in one of those heads-they-win, tails-we-lose arrangements we’re all now familiar with. Or it comes up with a concept like the community interest company, in which numerous caps and controls are attached to the raising of capital, as if in embarrassment – as if a social enterprise that actually made money would be a source of shame. Maybe that shame would be warranted, but enterprises that don’t make money often fail.

This isn’t to say there are no solutions, just that solutions aren’t coming from politics: they’re coming from people like William Davies, with his work on employee ownership; and Bruce Davis, one of the founders of Zopa (a micro-lending site that now holds 3% of the UK’s personal loans), who will shortly launch Abundance, a company that allows you to invest in renewable energy projects instead of ISAs.

Davis does not self-identify (as the sociologists have it) as a leftie: but then he describes his aims. “What we’re trying to do is free ourselves from the two blueprints: the socialist utopia where all capital is dangerous, versus the dogma of the market, where somehow gambling is the same as making decisions. We’re saying there’s a middle ground. You can create markets which are essentially re-embedded in society. You can’t just cede money and capital to the right-wing. That’s like saying ‘the internet belongs to the right’.”

I want to whinge about unfettered capitalism. I was raised to moan about conservatives, this is the work I was born to do. But it is more fruitful, and more urgent, to “carefully observe those good qualities wherein our enemies excel us”. (It’s Plutarch. I know, I thought it was from Borgen as well)”.