Thursday, September 18, 2008

Let's run the banks like e-Bay and Wikipedia

Let’s not despair that human nature always causes ruin just because the banks are collapsing. Individuals can make a fantastic difference, and together, given a leap of imagination, can find a solution to global financial inequality in an unexpected place.

In a week when capitalism's Goliaths have fallen so swiftly, not by the action of many Davids, but because they were made rotten to the core by their own rapacity, I have been gleaning potential solutions to some of the world's most pressing economic problems from a quite different quarter.

I am researching a book on links between individual and communities in Africa and Wales. This means I am travelling around Wales talking to people who are changing the lives of others thousands of miles away, and whose lives themselves are being transformed in the process. Individuals like Angela Gorman, who, just because she saw a BBC documentary in 2005 about women dying in Chad during childbirth for want of a simple and cheap compound, has given up her job to raise money to help them, and as a result slashed the mortality rate from 17% to under 2.5%, exceeding a Millennium Development Goal. These drugs cost just 60p a pop, and a woman would need five to seven of them. Yet they had, until her straightforward intervention, been dying by the hundred. In short she has achieved in a year what the United Nations failed to, so much so that they have asked her to repeat her success in neighbouring Liberia. []

On Wednesday I met Denise Lord from Pen-y-Craig, in the Rhondda, an ex-coal-mining area classed as 'deprived' in the lexicon of EU or government grant-dispersing bodies, and which has had millions poured into it in an attempt to help its children. Although Denise says the kids she runs workshops for are "materially rich, with their mobile phones and Sky boxes" compared to those she has visited in the slums of Cape Town, the problem is that compared to the Cape Town kids they are "spiritually poor, while the Cape Town kids are spiritually rich and materially poor". []

I asked her to explain. "We have so much to learn from these people," she replied, "And I think among the most important is humility. The kids there have to struggle to get to school so they value it. The kids here take it for granted, so they don't. They bunk off and think it's cool to drop out and get into trouble."

'We have so much to learn from these people' is a phrase I've heard from every one of these extraordinary-yet-ordinary individuals I have talked to so far. But Martha Musonza Holman is one apart. She left her two sons, aged 9 and 12, behind when she fled Zimbabwe in 2001 to come to Wales, where she now resides running a fair trade business called, appropriately, I Love Zimbabwe []. She and her partner David struggle to import crafts made by people from her community back there to sell here, so she can send the profit back.

It might be easier to trade in hedge funds. To start with she has to contend with officials in Zimbabwe who demand a cut which puts the price up. "You may think they're corrupt," she says, "like some financial traders. But they're just trying to survive themselves in the worst of economic conditions. However we have a consignment of ceramics that has been sitting in a port for three months and we can't bring it here to sell."

The bankers on Wall Street and in the City, who paid themselves billions of dollars in bonuses, don't have the excuse that they were just trying to survive.

"The last consignment we received cost us £1130 to bring here, but I can only sell it for £1200," she complains. Furthermore, sometimes she sits in the Abergavenny market all day and sells nothing. "People in Zimbabwe think it's simple. We are all rich in the West, they believe, so it's easy for me to sell their crafts. But it is not!" The market decides what sells. If no one buys, or if the profit is miserable, her people back home will starve, fair trade or not.

Here is a clear case where the market needs intervention, to help the poorest. That is exactly why the Welsh Assembly Government has commissioned me to write this book and help Martha and all the others to find a bigger market.

Fair Trade is about transparency. Those who pay can see, should they choose, that their money benefits the community where the producers live, and that the producers receive a fair wage. Should not all trade be fair? Should not all banks be transparent? Why do we expect one system to apply to one type of financial transaction, and another, of supposedly far greater import, to be shrouded in secrecy and occluded by hopelessly obscure rules?

The few exceptional people I am meeting are passionate, inspirational, hard-working and often unpaid, as they try in every way they can to help people so far away. Why do they do it? Because their own spirits are enriched and their lives gain meaning by doing so - without the need for religion.

I struggle to understand human nature when I compare their generosity to the insatiable greed of the equally exceptional few bankers who have sucked dry the trough that millions, also far away, are now unable to feed from.

So what is the solution I am advocating, besides transparency, fairness and humility? I believe that it is glaringly obvious. It's a solution dreamed up by ordinary people and millions use it every day. It is a model which others have proselytised for other spheres of human endeavour but few have dared suggest could equally apply to the financial world. When I suggest it you will doubtless laugh. You will snort. But after you've done that, consider it further with me.

We all know that a lack of regulation has brought the crisis upon us. We all know that this has encouraged human greed. I believe that particular aspects of human nature, multifarious as it is, are manifested in different environments purely as a result of what is acceptable in that environment. If you approve excess, excess is what you get. If you reward honesty, then that is what you get.

Every day, millions of people use e-Bay and Amazon and other online marketplaces, buying and selling to other invisible individuals whom they will never meet. They do so with trust and faith because they can clearly see their trading history. Bad deals get bad feedback, and we can all read it. Yes, sometimes scams occur, and sometimes people get ripped off because they don't bother to check the trader's history. But compared to the majority of transactions these are rare.

If, thirty years ago, I had told you that in the future people would trade to this extent with others whom they would never meet and, by and large, have faith that they would not be defrauded, you would have called me hopelessly idealistic. You would have said that such a thing was only possible in a small community where everyone knew everyone else and the high probability of repercussions for bad behaviour would help to curb it. Yet here we are, and, thanks to simple rules, effective monitoring, and modern technology, it happens all the time and millions of dollars change hands every day.

Furthermore, Credit Unions [] and community banks trade cash and help individuals and communities bootstrap themselves up without recourse to high interest rates or rapacious moneylenders. In these constituted environments individuals or groups invest money, and other individuals or enterprises borrow it, in a transparent way. They are owned and controlled by their members. The average U.S. credit union has $93 million in assets versus $1.53 billion in assets for the average U.S. bank, so they are commonly smaller - not a bad thing, since if one fails it is not the end of the world.

So here is my horribly naive, simplistic and obvious solution, in outline, to the problem of global financial ineqality and the dark side of capitalism. Here is my mad plan to render these monstrous predatory dinosaurs of banking and insurance extinct once and for all. Here is the route to allow small and medium sized traders - everyone in the world, eventually - access to capital fairly and in confidence: use modern technology, e-Bay type rules and checks and balances, transparency and fairness, to apply a credit union style model to mutual one-to-one exchanges.

Even if those traders be large concerns, they must still follow the same rules of transparency. Everyone's credit history will be visible to all. And if you can see your own history so plainly, would you not be more prudent yourself?

The same rules would apply to everyone, not one set of rules for us and another for the bankers. As with peer-to-peer networking, file-sharing, and indeed Wikipedia-style collaborations of any sort, we would all be bankers, whether lenders or borrowers. If millions of otherwise unconnected people working together can build something as essential and huge as Wikipedia or e-Bay, why can't they build lending institutions, independent of banks? I am not an accountant, or a banker. I can't work out the nitty-gritty of how it would work. i don't need to. I believe in human nature - someone else will, or a crowd of people working together.

If this were done then maybe, just maybe, we might learn some spiritual wealth and humility; by doing things the slightly harder way - and following some simple rules that we collaborate on to make up.

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