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The Bartlett's Institute for Innovation and Public Purpose designs a new mission-oriented bank for Scotland.
Remember the Great Financial Crisis of 2008? Banks fell like dominoes, the stock-market halved in value and suddenly no one but the government had deep enough pockets to keep the system going.
For economic thinkers like Laurie Macfarlane, the Crisis was proof of something rotten in the state of British banking. Then a Senior Economist at the New Economics Foundation, he wrote a paper – ‘Taking Control of RBS’ – recommending that the Royal Bank of Scotland, which the government had rescued at a cost of £50bn to the taxpayer, be restructured as 130 local banks, each serving their region’s needs.
Treasury officials in London made it clear their hands were tied: they had no money to spend.”
Macfarlane pointed out that inequality between London as
The money had already been spent, first bailing out the banks and then in a £435bn buying spree on the capital markets known as Quantitative Easing (QE). To
Her Majesty’s Treasury may not have liked Macfarlane’s remedy but someone else did: Professor Mariana Mazzucato, Director of The Bartlett’s Institute for Innovation and Public Purpose (IIPP) and a member of the Scottish government’s Council of Economic Advisers.
Mazzucato is no fan of how the UK government has preserved the status quo in banking. Neither is her client in Holyrood. Scotland’s First Minister, Nicola Sturgeon commissioned Mazzucato and Macfarlane – now an Honorary Research Associate at IIPP – to write a paper to help her administration better understand how a public bank differs from private financing.
The resultant paper, ‘Patient Strategic Finance: Opportunities for State Investment Banks in the UK’, shows how money is provided to commercial enterprises by state bodies in Germany, Brazil, Italy, Finland, France and the Nordics.
Not all these state investment banks act the same. Some support
£2bn assets that the State Investment Bank for Scotland will eventually control – around 1.3% of Scotland’s GDP.
Sturgeon wanted a bank that could support her government’s policies of social inclusion, the transition to a low-carbon economy and the challenge of an ageing population. Inspired by the research paper, she approved the State Investment Bank for Scotland, which will eventually control assets of £2bn.
Many academics gauge success by the number of times their research gets downloaded. Some seek popularity via books, speeches and TV appearances. For Macfarlane, he went from being ignored by one government to advising another on national policy in less than two years.
But establishing terms of reference for the new bank was not straightforward. Macfarlane recalls that, although Sturgeon always backed IIPP’s vision, civil servants and other stakeholders were not used to a break from current economic orthodoxy. This says that the private sector, by competition, finds the leanest, most efficient ways to run the economy. The state’s role is merely to oversee private actors.
IIPP, in contrast, was founded to champion all the ways that society has benefited from the state’s creation and nourishing of innovation – in telephony, aviation, healthcare, electronics, agriculture and engineering. Competitiveness and profit-maximisation in the private sector, meanwhile, inhibits its capacity to transform new ideas into jobs.
IIPP continues to make the case, though not everyone is ready to hear it. Macfarlane gives
A rare example in recent times of British government endorsing public financing, the GIB ended up effectively privatised before it was four years old. Macfarlane notes, however, that some GIB employees, disgruntled with its loss of public service status, may now transfer the short distance in Edinburgh to the new State Investment Bank, bringing more guardians to IIPP’s blueprint for Scotland’s future.
The Institute for Innovation and Public Purpose has a mission to change how public value is imagined, practiced and evaluated to tackle societal challenges and achieve economic growth that is more innovation-led, sustainable and inclusive. It is part of The Bartlett, UCL's Faculty of the Environment. Find out more: https://ucl.ac.uk/bartlett/public-purpose
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