It's difficult nowadays to imagine that people ever felt affection for a bank. But listen to staff of Northern Rock and residents of the north east and you hear a story of a bank that was seen as a responsive and, in retrospect, even a loved public service.
It's odd, therefore, to hear the one recent reference to mutuals by a government minister (Tessa Jowell in December) being applied not to overcoming the disasters of finance plcs but to the questionable benefits of breaking up the public sector. This included the laughable suggestion that a mutualised public sector could draw on 'the efficiency of the private sector'.
Northern Rock's collapse was the first visible sign of the wider financial crisis, which was the result of precisely the forces of profit maximisation that the mutuality model was designed to challenge. These were typified by the company's post de-mutualisation CEO, Adam Applegarth, and his £700,000 pay off. Now the profitable parts of the company are set to be sold off to the private sector again. A tragic case of socialising debt and privatising profit.
Northern Rock, saved by a government loan of £26 billion, has been split in two. On the one hand there is now Northern Rock plc, a potentially very profitable high street bank. Insiders reckon that annual profits could be over £250 million within its first year. On the other hand is an organisation that is responsible for the risky mortgages, repayment of the government debt and for the existing staff pension fund and pension shortfall of £60 million. It will remain the responsibility of the government.
But all is not lost. The force of a strong pro-mutual regional tradition is joining with the strength of economic arguments that start from the public good. A growing campaign is underway for the remutualisation of Northern Rock. It began with a report by the Centre for Mutual and Employee-owned Business at Oxford University, which argues, for example, that mutual ownership can counter-balance the short-termist pressures of the City. It also argues that mutuals help to reduce the present concentration of financial sector resources and employment, dispersing wealth and welfare to local economies.
These arguments and more have been taken up by Alliance For Finance, an increasingly active confederation of 15 trade unions and staff associations in UK financial services (with a total of 200,000 members in all). Russell Greig, its secretary, is based in Chester-le-Street, the heart of Northern Rock country.
He feels that the company would no longer exist if it hadn't been for government aid. So 'it makes sense that this support should be returned to the community. It can't be right that the financial support pumped into Northern Rock should simply be used to allow another plc to profit. The new company could be turned into a community-owned organisation serving the needs of the communities and able to re-invest into them.'
When Greig talks of reinvestment in the communities, he means investing the profits into giving loans to more people and on better terms. He also means giving more resources to the Northern Rock Foundation, which, before the crisis, was a major funder of community projects in the North. 'Instead of pressure from shareholders in pursuit of profits and dividends, the pressure will be from the community for a socially responsible lender, serving the needs of its customers (owners) and wider community,' he says.
There's a long term interest for the government here: as the mutual company becomes profitable it would steadily repay the government's loan. But there's also a case for the government returning a proportion of this value to the company as a government investment. 'The government could then use the mutual to provide socially useful banking to overcome financial and economic exclusion,' argues Russell Greig. 'It could also use it as a basis to regenerate deprived areas again through the communities where it operates and would effectively serve.'
Some 100 MPs have signed an early day motion calling for Northern Rock's remutualisation. Does Labour have the courage to apply its rhetoric about mutualisation to the financial sector and build on the century-old success stories of co-operative and mutual organisations?
Alliance for Finance
Compass is currently working on issues of remutualisation, looking at the case of Northern Rock - contact Compass for more details.
Centre For Mutual and Employee-owned Business
Hilary Wainwright is a member of Red Pepper's editorial collective and a fellow of the Transnational Institute.