Which flag flies over the most
comprehensive state-backed personal savings system in the Western world?
Which country deploys state coercion most widely to guarantee the financial
stability of its retail-banking institutions?
It is
the US of A! That bastion of free enterprise, that Land of
the Free, that Thatcherite Nirvana. Both building-society deposits (Savings
and Loans societies, in the US) and bank savings have massive statutory
protection. Both systems were introduced in 1931, to restore public
confidence in the banking system following the Wall Street.crash. And
they have never been removed. The two systems are different, in that S&L
savings are directly guaranteed by the Federal State, whereas for bank-savings
there is a mandatory insurance levy, self-funding the insurance.
The
cover provided is very extensive indeed, effectively unlimited for
ordinary citizens. And this week, the political spotlight turned on the
banking guarantee system. Congress is being advised to raise the
$100,000-per-account limit, and to index it to inflation. That would
mean increasing the risk-burden borne by the State. The figure is
therefore already £70,000-per-account, as compared with £15,000-per-person
under the UK's voluntary insurance system.. Hardly to be expected, is
it, in the Valhalla of the Free Market?
The
influential Alan Greenspan, Federal Reserve Chairman and America's
top central banker, does not want that state-protection to be
extended. He says -
- "Raising the ceiling now would extend the
safety net, increase the Government subsidy to banking, expand moral
hazard and reduce the incentive for market discipline, without providing
any real evident public benefits".
He argues that borrowers are given artificial protection against the risks
of borrowing, thus weakening market forces. And he is supported by Bush's
Treasury Under-Secretary Peter Fisher, who opposes the increase for the same
reason.
But both top men underestimate the
true significance of the 1931 state guarantees. For 70 years, they have
bolstered fragile consumer confidence, as they were intended to do. They
have underpinned the emergence of the strongest consumer economy that the
world has ever known. As a consequence, the US personal savings rate has
always been the lowest in the Western world. The function of the State
guarantees has been to give all consumers the confidence to go out and spend,
saving only 5% of disposable income. By contrast, the Japanese, whose
national economy is on the floor, save 22% of disposable income.
Which
solution, Alan, is the better one? I say that the US, having
been forced to adopt the right "public" solution in 1931, laid the very
foundations for the modern thriving consumer economy. Americans have
since then had the personal confidence to go out and spend, rather than hoard their money,
secure in the knowledge that their savings are "safe". No
European Government gives its citizens the same support. I believe that,
in developing a new and radical socialist solution to the old-age pensions
problem, Labour will be required to adopt the US guarantee-system for
Additional Voluntary Contributions (AVCs). Watch this space.
What
do you think?
Taming the Corporations >> My
Welsh socialism >>
Congratulations to Tony Blair for introducing a new form
of Question Time, giving the Select Committee Chairs the opportunity to
cross-examine him on the conduct of his Government, and in particular the work
of the powerful new Downing Street Performance and Innovation Unit - that is a
real enhancement of the democratic role of the Commons.