Banking for the Common Good


Today Scottish Government published its implementation plan for a Scottish National Investment Bank.

This proposal – spearheaded by Common Weal in our 2016 blueprint – has the potential to become one of the most ambitious projects undertaken by the Scottish Government since devolution. We strongly welcome these plans and are genuinely excited to see them develop. To quote the First Minister, “If we get this right, then this has the potential to be truly transformative”.

There is certainly a lot to praise in the implementation plan as it currently stands. We laid out several objectives which would have to be met if it is to be a success and many of these have been adopted in full.

It is to be a bank – A limited investment fund would never be able to reach the scale the SNIB needs nor would it be self-sustaining in the long term.

It is to be mission driven – The purpose of the SNIB is to work for the Common Good, where ever that lies, rather than just to chase easy profit.

It is to be ambitious – Which should go without saying but witness previous failed schemes which were simply left to wither on their vines.

It is to take a long term approach to finance – Many commercial banks seek to return their investment within a very short time thus simply won’t countenance projects which need the support of “patient finance”. By looking at 10-15 year timescales, and perhaps longer, the SNIB can support projects that simply will not happen without it.

It will be publicly owned – And hopefully, unlike schemes like the Green Investment Bank, it shall stay that way.

It will invest in SMEs and public infrastructure – This will be a major part of the bank’s operations although it must also go beyond this

It will have a governance model which recognises its mission and the diversity of Scotland’s economy and society – If the SNIB were simply captured by the banking sector, it would fail. If it were to be solely subject to the whims of political advantage, it would fail. The bank needs to have a diverse governance model and there is much in this proposal that it does well to lay a solid foundation for good governance. Importantly, the bank shall have a stakeholder advisory group which can keep the focus on the needs of Scottish society.

There are areas in which this plan could go further – of course, plans like this can always go further – so whilst I welcome and completely recognise the ambition of this project, I would like to see it do more in a few areas.

First, on the issue of funding, the SNIB as proposed plans to reach a capitalisation of £2 billion within ten years. It could easily be a fair bit larger than this – there’s more than enough work to fund after all – so rather than place any kind of hard limits, it should instead be demand led. Where there are projects in the pipeline, the Bank should be able to capitalise or leverage up to meet that demand. There is the possibility that various funding streams other than the government could be brought in such as investment from pension funds or even a public subscription so that everyone could have a part in investing in the economy of Scotland.

Second, whilst the SNIB will provide much needed support to SMEs, it can and should have a far greater scope than this. There is no reason why the “patient finance” model should limit itself to the 10-15 year timescale. It could also look towards the 30-60 year timescale and provide extremely patient finance to support social housing. The SNIB could provide stable funding for an expansive program of building extremely energy efficient houses for public rent. This could revolutionise the entire housing sector in Scotland as well as going a long way to curing a great many ills in Scotland such as fuel poverty and insecure private tenancies.

The Bank should also place more emphasis than it currently does on sectors such as public infrastructure – especially with regards to energy. Scotland’s vast renewable energy potential could be opened up and used to underpin the investment being done in the SME sector. The economist Steve Keen has noted that energy is too often overlooked in economic development. Investing in capital is important but capital without energy is merely sculpture.

On a related note, the implementation plan makes note of working alongside private finance when making decisions. Done right, this is a logical and responsible position to take but it could also easily be set up badly. The purpose of the SNIB is to reach areas of Scotland that “the market” doesn’t currently reach and if it can do that by working alongside private finance to fill gaps in the market then this is to be encouraged. If, however, the SNIB merely acts as an underwriter of risk and allows the private sector to hive off the most profitable investment opportunities and to dump any kind of risk or responsibility for failures on the SNIB and the Scottish taxpayer then it will exacerbate problems in the market rather than fixing them.

Similarly, the SNIB may well play an important role in replacing and eliminating expensive and controversial public-private partnerships like PFI but if it is instead used to prop them up, it will be an opportunity wasted.

Finally, good governance of the bank is vital and there is again much to welcome in this plan. When I proposed a structure for a Scottish Central Bank (which would play a very separate role in the Scottish economy from that of the SNIB) I was very conscious of the fact that there is a fundamental tension between the needs of these banks to implement very complex, technical policies and the needs of a democratic society to be able to hold those who govern it to account especially when positions are appointed rather than democratically elected.

It would be very possible for the government to simply appoint the board and let them get on with things without any other role being played by Ministers but a far fairer structure would be to have an implementation board appointed to, as the name suggests, implement policy; a role for Government to guide the mission of the bank and, crucially, an advisory stakeholder group to advise both on what that mission should be.

Happily, the SNIB will be following a model very close to this and, indeed, the chair of the stakeholder group will have a formal seat on the implementation board. However, it does still look as if the stakeholder group will be primarily advising the government rather than the board. This may place an extra layer between the group and the board. It is vital that the stakeholders are able to advise not just on the mission of the bank but also on the strategy of the bank and its day-to-day running. Efforts must also be made to ensure that the stakeholder group adequately represents the demos of Scottish society by ensuring that a broad range of groups can have a role on it, from local authorities and trade unions through to environmental groups, charities and third sector organisations.

As I’ve said, there is a lot to welcome in these proposals and the fact that the SNIB is happening is a testament to all those who have fought hard for it. This has the potential to bootstrap Scotland’s economy in ways that simply could not happen without it – assuming that it can avoid stagnating on its foundations or shrinking away from that potential. If we have made suggestions here then they are intended to encourage the bank to develop from its solid foundations and to see them as foundations and not a ceiling. Common Weal will now be examining each of these opportunities mentioned above and shall publish detailed case studies of each of them to show how the SNIB can help them happen.