Monday 16 December 2013

This might be the secret to unlock local economics

It is all a matter of cause and effect.  Does lending to small businesses create an SME sector, or does the lending happen because there is a small business sector there already?

That may seem an abstruse angels-on-the-head-of-a-pin question, but it goes to the heart of the issue which looks set to be revealed tomorrow: the long-awaited, little-debated, tremendously creative moment when the UK banks reveal the geographical spread of their lending.

Which, thanks to the efforts of Lib Dems in the House of Lords - Baroness Kramer and Lord Sharkey - will be down to postcode level, about 9,000 of them.

Tuesday will see one of those moments which may prove a turning point in the development of an effective UK banking system.

The position of the big banks was flagged up in the Saturday papers, because they fear the reaction.

It would be a pity of their transparency, even if it was enforced over a barrel, was used as a stick to beat them.  But we must not allow either politicians and bankers to avoid the key issue: it will show - by the huge diversity of lending in different areas - that some areas are not well served by the big banks.

We have to be clear that this is nobody's fault.  The problem is that they are no longer geared to lend to small businesses, except apparently in the south east.  The issue is what we do about that.

And here we get to the nitty-gritty.  This is what the Daily Telegraph wrotequoting banking 'sources':

"Sources said that the reason much of the money went to support SMEs in the South East was because there were many more businesses in that area."

Maybe that is true, but maybe the causality is the other way around.  Maybe there are so many small businesses in the south east because there is a responsive lending infrastructure there.

Just imagine if that was the case.  It would mean that we had a vital clue to how to rebuild local economies, sustainably and effectively.  It would mean that, as you might expect, people's imagination and entrepreneurial zeal was spread pretty evenly.

All we would need is an effective local lending infrastructure.  That must now be organised, and organised urgently, paid for by the big banks in lieu of the money they are unable to lend themselves.

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