Farewell to TINA? Inside the UK’s Alternative Finance Movement

Farewell to TINA? Inside the UK’s Alternative Finance Movement

Mark Davis

New research investigates the potential for social change in reconnecting our money with our morality and recommends that we all strive to transform the financial system into one that works for people and planet.

There’s a good chance that the contours of this conversation are pretty familiar to you.

Whether it concerns politicians putting private interests before public duty, media tycoons exploiting press privilege to intrude into personal lives, or a mainstream banking culture utterly determined to divorce itself still further from any sense of social responsibility, this particular conversation will follow a familiar pattern. Frustrations are aired, spleens are vented, a kind of bond emerges with the realisation that others feel just as exploited and helpless as you do.

And then it happens, the inevitable denouement… ‘I agree with you, but what’s the alternative?’. Curiously, of course, it’s rarely stated as a genuine question. It typically signals an end to the discussion, a full stop to a conversation that signs off with a defeated shrug. After all, this is the neoliberal punchline (‘There is no alternative’, often shortened simply to ‘TINA’), only the joke has never been especially funny.

But imagine treating that question not as a punchline, but instead as an opener to a new conversation: ‘What is the alternative?’. My research has been seeking answers to this question for some time and there is a great deal of potential out there to challenge the status quo, and in our deeply financialized age perhaps nowhere more so than within the UK’s dynamic and growing Alternative Finance (‘Alt Fin’) movement.

Following the global financial crisis in 2007, when the shock of systemic collapse was averted only through the benevolence of the public purse, the financial system was able quickly to return to ‘business as usual’. Partly due to asymmetries of economic power and privilege, partly due to the close links between the financial sector and the government, it is also true that one of the key reasons for banks returning to business as usual was that: so did we, by continuing to hand over our money to those same institutions that had just endured a very public loss of reputation.

But suddenly, there are alternatives.

Funded by a grant from Friends Provident Foundation, our research into financial innovation produced the first independent qualitative assessment of the UK’s alternative finance movement. Between November 2015 and April 2016, we carried out 12 semi-structured interviews with senior members across the ‘Alt Fin’ sector to explore the relationship between their economic activities and their social impact.

Valued at £3.2 billion in 2015, a big part of its appeal is that we now have alternatives for where and how to direct our money, and we can influence the type of social and environmental change that we want to make happen by doing so.

Whereas with mainstream banks, our money is typically used to fund various speculative investments, often on financial markets that we have no control over and that create precious little in terms of tangible social or environmental value, investors in alternative finance projects are able to invest in a specific project – whether that is renewable energy schemes, community home building, or renovating disused land into play spaces for children. Refusing to give ownership of our money to the high-street banks and the global financial casino, there are ways of plugging an investment gap in public goods and services through various alternative finance platforms.

Our research found that there are many different types of financial arrangements within the alternative finance sector, all with different implications for funders and fundraisers. For example, peer-to-peer loans (P2P), bonds and debentures have to be repaid with interest, whereas a community share offer is typically regulated to keep dividend payments low, but will give shareholders a say in the governance of the fundraising organization.

Offering far greater transparency so that the people investing can know exactly where their money is and what it is doing is central to the movement, as key marketing messages from the sector make clear: ‘Making money do good’ (Ethex); ‘Investments you can touch’ (Lend Invest); ‘Investments that build a better world’ (Abundance).

At a time when any hope of financial return from traditional savings and investments is all but eroded by low interest rate levels, this idea of ‘moving your money’ out of the traditional, high-street banks and into alternative forms of investments that promise to deliver tangible social and environmental benefits is a vital part of the ‘Alt Fin’ sector’s growing appeal.

It also suggests something sociologically significant – that in striving to disrupt the entrenched power relationships within the current financial system, progressive social change – and therefore one possible answer to that obstinate question, “what is the alternative?” – is to be realised by reconnecting our money with our morality, privileging our ‘values’ over only more economic ‘value’.

In other words, and with a seemingly self-conscious sense of economic determinism, the ‘Alt Fin’ sector’s success appears to suggest that the power for social change may well rest on each of us choosing to do different things with our money, marrying together our purse with our purpose.

With so much of our time given freely to those ‘echo chambers’ of online social media campaigns and offline social protests and activism, we may be overlooking the chance to deliver real, tangible social change by also devoting our money to those projects in the ‘real economy’ that can contribute to delivering positive and transparent social and environmental change.

Of course, there are risks to any form of alternative investment, especially at a time of significant restraint on household budgets, such that a recent study can find two in five of the UK work force currently have less than £100 in savings.

To help with this, and the understandable anxieties that people would have with the unfamiliar world of alternative finance, our report recommends that the government considers regulation for the sector such that a maximum guarantee of £5,000 be offered to individual retail investors wanting to move their money into the real economy.

Such a proposal is contentious. Should we really expect the taxpayer to act as the guardian of yet more risky financial ventures in a context of deepening austerity and an uncertain ‘post-Brexit’ climate? Whilst mindful of this initial reaction to the proposal, our report argues that the proposal be seriously considered for two principal reasons.

First, the guarantee would be only for those positive investments that are directed into the ‘real economy’, actively providing the goods, services, and infrastructure that our communities need. This would eliminate, or severely restrict, the use of this money for yet more financial speculation and help to plug the investment gap that neither the State nor the market are currently filling.

In order to reassure the investor, this guarantee would be part of a wider suite of recommendations in the report, such as: the co-production of a set of ‘Standards of Alternative Finance’, providing a kite mark for retail investors to know that a given platform was adhering to a clear code of practice; and a large and co-ordinated campaign to improve public understanding of economics (and, if we’re lucky, maybe also a better understanding of the public by some mainstream economists!).

Secondly, that if the principle of the taxpayer acting as the guardian to potentially risky investments is sound for a private banking system that speculates in its own self-interest – and that was bailed out by the benevolence of the public purse, with only austerity measures by way of a curious offer of gratitude – then why should there not be also a modest policy of collective insurance against individual misfortune for our investments in the things that our communities need?

Is it really such a leap to suggest that – at a level far lower than the current Financial Services Compensation Scheme (FSCS) guarantee of £75,000 in UK regulated current accounts with high-street banks – there should be a level of protection for those investors who want to do something more meaningful, more moral, by moving their money into platforms that can deliver direct benefits to local communities?

Why should we continue to remould whole sections of our society to meet the needs of a human-made economy that works for the few and not the many? Surely it is better to remould the human-made economy to meet the needs of everyone in society? If that isn’t the purpose of a financial system – then what is it for? With greater public involvement in directing the flow of money, greater democratic oversight to financial decision-making that impacts upon society may then follow.

Alternative Finance is far from perfect, and it is too soon to know just how far this initial disruption of the mainstream financial system will deliver on its radical potential to build a fairer, more democratic and productive basis for investing positively in the things we all need. To this end, the sector needs to work more closely with the civil society organisations actively campaigning for a truly democratic finance, such as Finance Innovation Lab, Positive Money, and Share Action.

But right now, it does at least provide us with a way of keeping that familiar conversation going and challenging the idea that we cannot affect meaningful social change in an age of financialized capitalism.

Because, put simply, there really are alternatives

 

Mark Davis is Associate Professor of Sociology in the School of Sociology & Social Policy and Founding Director of The Bauman Institute at the University of Leeds. He is a sociologist of economic life interested in the capture and translation of the social world by economic interests, specifically how human freedom is reduced to market choice and how extreme levels of indebtedness are reconciled with the challenge of creating fairer, more resilient, and more sustainable societies around the world. He is the lead author of the report Financial Innovation Today: Towards Economic Resilience with Tim Braunholtz-Speight, September 2016) published by Friends Provident Foundation.

 

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