Last Tuesday (20th October 2009) Bank of England Governor Mervyn King called for banks to be ‘split’ by function. In effect, King was suggesting that high-risk ventures be ring-fenced well away from the ‘social’ provision of credit – the sort of responsible lending liquidity so vital for small business growth and private home ownership.

Delivering a speech in Edinburgh, the Bank’s Governor displayed his reformist credentials for all to see, paraphrasing Churchill’s 1941 RAF tribute as follows: “Never in the field of financial endeavour has so much money been owed by so few to so many.”

The Treasury, the FSA and the Chancellor all oppose this idea. In doing so, this triumvirate highlights not just a lack of digit on the public pulse, but also an inability to grasp how we could make high-risk banking a far less controversial activity. For most ordinary people, the outrageous element in the banking crisis was (and is) the madness of people on limited means subsidising the hubris of those with more money than sense. What bankers need is at least a few saving graces, and the Bank of England’s Governor is trying to throw them some. He won’t be holding his breath waiting for gratitude.

More significantly (albeit in code) Mervyn King gave voice to the growing desire among progressive financial commentators for a profound shift in economic thinking – that is, away from neo-conservative assertion, and towards the modernised reinstitution of a more mixed economy.

To date, the rejection of Reaganomics has lacked clear articulation. One senses that, in a world where free- market thinking has held powerful sway (despite the horrendous cost of its naïve miscalculations) revisionist economists still shrink from using the m word. This is probably because the meaning of ‘mixed’ has become stuck in a sort of historical crypto-Soviet rut.

Fundamentally, the meaning of ‘mixed’ economy has come to be seen (often with malice aforethought) as one in which super-fit private ownership exists alongside obese public provision. In this somewhat caricatured scenario, the private sector fights hard against a trade union dominated public sector which is overmanned, overpaid, insensitive to real demand, and riddled with command economy red tape.

It would be madness to reinstate such a system today – even though the longer-term track record of post-war mixed economies suggests they were rather more beneficial to society as a whole than surviving Thatcherites would have us believe: we should not take the years 1973-78 as representative of the post-war mixed economic model as a whole.

But an approach where the ‘mix’ is one of differing motives and goals (rather than a delineator between private and public ownership) is an entirely different matter. It offers a potentially appealing alternative to wholesale shareholder obsession on the one hand, and compulsive jobsworth protectionism on the other.

In a minority of cases, this differentiation already exists. The goal of charities and mutual building societies, for example, is to maximise the money available for supporting those who are vulnerable, or keen to provide a stable family home. Under the purist neo-conservative model, even those commercial activities with a crucial social role – such as the performing arts, health provision and publishing – are required to be entirely commercially accountable. This produces, respectively, derivative live theatre, counter-productive ward closures, and a mania for formulaic genres – in short, stagnation.

What we have been trying to do for the last thirty years is pretend that profit-focused corporate entities will make massive social donations (they don’t) and the supply of everything from visual stimulation to public healthcare can always make a profit (it can’t). The aggregate result is an environment where directors in both sectors are perpetually being asked to apologise about something.

I think this is what Mervyn King is getting at when he talks about having discrete social and risk centres within banking. To my mind he is right on the money: we need to become much clearer about what we are asking of our socio-economic institutions in terms of a primary raison d’etre. Investment banks are mainly there to cater for private risk. Clearing banks are there above all to transmit customer cash-flow efficiently. Building Societies are at their best when helping those of modest means acquire their own home.

It would be an admission too far for the Governor to reject the 1990s dash from skilled financial specialism to plc diversified bancassurance. But at the very least, free marketeers should accept that asking, say, an artistic genius to deliver a thirty-six month ROI is a nonsense. On the other side of this well-worn coin, there is no earthly reason why an organisation providing something as vital as water needs to be publicly owned. What it does need however is a firm grip on its mission – viz, to maximise the unbroken supply of uncompromised water for all citizens, rather than to enrich senior directors and a small number of shareholders.

Clause Four is, quite rightly, history. Equally, I doubt very much if the future consists of there being no such thing as society or an obscene profit. Homo sapiens thrives on competition - but its success as a species is based (as with any pack animal) on social cooperation to achieve its ends. If we can foster a culture in which the cojones for curing 20,000 cases of prostate cancer are equal and not opposite to the cojones for making £20 billion profit, then in the long run all will be well.

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