Dr John Hayward is the executive director of the Jubilee Centre, a
social reform organisation established in 1983 to explore an
alternative social paradigm to capitalism, socialism and other
ideologies from a distinctively faith-based perspective. He regularly
blogs on a wide range of social, economic and political issues on the
Jubilee Centre website.

If anybody still doubts whether the Conservative Party can be trusted
with Britain’s economy, they should listen to today’s warning by the
Shadow Chancellor George Osborne of the need to “confront some
uncomfortable truths”.

Mr Osborne told a Birmingham business audience today:

unsustainable debts in our banks are a reflection of unsustainable
debts in our households, our companies and our government. Our economy
is broken and we need a new model of growth.”

Crucially, rather than
seeking to find a scapegoat for the current global crisis – such as
bankers, the Government, or America – he identifies the problem as the
debt-based finance system that we all take for granted:

“We need to
change from an economy built on debt to an economy powered by savings
and real returns on effort. Increasing profits through ever higher
debts is not a sustainable way to build a business.”

He is right. Debt is not a basis for growth. In fact it is a recipe for
inevitable disaster.

More than three decades ago, in a book entitled
Biology: Its Principles and Implications [my PhD was in genetics!],
Garrett Hardin and Carl Bajema noted how

“An economic system that
includes the positive feedback of compound interest can only endure if
it also includes a counteracting force such as inflation, bank
failures, confiscatory taxes, robbery, bankruptcy, revolutions or
repudiations of debts. Conventional wisdom considers these events are
pathological. Understandable they may be: but at least one such force
must be included… if the system is to endure.”

The accumulation
power of compound interest is unsustainable without serious correction
events because other things don’t grow at an exponential rate.

As Tarek El Diwany, founder of Islamic Finance, observed on the Today
programme at the start of last month, in a discussion with the Right
Reverend Peter Selby, the former Bishop of Worcester, on religion’s
contribution to the financial markets:

“For hundreds of years they had
very advanced economic systems, hospitals, universities, welfare,
international trade — all of the signs of an advanced economy, and they
didn’t use interest-based finance. It is an economic lie that we need
debt at the heart of our financial system. Empirically, history shows
that we don’t.”

Yet, because in recent years we’ve moved away from any
notion that credit needs to be regulated and have delegated to banks
the job of creating money, we find ourselves in our current financial

So, unique among politicians in recent months, Mr Osborne has finally
settled on the correct diagnosis when he points out that “increasing
profits through ever-higher debts is not a sustainable way to build a
business.”  He might also add that the use of ever-higher debts is not
a sustainable way to run a national economy either.

Of course, making the correct diagnosis is but the first step in
applying a long-term cure. However, his proposals to rebalance the
system of corporation tax paid by business so that firms no longer have
a financial incentive to go deeper into debt suggest the right course
is now being pursued by the Conservatives to avoid another global
economic disaster.

Further steps will probably need to be even more
radical and will require even greater leadership. We will, for
instance, need to protect current accounts from other parts of bank
operations and the risk of bank failure. However, removing present
encouragements to leverage within tax and regulatory systems truly
represents not just a ‘new capitalism’ but a whole new economic model –
one that builds for long-term stability rather than short-term profits;
one that seeks to replace interest-bearing loans with either
profit-share financial partnerships, rental charges for the use of
physical property, or charitable, interest-free loans; one that
considers the impact of our financial decisions on the prospects and
well-being of others.

Some might call it community-friendly capitalism;
at the Jubilee Centre, we call it relationism.