The “personal” problems of Paul Flowers, former chairman of the Co-operative Bank, have created a major political storm.
The Tory press has been scandalised by revelation that Flowers bought and used Class A drugs. Flowers had had to resign as a local councillor over other problems, and had a record of dubious expenses claims.
Earlier this year, the Co-op announced that it had made a pre-tax loss of over £709 million, with the profits it had made in its supermarkets wiped out by bad debts in its banking arm.
Before Flowers’ other issues came to light, he had already been criticised for his inept performance at a Treasury Select Committee. Asked about the Co-op’s assets, Flowers guessed that they amounted to £3 billion. In fact, they were £47 billion, or more than fifteen times Flowers’ estimate!
The Tories and the right-wing press have attempted to exploit the scandal to attack the Labour Party.
The Co-operative has its historical roots in the labour movement; its political wing, the Co-operative Party co-sponsors Labour MPs such as Shadow Cabinet members Ed Balls and Luciana Berger. The Tories are trying to implicate Balls and Miliband in the scandal, pointing to the £50,000 donation that Balls accepted from the Co-op, and his alleged involvement in the merger between the bank and the Britannia building society.
However many damning criticisms we make of the Labour Party leadership, responsibility for the appointment and subsequent incompetence of Paul Flowers would be stretching it a bit. Nevertheless, the degeneration of the Co-operative Group does raise political issues for socialists.
One thing we can learn from the scandal is that the banking crisis is far from over. When other major British banks went into crisis in 2008-2009, the Co-operative was held up as a safe alternative.
Treasury ministers encouraged the bank take over the failed Britannia Building Society and then to try to buy branches of Lloyds. The Lloyds scheme collapsed, despite Tory encouragement, when a £1.5 billion hole was found in the Co-op’s balance sheet.
The appointment of Flowers, and the fact that he was almost allowed to drive the bank off a cliff, also makes a nonsense of the Tory claim that the bosses of banks are now subject to proper accountability and regulation.
The Co-operative Bank is not now, in any meaningful sense, a co-operative. The Co-operative Group, Britain’s largest mutual, will now only own 30% of the bank. Two-thirds of it is owned by bond-holders, including two large US hedge funds.
The co-operative movement, set up in Rochdale in 1844, had originally been closely tied to organised labour, and its move into banking had been proposed as a collective, ethical alternative to capitalist finance. Today, the difference between the Co-op Bank and its conventional rivals are minimal. Like most would-be islands of socialism within capitalism, the Co-op was eventually soaked through by the capitalist sea around it.
Socialists and the labour movement should demand and campaign for the only rational and humane solution to the financial crisis — the expropriation of the banking sector under democratic control.