Finance in an Age of Austerity
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Finance in an Age of Austerity

The Power of Customer-owned Banks

Johnston Birchall

This is a book in search of an alternative to the discredited investor-owned banks that have brought the rich countries into crisis and the world economy into a long period of austerity. It finds customer-owned banks – credit unions, co-operative banks, building societies – have hardly been affected by the crisis and continue to operate according to their organisational DNA: low-risk, close to the customer, underpinned by real savings, and still lending to SMEs to protect jobs and local economies. They are big business – in some countries with over 40% of the market – but networked in smaller, democratic societies whose origins go back to 1850s Germany.
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Chapter 2: The evolution of cooperative banks

The Power of Customer-owned Banks

Johnston Birchall


When economic historians study the development of a particular type of business organisation, they can draw on two distinct ideas: evolution and design. First, consider evolution. Businesses are founded, and then they grow larger, sometimes changing or expanding their purposes, and then they may enter into a period of decline, eventually being wound up. The analysis can be taken to a higher level, and we can see how a group of businesses in a particular sector evolve together through collaboration and competition, growing and declining under the impact of new technologies, changes in consumer demand and competition from other ownership types. At the top level we can distinguish a ‘community ecology’ of organisations that make up a whole industry, such as food retailing, cotton production or banking (Hannan and Freeman, 1989). In the next four chapters we want to understand the evolution of different types of customer-owned bank and so have to analyse developments at all three levels: individual banks that have managed to survive and replicate themselves; groups of banks that have established a distinct customer-owned sector within the wider banking industry; and the banking industry as a whole. However, the emphasis will be mostly be on the middle level – a customer-owned sector within the larger banking industry.

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