By KENNETH DAVIDSON Thursday 1 November 2001

It may be but a distant memory. But once the ALP represented social democracy, which is nothing if it doesn't offer security through the edifice of the welfare state. The Coalition had to accept that structure during the 1966 campaign as the price of winning that election.

The political centre has shifted to the right since then. But this does not mean a new equilibrium. This election is about whether that shift to the right will continue.

As Larry Elliott and Dan Atkinson point out (The Age of Insecurity, Verso, 1999), the ideology represented by financial deregulation and the ideology represented by social democracy are incompatible.

"Social democracy offers nothing if it does not offer security: the free market cannot offer security (to the many at least) without ceasing to be itself. Instead it provides security to the financial interest at the expense of the majority, upon whom is shifted the entire burden of risk and `adjustment' whenever the system hits one of its periodic crises."

It is ironic that the debate about the privatisation of Telstra has once more erupted (about the largely irrelevant question of what was Kim Beazley's opinion when he was finance minister) when arguably the deregulation of the financial system in 1983 and the final sale of the Commonwealth Bank in 1995 continue to have more far-reaching consequences for the future of social democracy than would the full sale of Telstra.

The commercial banks make obscene profits, offer declining service and adopt increasingly brutal efforts to expel their poorer customers via fees.

The banks are not interested in taking small deposits or transaction accounts operated from convenient branches, which are the prime requirements of most customers - because deregulation means the banks no longer have to rely on attracting deposits along the high street in order to have the funds necessary for lending, which is their real business.

Why not a people's bank to serve these people? The proposition has been put forward by the former head of the ANZ Bank, Will Bailey. It would be politically popular. It would fit nicely with the professed egalitarian instincts of the ALP and, for an opposition that exhibits a phobia about confronting powerful vested interests, it would be unlikely to generate more than proforma opposition from the banks, who wouldn't like to be perceived as welcoming the exodus of at least a third of their customers.

As Bailey points out, the bank would operate through the existing network of post offices. It wouldn't cost much to set up - a similar bank is being set up and will be operated by the government-owned NZ Post with a capital injection of $63 million and a government guarantee.

(And before the neo-liberal purists start screeching "funny money", "moral hazard" and "look what happened to the State Banks of Victoria and South Australia", they should remember the following: the savings bank functions remained profitable to the end, both banks were brought down by incompetents who used financial deregulation and the failure of the Reserve Bank to carry out its supervisory functions - and, above all, all the banks enjoy an effective lender-of-last-resort facility with the Reserve Bank, i.e. their deposits are guaranteed by the taxpayer.)

If the $70 billion-a-year welfare payments were made through the people's bank, this would provide an ongoing capital base of about $1.3 billion, which could earn about $40 million a year on the short-term money market, which would allow the bank to operate competitively.

The bank could operate as a traditional savings bank in which lending would be restricted to first mortgages on houses and property for small businesses and farmers, and accounts would be accessed through debit cards and EFT as well as across the counter.

So why hasn't the ALP taken the idea up? Embarrassment because they sold the Commonwealth Bank? Or fear that it could interfere with the development of credit unions or community banks?

These institutions operated successfully alongside the Commonwealth and state savings banks. And unlike the people's bank, such institutions can offer additional services such as personal loans, or second mortgages, or working capital.

What do you say, Mr Beazley?

Kenneth Davidson is a staff columnist.