Regional Development Banking
for Jobs and Productivity

The Formula for National Prosperity is simple:
Yes it's possible. Here. Right now. And the key, not surprisingly, is money.

Job-creation requires capital – in sufficient quantity and with guaranteed longterm financial reliability to ensure a business is properly set up, and able to maintain the highest international standards in design, production and marketing. Our current banking system does not provide this.

The fact is simply stated: banks are private institutions whose function is to make money for their directors and shareholders. Serving the needs of the nation's economy is not their prime concern. In fact quite the contrary. Bankers tend to shrink from involvement in an economy suffering downturn or recession. As bank loans are reduced or refused many a business has found bitter truth in the old saying that 'banks lend you an umbrella when it's sunny, and take it away when it rains'.

A dedicated Development Banking sector can spread growth across the nation, creating jobs and providing the wherewithal for existing companies to increase their competitiveness, as well as for infrastructural improvements. Investment targeted regionally can bring industry and growth to traditionally under-developed areas.

Project-secured Investment

Traditional banking practice requires pre-existing assets as security, and loans carry no long-term commitment.

Development Banking avoids these two limitations of traditional banking by securing the loan on the industrial or commercial project itself, thoroughly researched and costed, rather than outside assets alone, and by making a long-term commitment based on an intimate involvement with the business or project in which it is invested. This facilitates the creation of new business and new jobs, as well as providing secure finance with which existing business can maximize quality and productivity.

The two broad principles of Development Banking focus on analysis, and commitment.

The Development Bank begins by thoroughly researching each loan proposal from design to production, management and sales, calling on outside expert advice and assistance where necessary. A successful loan recipient will receive full back-up support in a close working and constructive partnership with the Development Bank, both on start-up, then continuously monitored with an ongoing flow of performance data. The Development Bank would levy a fixed charge covering its administrative costs, plus a small insurance premium.

Though handing out grants rather than repayable investments, Britain's (now defunct) Regional Development Agencies (RDAs) were otherwise similar to Regional Development Banks in that they based their financial assistance on their own thorough research and analysis of project details, costs and anticipated returns.

With investment risk minimized through proper, pre-investment research and positive on-going monitoring of physical production, sales, and accounting, the business itself becomes the security for its investment loan.

By setting up Development Banks to operate at regional level, focusing on regional and local needs, investment benefits can be spread widely and uniformly across the nation, avoiding the usual pockets of non- or under-development. Local infrastructure can also be financed.

A percentage of the investment charge should also be set aside to fund apprenticeships and on-location training. High youth unemployment is largely caused by the mismatch between the skills that young people offer and those prospective employers need. Indeed, countries with the lowest youth jobless rates have a close relationship between education and work.

Many of today's successful businesses grew over many years and a long hard climb, starting with minimal capital, operating on a shoestring, and reinvesting every penny of profit. Regional Development Banking can provide sufficient capital for a good business venture to start at full operation, properly equipped for maximum productivity.

Indeed, by conditionally requiring the highest standards of product and service quality, Development Banking can increase competitiveness, and the high level of productivity which creates real and lasting prosperity.

Most significantly, Regional Development Banks can create jobs and industries NOW, with the guaranteed longterm finance needed to maximize productivity and most importantly, maximize quality. And the availability of genuine, repayable investment loans avoids the need for deficit-increasing grants, now well beyond the means of debt-ridden governments.

Some Historical and Current Examples

Founded in Basque Spain in 1956, the Mondragon Cooperative group clearly illustrates an ongoing relationship between investment banking and recipient business. The Workers' Bank provides investment as a local development bank, offers technical and financial advice for business startup, then monitors production, quality, and financial performance in a process of ongoing cooperation and partnership. This also assumes longterm commitment, ensuring finance for secure long-range planning and productivity investment, research and development into new-generation products and services, in conjunction with apprenticeships and higher education which are also sponsored by the Cooperative. The group now employs 85,000 workers with a turnover of 15 Billion Euros.

In the USA, the Bank of North Dakota (BND) is a state-owned bank dedicated to promoting commerce, industry and agriculture. BND offers numerous low-interest loan programs in collaboration with a lead lender to meet the financing needs of any qualifying new or expanding business. The Bank provides financing to stimulate economic development in the State for both business and agriculture.

Now India's second largest bank, ICICI Bank Ltd was incorporated in 1955 as the Industrial Credit and Investment Corporation of India Limited at the initiative of the World Bank, the Government of India and representatives of Indian industry, with the object of creating an industrial development institution to provide medium- and long-term project financing for Indian businesses.

Closer to home, and perhaps the most widespread and beneficial in their coverage, are the German Landesbanken, or Regional Banks.

In 1818 the Swedish government stunned Europe by offering 160,000 Taler to the German province of Westphalia as reparation for the damages incurred when Swedish and Dutch soldiers marched through the province during the Napoleonic Wars. This money was decreed the property of all Westphalia by its President, Freiherr von Vincke. And through the Westphalian Hilfskasse, or 'Assistance Bank' established for the purpose, the funds were used to develop the region's economy and pay for public-works projects. This proved highly successful, prompting the King of Prussia to order that a similar bank be created in the Rhineland in 1847. Both banks later became Landesbanken (Regional Banks), and were instrumental in making the Rhine-Westphalia region one of the most productive industrial areas in Europe.

In the post-WW2 years, the Landesbanken again played a major role in the creation of Germany's 'Economic Miracle', in particular through the provision of secure on-going finance to the German Mittelstand (small and medium-sized companies) in their respective regions. With 3 million mid-sized businesses, the Mittelstand industries employ more than 70% of German workers and contribute roughly half the country's GDP. And Germany has continued this tradition of investment support for industry.

The original, the “Big Brother” of German public industrial banks, KfW banking group is a German government-owned development bank based in Frankfurt. Its name originally comes from Kreditanstalt für Wiederaufbau, or Credit Institution for Reconstruction. It was formed in 1948 after World War II as part of the Marshall Plan. Owned by the Federal Republic of Germany (80%) and the States of Germany (20%) KfW is led by a five-member Managing Board which in turn reports to a 37-member Supervisory Board. The Supervisory Board is chaired by the Federal Minister of Economy and Technology.

In addition, Germany's strong industry-supporting group of 423 savings banks and 1,116 co-operative banks are clear that their business model is focused on working for the public or mutual good rather than for shareholders, and are well suited to the mixture of households and small-medium Mittelstand companies that they serve. This was borne out by their lending record in the troubled times following 2007. While private banks reduced their medium- and long-term lending to companies and households between 2007 and 2012 in favour of short-term loans, the savings and co-operative banks actually increased theirs, providing timely support which softened the blow of recession and contributed to a sharper recovery. The savings banks and co-operative banks provide about two-thirds of all lending to Mittelstand companies and 43% of lending to all companies and households.

Some Regional Banks got caught up in the property speculation scramble during the early 2000's, highlighting the need for the obligations and limitations of Development Banks to be established at the outset, then rigorously monitored by a National Supervisory Board.

The concept of loans based on, and secured by the project itself backed by continuous monitoring is basic, and simple. It can create jobs, economic expansion and productivity anywhere without increasing government debt.

Development Banking can spread growth across the regions, creating jobs and providing the wherewithal for existing companies to increase their competitiveness. And the benefits will stretch into the future as a thriving, broadly based economy sends a positive signal to young people providing the prospect of a challenging, well-paid job as the sure reward of education.

The Formula for National Prosperity is very simple:

Dedicated, Project-secured Development Banking can make it happen.

Despite the negative human and economic effects of unemployment, and the desirability of full productive use of all economic resources, the ability to expand an economy to full capacity cannot presently be realized, for as the economy expands to near-full employment, the danger of inflation causes the Central Bank to put the brakes on.

Full Employment. Zero Inflation. And a Fair Day's Pay.

The Art of Good Government