Job #1:
Development Banking.

 

Regional Development Banks for Industry and Infrastructure

France was doing it in 1850.
Germany's been doing it since 1818, and still is.....


The concept of banking institutions and financing facilities established specifically to provide longterm investment for industry and infrastructure is well established, its history goes back at least 150 years, with many ongoing examples. But Germany has long set the pace in industrial investment banking.

In Germany, the Regional Banks, or Landesbanken have provided low-interest loans to local firms, both as startup capital and as on-going investment for almost 200 years, beginning in 1818 when war reparations paid by the Swedish government to Westphalia were dedicated to develop the region's economy and pay for public-works projects. A similar bank was 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 continues this tradition of investment support for industry.

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. This is backed by a close working and constructive partnership with the successful loan recipient on start-up, then continuously monitored with an ongoing flow of performance data. Development Bank investment requires, and equips recipient businesses to achieve, the highest standards of product and service quality, which in turn creates real and lasting prosperity.

A small percentage of the investment charge should also be set aside to fund apprenticeships and on-location training. A major and growing problem today is high and entrenched youth unemployment, largely caused by the mismatch between the skills that young people offer and those prospective employers need. Germany has a long tradition of high-quality vocational education and apprenticeships, which in recent years have helped reduce youth unemployment despite only modest overall growth.

Looking once again to Germany, the “Big Brother” of German public industrial banks, is the KfW banking group, a German government-owned development bank based in Frankfurt. Its name originally comes from Kreditanstalt für Wiederaufbau, or Credit Institution for Reconstruction.

Through its various departments and subsidiaries the KfW Group, for example, committed 33.8 billion Euros in 2008, mostly for housing and environmental protection in Germany. It also invests in municipal infrastructure such as public transport and sanitation through a sub-unit called KfW Kommunalbank. More recently, it has engaged in education where it provides student loans. KfW Mittelstandsbank, the second largest business unit of the group, provides assistance to German small and medium enterprises including individual entrepreneurs and start-ups.

In Britain too, Regional Development Banks, through Regional Housing Corporations, can provide longterm, lowcost financing for new housing, for rental or lease “at-cost”. The Housing Corporations would acquire “grey” ex-industrial, or unused agricultural land at its current price, rather than the inflated “with planning permission” price, for the construction of quality, environmentally attractive cluster housing, yet built using techniques of fast-track mass-production.

Availability of at-cost housing would make it possible once again for young families to afford that most basic of all needs: a decent home in pleasant surroundings.

Development Banks, established on a regional basis, would ensure that investment benefits are spread widely and uniformly across the nation, avoiding the usual pockets of non- or under-development. Regional Development Banks can create jobs and industries NOW, with the guaranteed longterm finance needed to maximize productivity and 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.


But even the best-equipped business backed by reliable, longterm investment is still stuck with the Economic Cycle, with its booms and busts.

In high boom times factories cannot always cope with demand, even their raw materials can become scarce, while when the busts come, disaster strikes every business, even the most productive.

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