May 3, 2006

We had no future until the 90s arrived to give us some credit

Posted in Irish Independent ·

Credit Unions were one of the greatest innovations in Irish life. Of all the political initiatives that John Hume spearheaded, his championing of credit unions may turn out to be his most radical.

Credit liberates people and John Hume realised that access to credit was a civil rights issue. Without credit, people will never achieve their potential. The credit union was the life-line for thousands of people the established banks would not talk to.

Similar developments can be seen all around the globe. In Bangladesh, for example, ‘micro-banking’ – where poor women are given access to small amounts of credit – has revolutionised communities. Credit is crucial for a society to develop because it lubricates social mobility. The availability of credit levels the playing field and allows people to move up.

For years this was not the case in Ireland. It is sometimes difficult to appreciate today – when much of our concern focuses on the problem of too much credit – just how rigid our credit-strapped class system was. There was a time when the local stuffy bank manager held all the cards and, like a small-time Roman emperor, delivered the thumbs up or down to people’s dreams.

John Hume saw the link between credit and political exclusion, so he set up the credit union movement in Derry in the late 1950s. Back then, religion excluded people politically and a lack of credit reinforced this.

In the eyes of the Stormont government, if you were Catholic you were suspect, unworthy and possibly dangerous. You should not have access to credit or anything close to economic power.

Historically, this anti-Catholic bias was not unique. Many historians argue that anti-Catholicism was one of the gelling agents of the British imperial project. It permeated British culture from top to bottom – from the bar on Catholics occupying the throne to Guy Fawkes Night in the villages. For centuries, being a Catholic excluded you.

By the 1960s the last place this carry-on remained prevalent was in the North and – if the WASP reaction to JFK is anything to go by – the country clubs of New England. But here in the South we had our own much more subtle form of exclusion. It wasn’t religious bigotry, racial segregation or gender oppression (although all those issues were evident), it was credit discrimination.

For the first 70 years of this State, only so-called “respectable” people got credit. Only respectable people had bank accounts. Only respectable people had access to loans. While we had a political democracy, we lived in what can be termed an economic Respectocracy, where nepotism, respectability, favouritism and networks determined your ability to draw credit.

The poor had wages, the middle classes had overdrafts. The economic effects of the Respectocracy are self-evident. It was unambiguously negative for all. In the same way as excluding women from economic participation in some Arab countries has hampered development of these countries, excluding the non-respectable from credit did untold damage to our economy.

When credit became more widely available in the early 1990s following the liberalisation of the banking sector, the economy took off. But quite apart from the economic impact, the psychological effect of moving from a society where credit was rationed to one where credit is freely available cannot be underestimated. The Irish psyche has changed irreparably.

Apart from health, pregnancy and physical longevity, the crucial determining factor in people’s perception about their own future is credit. We are not talking about the difference between being rich or poor here. We are talking about the ability to get your hands on cash today, to plan for tomorrow.

Credit is a great liberator because it facilitates the future. When you have no credit, everything is immediate and the future does not exist. Today governs tomorrow.

As soon as credit becomes available either to an individual, a society or a class, something strange happens. Time travelling becomes possible. With credit, the status quo that has characterised humans for millennia is turned on its head – today no longer rules tomorrow, tomorrow governs today and this allows people to plan, postpone and progress.

With planning, comes plotting, mapping, targeting, achieving, comparing and benchmarking. In short, the future – and, most importantly, your future – becomes projectable.

One of the main manifestations of this in Ireland in recent years is further education. Further education is the luxury of those who can postpone earning a crust today to earn a better one tomorrow. The last census registered a 38pc increase in the number of Irish teenagers going to college and many of them are the first in their families.

In the 1960s and 1970s, only the already rich could entertain the future and plan, invest and wait for the dividends. Without credit, the Irish working class could not postpone the lure of cash today.

Only the middle class postponed. Only the middle class lived in the future and in many ways this was the crucial difference between the classes. The working class lived in the present; the middle class lived in the future.

The time and mindset -altering effects of credit on entire classes are often overlooked. So the onset of credit in this country in the mid-1990s did not just allow people to buy Cartier, Kenzo and Kompressors; it allowed hundreds of thousands of people to move from instant gratification to the great middle class state of postponement. The transition and gap years are the ultimate expressions of postponement.

The biggest driving force behind the great Irish class compression of the early 21st century is that we can all dream about the future because of glorious credit. Yes, free education, better health care and a variety of other factors helped emancipate the Irish working classes from economic under-achievement, but the main factor was credit. Credit lubricates the society and it facilitates planning – but, more importantly, it allows more and more of us to live in the future.

So within a generation, we went from a country that dreamt of past struggles and was rooted in the cash-strapped present to a society that chose the future over the present. Credit was and is the key.

So the next time we (justifiably) worry about indebtedness, let’s pause and think about the positive leavening impacts of credit. Sometimes, because economics is always seen in cyclical terms, we ignore the long-term, permanent changes wrought by a changing economy. John Hume was ahead of his time in understanding the psychology of credit and seeing the link between credit and civil rights.

When historians look back on the past 10 years, the changing of the Irish psyche brought about by credit will possibly be the most profound legacy.

Sometime in the past few years, we stopped obsessing about the past and learned to live in the future.

  1. Laura

    Its an interesting subject because I do remember having to
    get my Dad to go as guarantor for a £100 overdarft! I
    didn’t actually need the overdraft, but they wouldn’t give
    me a eurocheque card without one – and I was planning a
    summer in Germany with which I didn’t want to be living off
    travellers cheque! Its seems all so antiquated now, but in
    fact this was 1995.

    Of course a lot of the reason for a lack of access to
    credit was that the banks of the time just hadn’t that much
    to lend. A lot of couples who bought houses up to and
    including the 1970s did so not via mortgages, but via
    council loans – something which still exists today, but
    unfortunately has a maximum limit of 165k, which will
    probably buy you a 3 square foot bedsit on a deserted
    island! As far as I remember the interest rate was well
    above that of a normal mortgage, but it did enable huge
    increases in home ownership from the 1950s – I think the
    law that enabled this was the Small Dwellings Act?

    Indeed credit unions do still play a huge part in Ireland,
    largely due to the fact that they offer a flexible method
    of borrowing that appeals to those who still like personal
    attention. Also they do bail out people who really do need
    temporary credit but who won’t get anything from
    maintstream lenders. It has slowed the growth of subsprime
    lending (along with regulation of course) in Ireland.

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