On Panglossian Economics, Fair Banking, and the Limits of Tinkering
by Richard Kirtley, Jan 16th 2026
This week, Labour backbench MPs urged the government to take action to expand access to finance for small businesses and low-income communities (Lending to small businesses and low-income areas must expand, say Labour backbenchers | Banking | The Guardian). At the heart of their intervention is a concern that has been voiced repeatedly, and too often ignored. That Britain’s banking system systematically underserves large parts of the country, leaving viable enterprises, social ventures, and whole individuals, neighbourhoods and communities starved of affordable credit.
The proposals being discussed are, on their face, both practical and measured. They include widening access to basic and affordable financial products, strengthening obligations on mainstream banks to lend more equitably, and, crucially, requiring those banks to support alternative and ethical lenders who already work closer to the ground. Under a proposed US style Community Reinvestment Act (CRA), commercial banks would not only be judged on their own lending, but on how far they enable community finance institutions, credit unions, and mission-driven lenders to do what the big banks will not.
This, in our opinion, is a vital step and we really welcome the motion put forwards by Gareth Thomas MP on Wednesday. Ethical and community lenders (like CDFIs and Credit Unions) already demonstrate that it is possible to lend differently and that you can look beyond a narrow, antiquated, credit score system, to price risk fairly, and to see borrowers as people embedded in places rather than abstract balance sheets who are either profitable or loss making. Forcing mainstream banks to open fair funding, infrastructure, or balance-sheet support to these institutions could meaningfully widen access to low-cost credit and help money reach parts of the economy that currently run dry.
It is right that backbench MPs are pushing in this direction. It is right that they are testing the boundaries of what has long been treated as politically untouchable.
Yet, I sit here seeing and reading the proposal and, a much deeper question presses…
For all its promise, this agenda still largely accepts the existing architecture of the financial system as given. It assumes that if we can just widen the pipes a little and extend credit, lower costs, encourage better behaviour the system will begin to deliver fairer outcomes.
This is precisely the mindset that the economist Sir Paul Collier warns against when he speaks of Panglossian Economics. This is the tendency to believe that the world we have is fundamentally sound, and that injustice is best addressed through marginal improvement rather than structural change. In this worldview, finance is not the problem, it merely needs to be guided, nudged, or persuaded to behave just a little bit better.
It is a tempting belief, especially for legislators working within tight political constraints. Yet history suggests it is also a profoundly limiting one. To see why, it helps to step back again from the immediate policy debate and return to a wider frame and one that makes visible the system we are trying to reform.
The framework that follows is not my own. It comes from the Waterworks of Money, a research and visualisation project by Carlijn Kingma, developed in collaboration with investigative financial journalist Thomas Bollen and researcher Martijn Jeroen van der Linden (please do watch it, it’s very good!) Their work uses a simple but powerful metaphor. Money is water, flowing through an engineered landscape.
In this map, money moves through society via reservoirs, channels, sluices, and loops. At the top of a tall tower sit vast reservoirs of water (capital), held by corporations, wealthy asset-owners, and financial institutions. From there, water is released to power economic activity below. Salaries are paid, goods are produced, services delivered. People spend what they earn, and revenue is pumped back up the system. The cycle repeats. The waterworks keeps the economy alive.
But what Kingma and her collaborators show with striking and alarming clarity is that this circulation is anything but even.
Far below the top of the tower, wages thin out. Costs rise faster than incomes. For many households, there is nothing left at the end of the month to save or invest. Actually, often there is less than nothing left…there is growing and crippling debt. The promise that work alone will deliver security becomes fragile, then hollow. Meanwhile, higher up, wealth pools and deepens. Roughly ten percent of the world’s population controls the vast majority of global wealth. The system does not just allow this outcome…it actively produces it!
This matters for how we think about banking reform, because commercial banks are not neutral pipes within this system. They are gatekeepers, lockkeepers and dam-wall builders.
More than ninety percent of the money in circulation today is created by commercial banks through lending. When a bank issues a loan, it creates new money. Money that hadn’t appeared on its balance sheet before the moment that a loan is approved. This gives banks extraordinary power to determine where water flows and where it does not. Unsurprisingly, those decisions follow commercial logic. Large, asset-rich borrowers can access vast sums at very low cost. Small businesses and poorer households pay more or are excluded entirely. Roughly half of all bank lending flows into property, inflating asset prices and doing practically nothing to increase productivity.
Alongside this sits what the Waterworks of Money calls the “lazy river” of investment. Vast pools of surplus capital circulating endlessly through financial markets, enriching those who already own assets while bypassing the everyday economy. When markets rise, gains accrue at the top. When they fall, losses spill outward.
This is why expanding access to low-cost credit, important as it is, can never be the full answer. A CRA stle Act that widens access to finance, or compels banks to support ethical lenders, would be a meaningful step forward. It would help water reach parched ground. It would make the system less cruel at the margins, but it still leaves the wider and deeper structure intact.
This structure still accepts a system in which money is created primarily through private lending, in which asset ownership and background determines access to opportunity, and in which poverty is managed rather than eliminated. In that sense, even well-intentioned banking reform risks remaining Panglossian, namely improving the system we have without asking whether it is capable of delivering the outcomes we say we want.
This is where, I feel, the more radical invitation of The Waterworks of Money becomes unavoidable.
Kingma and her collaborators do not merely describe the existing waterworks. They invite us to imagine redesigning them. They ask what might happen if money flowed differently. If more of it entered the economy through public purpose rather than private debt, if risk were shared more evenly, if much investment were directed toward housing, health, education, and ecological repair rather than asset inflation. They explore ideas that go beyond widening pipes. New channels, new sluices, new sources altogether.
Seen from this perspective, the real question for Parliament is not only whether banks should lend more fairly (and please don’t get me wrong, this would be a promising start) but whether we are prepared to imagine a system in which poverty and societal degradation is no longer an inevitable by-product of how money is created and distributed.
That is a far bigger question than the current debate allows but is the question we will keep circling unless we are willing to move beyond Panglossian faith that the system we have can, with enough encouragement, become the system we need. Simply enough, the waterworks will not fix themselves.
If we are serious about eradicating poverty and serving communities at their grassroots level, both in this country and beyond, we may need to do more than widen access to credit. We may need to redesign the channels through which money flows, and to accept that this, ultimately, is not a technical challenge but a political choice.
That begins with recognising that most money today enters the economy as private debt, created by commercial banks when it is profitable to lend. This hard-wires inequality into the system from the outset as those with assets receive cheap capital, while those without face higher costs or exclusion. Expanding access to credit can ease the symptoms of this arrangement, but it cannot undo its logic.
A more ambitious response would involve imagining new channels for money to flow. Channels could orient toward public purpose rather than asset inflation. This could mean greater use of public and community-based finance, directing capital into housing, care, education, local enterprise, and ecological repair, rather than into the perpetual accumulation of wealth at the top. It would also mean taking ethical and community lenders seriously, not as marginal safety nets, but as living examples of how finance can be organised differently.
Such a shift would inevitably challenge the dominance of passive accumulation (the endless circulation of money through financial markets detached from productive or social value). But, if poverty is to be eradicated rather than managed, we may need to interrupt that lazy river and rethink the relationship between wealth, work, and reward.
None of this is easy, and none of it is beyond politics. The financial system we inhabit is not a law of nature but a human construction. To accept it as the best we can do is not realism…it is a failure of imagination.
The question, therefore, is not whether we can redesign the waterworks of money. It is whether we choose to!