Oh, yes, competition... forgot about that

Banks again.

Four of the idiots were up before the beak today. Sir Fred Pisspot, Sir Tom Dickhead, Andy Pratt and Lord I Know Nothing About Banking But The Lunches Were Awfully Good appeared before a Commons committee to explain how they were very sorry, but it really wasn't their fault as they didn't know anything about banking and anyway it all came from America.

By the by, I really can't be bothered with them. As indeed should you not be, as the solution to the problem of the banks is simple. People have forgotten about the mechanism of competition.

Which is odd, as capitalism only has one function and two mechanisms. Capitalism exists to allocate resources - that is its only function. It has two mechanisms, which are (1) reward for success to create a driving force, and (2) competition to decide the allocation of resource. That's what the whole thing boils down to. You can dress it up in a few hundred business schools and a couple of million doctorates, but that what it comes down to. So how come all the commentators are wailing and gnashing, trying to think of a way to make the recalcitrant and singularly inept bankers suddenly behave as we think we want them to behave? They're trying to solve the wrong problem.

Don't worry about trying to reform the banking sector - just leave it behind. Think about it - what do they do? What they should be doing is batching up capital and awarding it to various enterprises, that seem to stand a chance of benefiting society in some way, to progress. Their pay comes in interest, some of which they pass back to the owners of the capital. That should sound immensely familiar, as it's banking as it was invented hundreds of years ago. What we really don't want the sector to do is to play poker with our pensions, which is what the four horsemen and their chums from the Home Counties were all doing.

Banking is just a wholesale business based around money. You don't need much to do it - in fact, much of the early industrial revolution in England was enabled by private finance. Dig into the history, and you find that Quaker families were often involved because they had a tradition of managing finance within their society, just as many Asian societies do today. Commercial banks were rather late on the scene. But if you're going to have commercial banks - companies whose entire raison d'etre is providing finance - then what they need is trust, competence, focus on service, a means of reaching customers to lend to and a source of capital.

Which is why I think the large multiple retailers are placed to clean up in banking. They have all the skills and all the motivation to own the sector. Their heartland is never going to offer big margins, and expansion into other countries is difficult and slow. But finance - that's easy. No national barriers, an incumbent who the world hates and dearly wants to see shuffle off to Worthing, and the prospect of big bucks if you do it right. So watch Sir Terry and Justin and the bloke at Morrisons whose name I can never remember take centre stage. Maybe even Sir Stuart can find redemption this way.

In fact, Tesco are probably already halfway there - they've quietly bought out the whole of their nascent personal finance business, and recently started offering free financial information to their employees. Having worked closely with them over several years, I know that they are (a) very good and (b) very serious about what they do. They really want to do a good job. The barrow-boys of old have been replaced by ranks of pushy graduates who all want to get on, but they are kept in line by the senior management - who have yet to put a foot wrong. Even the 'failure' in the States makes more money than most UK companies make in a good year. And they focus on their customers like no other organisation I know of.

 Don't forget, Adam Smith (and hence Napoleon) knew that England is a nation of shopkeepers. Not a nation of shallow, greedy, incompetent idiots. For a few decades we've let the fat kids look after the trifle at the birthday party, and been surprised when we find them with jelly and custard smeared across their faces and there's none left for us. Time for a little order and sanity to re-enter our lives. It's time to let the shopkeepers rule the roost.

Wonder if it'll still be early-closing on Wednesdays...