Capital requirements


At a Fellows' breakfast in Sydney I found myself sitting next to a guy whose work focusses on business innovation with social purpose.  We got to talking about the problems of engaging the investment community in thinking long term. He suggested I look up a speech made recently by Bendigo and Adelaide Bank MD Mike Hirst. Partly because I still haven't got my head round hyper linking on my iPad, I will quote his comments about financial analysts directly;

 ''You sit in front of these 26 and 27-year-olds earning half a million dollars and they're asking you questions [like]: 'This is what's going to happen in the next three months - what are you going to do about it and what number do I plug into my spreadsheet?'

''There's no real attention to what's the strategy or how long it takes to play out [or] what does it mean in terms of value to the organisation. It's a frustration - I just sit there, take it, and hear what they've got to say and walk out shaking my head.''

Another side of the influence of investors was highlighted by the ban on short selling instituted a few days ago by Spain, Italy, Belgium and France. The case for this action lay in the the way short selling can not only can amplify market instability but generate self fulfilling prophesies through incentives for short sellers to spread fear and pessimism.

Anyone who has read any of the legion of books about the behaviour of the financial sector leading up to the credit crunch, or seen one of the powerful films on the same topic  such as David Sington's 'The Flaw' or Charles Ferguson's 'Inside Job', would naturally have assumed that the only alternative to the sector dying of shame was for it to go into a lengthy period of responsibility and restraint. Not a bit of it. Banks may be being risk averse when is comes to investing in local businesses, but whether it is short sellers doing their best to turn a drama into a crisis or robotic analysts thwarting the attempts of companies to be more creative and long term, the finance boys are continuing to wield immense and sometimes unwelcome influence for personal gain and without a shred of accountability.

In essence the case made by defenders of the financial sector is that their actions respond to what is happening in terms of conditions, trends and preferences in the real economy and that their services oil the wheels of economic development. But, as all but the most blinkered free market fundamentalist now recognise, in reality the sector just as often shapes what is happening in the real economy, and not always helpfully. Whether it is small businesses seeking loans, corporate leaders trying to think long term or European leaders needing market stability, there is no shortage of people who would say the behaviour of the investors is often a block to necessary change. 

Not that the sector itself is thriving. Banks are laying off staff and - according to the FT - new regulations about bonuses and capital reserves are forcing major changes in business practice. 

The future of finance is a hugely significant. Yet only a few specialists seem engaged in the debate. Even intelligent laypeople, interested in economic policy, are put off both by the complexity of the issues and the difficulty of engaging a sector which is so resistant to wider public accountability. The recently published report of the independent commission on the future of banking is an important contribution to the debate but it needs to be built upon. 

Through our lectures, videos and Animate, the RSA has a globally recognised capacity to make complex issues accessible and engaging. There is good and relevant content on our website from, among others, Tomas Sedlacek and David Harvey. But with the word 'commerce' appearing in our full title, the future of finance is one of those issues which should be seeking to open up to wider and better informed debate.  

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