John Kay has embraced uncertainty and explains how we must do this to make economics relevant. Meanwhile little has changed he tells The Mint.
With the Lehman Brothers collapse and the subsequent economic carnage now belonging to a different decade, the natural question that comes to mind is, how has the banking sector culture that precipitated the crisis changed to prevent a repeat showing?
Economics academic heavyweight and trenchant critic of the financial sector, John Kay, says it hasn’t.
“The basic structures of the commercial banking sector have not changed the last 10 years. For me, the essential problem was a sector that had lost sight of its purpose and had begun trading with itself, talking to itself and judging itself by its own criteria. And that hasn’t really changed,” he says.
“They don’t know much about things that we actually need capital in the economy for. I find that rather strange.”
Kay holds up what he clearly sees as a fault line through modern finance:
“I think we have not thought through the way that the world has changed. We have this phenomenon of a vast amount of trading, within the financial community itself. What we need most of all is a financial sector that is geared to the needs of the new economy. The people who work in finance today are very different from the local bank manager who knows customers. What we have in the financial sector today is people who know mostly about finance. They know about each other. They know about the rather complex instrument they trade. They don’t know much about business. They don’t know much about property. They don’t know much about infrastructure. They don’t know much about things that we actually need capital in the economy for. I find that rather strange.”