Can finance provide what humanity needs? As we approach 1.5ºC average warming, nature collapses, and conflicts escalate, this must be a reasonable question. Or is it naïve as finance is trying to make a profit, and it is up to governments to regulate so they deliver for humanity?
But this, too, is naïve as we know that finance does its darndest to get the regulation, if any, that it wants, and it has the resources to make that happen. As a result, we have a finance sector that makes money, pays bonuses in good times and gets bailed out when things come crashing down. Heads, it wins, and tails, we lose.
Furthermore, increasing risks is a key tactic to increase profit by creating complex derivative products or loading up debt on companies, often given the benign description of ‘financial innovation’. The latter is the private equity business model, highlighted by the recent debt crises in the UK’s privatised water sector. Frances Coppola has done a great job of analysing the cases of Thames Water and Southern Water.
You could say it is not finance’s fault. That is what they must do to compete and, indeed, survive. As Chuck Prince, the former CEO of Citigroup commented in a July 2007 interview with the FT, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing”.
So will the finance sector keep “dancing” until reality catches up with them in the form of ecological collapse?
So will the finance sector keep “dancing” until reality catches up with them in the form of ecological collapse? Recent analysis suggests, unsurprisingly, that the resulting crises will be bigger than the Great Financial Crisis or Covid. What’s more, ecological crises are different from financial crises. They involve the real resources our economy and survival depend on rather than financial houses of cards. As far as I can see, you can’t bail out ecosystems by printing money, as was done in the financial crises.
But wait a moment. Isn’t finance greening itself? So-called environment, social, and governance (ESG)- themed investing? Apparently, more than 20% of global assets could be in ESG funds by 2026. These funds still aim to maximise returns but also consider these wider aspects.
But is this any more than PR? (Why not use the accepted term “Greenwash”?) Who can make these funds truly transparent and accountable? And the Glasgow Financial Alliance for Net Zero (GFANZ), led by ex-central banker Mark Carney, began to fall apart last year. Meanwhile, investing in AI is the name of the game, which requires huge amounts of energy, with major players backtracking on their net zero commitments.
At least some banks are focused on public benefit by design, and new ones are being created, such as Avon Mutual in the UK. So, should we create more of those?
Sorting our finance sectors is maybe the biggest challenge we face. Luckily, we have a great range of contributors to this issue to help us work out how.
Gerald Epstein discusses challenging the US bankers’ club, and Prashant Vaze explains how finance is failing to support the energy transition in developing countries,
Mark E Thomas and Vince Gomez argues that the new UK Labour government needs to be creative with their fiscal rules, while Katy Wiese explores responses to recently agreed punitive EU fiscal rules.
Guy Dauncey promotes a successful credit union model in Canada and Diana Finch looks for lessons from the failure of the Bristol pound.
As the US election approaches, Bernie Mullin discusses how the country can be brought together, while Tehila Sasson reviews the impact of the solidarity economy.
Bronwyn Howell questions whether it is possible to regulate AI and Ellie Standen explores options for the new UK Labour government to deliver on its energy agenda.
Last but not least Verity visits Crispin’s new restaurant, Apocolypse Now.
I hope you enjoy.
