Download Annual Review 2010
Wednesday 24th October 2012, 6.05pm, St Mary le Bow
JustShare lecture: "Prosperity Lost? A Christian response to financial crises and responsible capitalism"
It was a pleasure to welcome David McNair, expert in economic policy for developing countriesfor a wide-ranging lecture exploring the causes of financial crises and what we might do to limit their potential to harm the most vulnerable in our societies. He began by reminding us that money is reliant on trust; the means of exchange itself has no value unless all parties trust in it. All financial crises therefore involve a breakdown of trust, as we saw in the ‘credit crisis’ of 2008 when banks no longer had sufficient trust to lend to other people or institutions.
David identified 3 problems with our financial system today, suggesting that these 3 areas made capitalism more prone to harmful crises:
1. It increases inequality. In the 1970s, a CEO earned 25 times the average salary. By the 2000s, a CEO earned 120 times the average salary. More and more wealth is concentrated in the hands of fewer and fewer people. Since unequal incomes amongst parents leads to unequal opportunities for children, it’s a self-perpetuating scenario.
2. It is fundamentally unstable. Capital is always seeking higher returns and in recent years there has been more surplus capital than productive investments. This has led to the proliferation of virtual economies and ever more complex re-packaging of debts. But bubbles always burst.
3. Sustainability. Our system rewards short-term profit-making rather than more holistic and longer-term growth. It takes no account of the things we really value such as the environment or our children’s futures. Regulation will never prevent disasters; how can we reduce the likelihood and impact of crises?
To counteract these 3 areas, David suggested we needed to make better use of the tax and incentive systems, and we need to reconsider what we value and measure.
There were some companies such as Unilever and GSK which were bucking the trend; GSK for example set staff targets per volume of vaccine delivered rather than per sales income. However, there will still too many cases of tax systems which do not address inequality, of employees afraid to whistle-blow, of ever-increasing regulation which does not really work to prevent crises or to control the contagion when they do occur, and of incentives rewarding short-term success at the expense of long-term sustainability and stability.
David concluded by arguing that we should redefine what we value and seek to capture that in our metrics. What we measure will become what we seek to manage, as happens in the Bhutan Gross National Happiness index. GDP is, as Al Gore pointed out at St Paul’s last week, only a small part of the spectrum. In David’s words, it measures how busy our economy is, but not whether we’re busy doing the right thing. We may climb up the ladder only to find it is leaning against the wrong tree. Some attempt to embed the assets we truly value – health, happiness, our children, the environment, social cohesion – could lead to very different investments.
Discussions continued over Fairtrade wine generously sponsored by La Riojana.