There is little doubt that our society and those abroad are under enormous pressure given the growing disparity between social classes and a strong sense that many of the games ongoing within our markets are rigged.
We certainly hear plenty of political pandering on these topics, but regrettably few of our supposed leaders are willing to aggressively address the systemic and structural nature of these problems. Sufficiently upsetting the status quo is not an accepted practice in our nation, so leave it to a Canadian, Mark Carney, to display the real leadership sorely lacking in America.
Carney just so happens to be the Governor for the Bank of England. He recently spoke at the Conference on Inclusive Capitalism. His remarks, Creating a Sense of the Systemic, qualify as a Sense on CentsInstant Classic:
Social capital refers to the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.
So what values and beliefs are the foundations of inclusive capitalism? Clearly to succeed in the global economy, dynamism is essential. To align incentives across generations, a long-term perspective is required. For markets to sustain their legitimacy, they need to be not only effective but also fair. Nowhere is that need more acute than in financial markets; finance has to be trusted. And to value others demands engaged citizens who recognise their obligations to each other. In short, there needs to be a sense of society.
These beliefs and values are not necessarily fixed; they need to be nurtured. My core point is that, just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. To counteract this tendency, individuals and their firms must have a sense of their responsibilities for the broader system.
So what are we to do? Carney provides the answers:
First, ending “Too Big to Fail.”
The elephant in the room remains and we are all on the hook for it.
Second, creating fair and effective markets.
If that is not an acknowledgement that our global regulatory system remains captured and corrupted I do not know what is.
Third, reforming compensation.
This topic begins and ends with a need for meaningful tax reform and specifically addressing the topic of carried interest.
Fourth, building a sense of vocation and responsibility.
In what appears to be a cousin of my proposed privately staffed Financial Regulatory Review Board (detailed in chapter 12 of my book) to bring a sense of increased integrity and oversight to our financial regulatory system, Carney highlights an actual proposal to promote the same within the UK banking system.
A meaningful change in the culture of banking will require a true commitment from the industry. That is why a second initiative, the creation of the Banking Standards Review Council (BSRC), is particularly welcome. This new independent body, again proposed by the Parliamentary Commission, is designed to create a sense of vocation in banking by promoting high standards of competence and behavior across the UK industry.
So here we sit close to six years out from the greatest crisis since the Crash of 1929 and we continue to face enormous headwinds on a number of fronts. How do we energize our economy by reinstituting the preeminence of the rule of law, embracing the sanctity of property rights, and eradicating the ongoing crony capitalism and corruption within our system?
I say we start by listening to Mark Carney.