In the wake of the worst financial crisis since the Great Depression and with the world's financial order in a state of flux, the future of capitalism is being questioned. Is it the best system by which to create wealth that will benefit the largest number of people? Ever since it first emerged, capitalism has been accused by its detractors of encouraging greed and selfishness. Its defenders have responded either that this is not so, or that selfish behaviour is redeemed by its socially beneficial effects of greater economic growth.
It was Susan Strange, Professor of International relations at the London School of Economics who first coined the phrase, 'casino capitalism'. She warned in the 1980s how the speed at which markets work, combined with their near-universal reach, and could result in levels of global volatility that had never been seen before. In a world where the vast bulk of market trading has no direct relation to any real business requirement, what concerned her was how the instability of active markets could lead to the collapse of national and regional economies.
Nearly thirty years on, we have seen exactly how, at their worst, financial markets can be engines of unprecedented destructive excess. The catalogue of errors that we have seen is long. It includes the appetite for higher leverage… the over-reliance on wholesale funding … over-confidence in risk modelling techniques… and the misalignment of incentives. The past two years have challenged in a fundamental way the argument that the market always knows best.
The financial crisis has triggered soul-searching about our economic system. Surprisingly perhaps, the questioning has come from capitalism's most committed practitioners: bankers. Stephen Green, HSBC chairman, has written a book about morality and money. Ken Costa, Lazard International chairman, writes: "We are doomed to repeat our mistakes if we do not restore sound ethics to economic behaviour."
HSBC Group Chairman Stephen Green, in his recent book "Good Value - Reflections on money, morality and an uncertain world" reflects on how the human desires for exploration and exchange have led us into a globalised, urban world, and considers why it is that capitalism is the best system by which to improve material human wealth. As the world's financial order is in a state of flux, how do we align these drives, and capitalism, with our spiritual and psychological needs? And how should the financial sector respond not only to the current crisis but to the wider needs of the people it serves. Do businesses - and banks in particular - have a duty to society that goes beyond the creation of profit? Does open market capitalism remain our best hope for creating wealth that benefits all of society? Encompassing history, politics, religion and economics, "Good Value" offers new perspectives on how we can live in a richer, more dynamic world
Green emphasizes introspection by the leaders in financial sector-"One common underlying theme links the problems which were developing at many financial services companies in the lead up to the crisis. Simply put, it was a greedy focus on the short-term. A culture had begun to pervade many institutions that it was fine to pursue short-term returns without any concern for the longer-term consequences, or the rightness of what was done. The mantra had become one of 'if the market will bear it, if there is a contract, then I don't need to ask any further questions.' "Leaders in the banking sector, perhaps more than most, need to demonstrate that they recognise the moral dimension of what was happening in the years leading up to the financial crisis. This was not just a failure of prudential oversight, or of risk management, or of scenario planning, or indeed of common sense - although it certainly was all of those things. Of course, we cannot address the subject of morality in business with a rule book or a tick-box mentality. There are no easy answers and there is no 'one size fits all' approach. Yet what is striking is just how widespread a consensus there is about what constitutes ethical business. We should not forget that, at its simplest level, it is about integrity: doing business with trust and honesty, and treating people as ends, not just means.
Stephen Green, has some interesting and insightful observations to make-"The challenge we face - as practitioners, policymakers, and regulators - is to find the delicate balance that will encourage markets to deliver prosperity, while keeping in check those activities that fail the tests of usefulness, transparency and sustainability. It is now clear that effective government oversight, regulation and even intervention, in times of stress, are all essential. The markets cannot police themselves. As we search for this balance at a time when much of the world is still traumatised by the crisis, let us keep in mind two things. First, one of the stark lessons of the twentieth century is that there is no acceptable alternative to a market-based approach to development. Second, strong financial markets are at the heart of every successful economy, lubricating the engine of economic growth and prosperity".
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