Abstract
Financial services need to be made subservient to the needs of society, to provide stable long-term support for vital projects with high social returns and to meet the needs of under-served sectors like SMEs as they provide efficient payment services to the public and maintain the safety of its savings. Ever-increasing speculative activity in the securities market serves no useful purpose and needs to be sharply curtailed. At the same time, rewards going to senior managers bear no relationship to social value addition and aggravate inequality. Such practices are bad examples for other sectors of the economy and should be contained. A major reform effort is needed for the financial sector across the world to make it more responsive to the needs of society and this effort will have to be driven by the State.
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Notes
- 1.
The world has experienced a long period of ultra-low interest rates and QE. In the event of a new crisis central banks would have few, if any, means to tackle it.
- 2.
The World Inequality Report from the Paris School of Economics that came out in mid-December 2017 has made the point that current levels of inequality in the developed countries are not compatible with democracy. Social stability is only possible when the majority believe that the rich are pulling their weight in addressing the challenges confronting the world including that of inequality. The current stability is fragile and stashing assets in tax havens will be of little use in the event of a major socio-political breakdown in the global economy.
- 3.
It is only in December 2017, 10Â years after the crisis, that the capital adequacy provisions of Basel III have been approved but will not take effect until 2027. Many observers fear that the capital adequacy provisions will be almost certainly diluted in the meantime.
- 4.
One product used in securities trading in the financial sector is the binary option. What it boils down to in simple terms is predicting whether the price of a share, commodity, currency or index is going to move up or down in the future. The future can be as little as 30Â seconds and without sophisticated IT systems such trading would be impossible thus negating one of the critical props of the neoliberal belief system of perfect markets. There are moves now at the European Securities and Markets Authority and the Financial Conduct Authority in the UK to ban what is in effect gambling.
- 5.
This is rather like criminals blaming laxity on the part of the police for their criminal behaviour.
- 6.
The vast rewards available to senior managers in financial services are in part driven by a strange reluctance on the part of society to call them what they actually are—a fairly brazen form of rent -seeking. In the UK, another remarkable manifestation of rent-seeking , such as the salaries of Vice Chancellors of Universities (twice those of equivalent officials in Germany), has few, if any, defenders and the intellectual argument in their favour has been lost.
- 7.
This notion will appear far-fetched to many. However, it is worth pointing out that the World Bank group has announced that it will end its support for oil and gas exploration within the next two years as part of the battle against climate change. The group has already ceased funding for coal-fired power stations. Pension funds are under similar pressure to play a more active role in countering climate change by reducing/eliminating their investments in CO2-emitting industries. Would it be too much to ask that finance, too, takes steps along the lines outlined in this chapter towards playing a more socially responsible role in the global economy?
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Ahmed, S. (2018). The Future: Making Financial Services Subservient to the Needs of Society. In: Ruling or Serving Society?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-00521-4_5
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