"The dumbest idea in the world", so said Jack Welch former head of General Electric (USA), about shareholder value. He was talking about the guiding principle in capital and financial markets for at least the last 30 years. Never the less this is what we were told was necessary and behaviours complied or businesses declined. This is part of the discussion/struggle between the returns for lenders and the cost to borrowers. For that last 30 years the great economic boom sheltered many people from the reality that if growth stalled they could be in a lot of financial trouble. But we now know that it was unsustainable - the basics were wrong - if you like greed, incomprehensible financial products and the triumph of ego over common sense you had a ball and now everybody else pays.
This brings me to the current discussion of moral capitalism. I am not sure that the Ken Costa approach (see Sunday Telegraph 6th November 2011) is going to bear fruit - it strikes me as wishing things were other than they are: "You cannot legislate into existence a culture of honesty, integrity, truthfulness and responsibility and at the end of the day, it is precisely these values that we need.". He goes on to talk about reconnecting the separated parts of humanity - economic, moral and spiritual. However I believe it is evident that without a general agreement on the rewards for lenders and the costs to borrowers then the so called free market will determine price and, of course, since the market is amoral there is very little limitation on bad/unprincipled behaviour. Ken Costa does say there is a need for reform of the market and of government but does not specify any particular change. What we need to do is press for reform where the rules are very clear and which are equitable between lenders and borrowers. They are clearly not equitable now where banks get money in (often from Central Banks) at 2.5% and then seek to lend it out at 8% or much more.
Into this market world, where we (were) are told the almost exclusive objective is to maximise your profit, enter the Corporate Psychopath. Professor Robert Hare (Psychology, University of British Columbia - expert in criminal psychology and the study of psychopaths) identifies that about 1% of home sapiens have no conscience or empathy. He is quoted in the Independent (29th December 2011, Business Section p.49 Outlook, Brian Basham); "I should have spent some time inside the Stock Exchange as well. Serial killer psychopaths ruin families. Corporate and political and religious psychopaths ruin economies. They ruin lives.". Straying a little from their area of expertise Basham and Hare assert that never ending growth requires monsters. However I think this has the ring of truth. Basham goes on to say: "In attempting to understand the complexities of what went wrong in the years leading to 2008. I've developed a rule:<In an unregulated world, the least principled people rise to the top>And there are none who are less principled than corporate psychopaths."
From this, the type of regulation necessary becomes very strict. Since most psychopaths are incurable only controllable! Not only must there be the certainty of enforcement as I have said previously but also lifetime exclusion from (in this case) participation in financial markets plus as is the case in the USA the prospect of physical detention (prison). Developing the principles of moral capitalism and markets requires very strong political will which is rarely evident. But if lenders start by scaling back their demands (rates of interest) on the grounds of risk (I have seen Banks charge 7.9% interest for a gold plated investment backed by the British Government) but reaching sensible agreements with borrowers then we might stand a chance of avoiding a crash like that we have experienced in the past 4 years. Governments have to lead in this not follow irrational behaviour in markets. Transaction taxes, capital ratios and the like are sticking plaster compared with the necessity to get growth, pay off debt and, most important get people back to work. It is simply not sustainable as is the case in Spain where 50% of the under 25's are unemployed - the social consequences both indirect and possibly direct are much worse than this so called austerity cure which in truth gives enormous pain to the most disadvantaged but leaves the psychopaths untouched. These last 30 years have been good for some but it is for the life chances of those wanting to work now that we must plan. No generation should be left to rot!
By the way many of these psychopaths have infiltrated the public services - they must be identified and rooted out also! More later.
Robert Hare www.hare.org
Brian Basham www.prweek.com/uk/
Ken Costa www.godatwork.org.uk
