Devouring Social Capital
WHEN CANADIAN MARK CARNEY LEFT his post as the head of the Bank of Canada to take on the prestigious role as the Bank of England’s governor, it was like he was jumping from the frying pan into the fire. That was almost 18 months ago and times have been turbulent for the world economy, including Britain’s. He was deemed a typical mild-mannered Canadian who would bring a sense of stability. So when he was asked to speak at England’s prestigious Guild Hall to the country’s elites no one was expecting anything out of the ordinary.. They should have been better prepared.
He surprised everyone when he launched into his view of how capitalism itself is at risk. “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital for the long-term dynamism of capitalism itself,” he offered at the beginning of his speech, to which the room grew deathly quiet.
Carney talked about how the affluent nations had subtly morphed from being market economies to market societies and how that fundamentally changed everything. He said he worried about the “mistrust” that was clearly growing between citizens and the global financial order..
Then he went on to describe how investment needs to change if capitalism is to save itself. “Prosperity requires not just investment in economic capital, but investment in social capital.” In case people wondered about what he meant by “social” capital, he defined it as, “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.” The eerie silence in the room continued..
Carney reminded his audience that six years after the economic crisis, the core problem remained, with little desire among the financial elites to remedy it. And the longer they took to address it, the more populists movements were growing, both in developing and developed nations, and they were getting increasingly angry. What else should we expect, he argued, “when bankers make enormous sums, while taxpayers pick up the tag for their failures.”
And then he gave his prescriptions to remedy the ailment. 1) recreate fair and effective markets with real transparency and make every effort, through codes of conduct and regulatory obligations, to instill “a new integrity;” 2) curtail compensation offering large bonuses for short-term returns; 3) end the kind of investment that overvalues the present and the discounting of the future; 4) above all, understand that “the answers start from recognizing that financial capitalism is not an end in itself, but a means to promote investment, innovation, growth and prosperity for all.
Governor Carney closed by reminding those listening that human beings matter. He found it ironic that in an age that has seen poverty getting better in the developing world there has also been a spread of new poverty in the affluent nations. He concluded with the belief that it is the loss at all levels of community, of social capital, that most threatens the world, and capitalism itself.
Then the mild-mannered Canadian sat down following prophetic utterances that not only showed his human grasp of capitalism, but served as a warning that if economies are all about money and not people, then there is no way out of our present financial mess.