The Finance – State – Society Triangle in Europe

Financialization and the future of society

Preparatory seminar

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How to reconnect finance with society?

With this preparatory seminar, we want to do the intellectual ground work for the conference The past and the next forty years on 23 January 2018. Above all, we hope to develop common ground for our outlook on the financial, economic and societal systems of the future. Looking at that future, we need a thorough understanding of what has happened to all of us (society, finance, economy, state) in the past, in order to understand where we are today; we need a history of our present.

John Kay (Financial Times, London School of Economics): “Over the last half century, the evolution of the finance sector has led to the substitution of transactions for relationships. Long-term relationships have been reduced to short-term transactions. The outcome has been a sector which largely talks to itself, trades with itself, and has increasingly lost touch with the needs of the real economy for financial services. This process of financialization has created a hypertrophied sector, its activities ever more abstract and divorced from the real economy, successful mainly at multiplying the remuneration of its members. Finance has strayed dangerously from its core functions. And the functions themselves have been jumbled in dangerous ways (for example, with deposit-taking becoming the funding source for uncertain, long-term risk-taking). Within each function, activities have moved from the primary to the derivative — less investing, more trading, fewer assets and more asset-backed securities.” [1]

Recent findings indicate that over the past decades the financial system has changed fundamentally in character, and, more importantly, that this change has gone hand in hand with equally fundamental changes in the economy and society as a whole. Since about thirty-five years, the financial system, the economy, and society together are changing in character – structure, working and outcome – in one interlinked process. For some – from Paul Dembinski to Pope Francis – financialization is nothing less than a profound social revolution. They consider it a paradigm or logic of functioning with ever deepening impact on our behaviour; it has become an organizing principle with far-reaching economic, political, social, psychological, and moral impacts. According to Dembinski, [2] financialization is the almost complete triumph of transaction over relationship. The ethos of financial efficiency has become the ultimate criterion for valuation. Dissociated from moral considerations, financialization has led to increasingly violent forms of greed, according to Dembinski.

The negative impact of financialization on productive investment in the real economy and on economic growth, but also on wages and labor, on social development and social inequality, are now the subject of investigation in several countries. For the Netherlands, the Scientific Council for Government Policy (WRR), has shown that the bloated financial sector was accompanied by lower investment, lower growth, fragility and inequality, and excessive debts of households, and that it has had a negative impact on economic growth. With regard to Europe, Bart Stellinga notes, in WRR Working Paper 15, following the analysis of the OECD: “There are more and more indications that the unleashing of the financial sector not only leads to bigger risks for stability, but also has (had) an inhibitory effect on economic growth. The ‘real economy’ has been made to depend in many respects on the financial sector. There is talk about a process of ‘financialization’, which has exploded the levels of private debt and which has exposed the public and businesses through various channels to the risks of the financial markets. This seems to be at the expense of the economy (OECD 2015).” [3]  The WRR report also identifies the effects of financialization on the morality of people and on the nature and quality of their relationships. Financial motives become more and more dominant, displacing other motives in areas and situations where previously this was not the case. Relationships are monetized, motives and goals that can not be expressed in money disappear from our imagery; our vision and experience of what comprises the good life changes. This current history of the present is also expressed in the WRR report on Society and Financial Sector in Balance. The report is a plea for a wider policy orientation and sets out a series of concrete recommendations for government in order to make society less vulnerable to financial imbalances and to contribute to a more stable and better functioning financial sector. That means: proportional surveillance, a varied financial landscape, and strengthening of governance and robustness of the institutions. These are quite concrete and measurable suggestions. They all are also aspects of one and the same process, and one might argue that the material and measurable aspects that are highlighted in the WRR report are only expressions, surface phenomena, of far-reaching changes in people's psyche, morality and ethos, their relationships and environment. These changes are more difficult to measure and more difficult to reverse or control or influence. At the same time, ten years after the crisis, it is clear that we can no longer limit our history of the present to material and measurable aspects and that a successful approach cannot be limited to remodeling that which is measurable and achievable.

The WRR already points to the possibility that (Dutch) politics should do whatever possible within reach of their relative autonomy vis-à-vis the global financial system to safeguard the national finance and economy from all too dangerous global developments. They point at reforms in the area of pension funds, mortgages, debt financing etc. Anglo-American policies and products do not have to dictate the economy in Western Europe. Is it therefore time to think about the possibility of a relative autonomous European ethical arrangement, as to distinguish us from the global financial discourse? Especially now we see the political, cultural and economical world map radically changing. The European continent knows its own tradition and culture; there is still a reminiscence of Rhinelandic thought, a different kind of societal organization than that of the United States or China. But: how feasible is an effort to distinguish ourselves in the international financial circuit from the global field, in terms of behaviour, thought, systemic structure and politics?

This, our, European arrangement does not require adjustment to the past (we can not simply bring back the ‘good old days’ of Rhinelandic practice), but a glance at the future. And what should be discussed is: what is there to come, and how can we, given our current situation, take advantage of future developments? It seems than that there are quite a few themes to discuss, [4]  and we want to pick two of these issues to elaborate on extensively:

1. Educate for tomorrow

Finance should not be merely about finance, as finance is about relations. Can we make that paradigmatic adjustment in our economic groupthink? When putting relation over transaction in education and at universities, we might need to say farewell to some of our deepest economic convictions: the concept of the autonomous, rational individual that is the methodological starting point for most economic models and programs is based on a fallacy. Instead, economy and finance are radically insecure, and that’s exactly what makes it complex. We should strife for a more ‘humble economics’. The notions of inherent insecurity, ongoing processes and establishing relations should be central to economic science. Already, both business and society seem to call for more moral leadership. Ethics and morals, bildung, should have a renewed central place at the curriculum of schools and at universities. ‘Why is the university on Earth?’, how can they be servants to society?

2. FinTech & Blockchain

What do FinTech and BlockChain technology mean for the financial sector? Some say that FinTech might be a very disruptive innovation and drive big financial institutions into an implosion. It could therefore be the case that we are heading for a financial landscape that is much more diverse, with many small organizations. With this vision come promises of greater transparency, a democratized financial system and improved accessibility of financial services. Unfortunately, we simply do not know yet. It might exactly be the other way around: FinTech as just another bubble (for example, there is now talk of ‘RegTech’ as the new FinTech). What is clear, however, is that technology, in whatever kind or form, brings forward great promises and threats for the financial system as we know it. The debate about FinTech has only just begun.

Haroon Sheikh will reflect on the changing world-order, from an Ethics & Finance perspective. It is unmistakably true that there is happening a lot around the globe, politically, economically, culturally. Add to this the technological development (also in the financial sector) to be expected and one has an interesting cocktail. The Netherlands, and Europe, could, according to Haroon Sheikh, play a promising role in tipping financial developments the right way.
The first comment on Haroon Sheikh will come from Peter Blom. In the WRR Report on Balancing Society and the Financial Sector, mr. Boot extensively elaborated on the necessary changes in the Dutch, or even European, financial system, to make it more resilient and steady for the near future. What effort should be made by politics, banks and academics, when the financial world as we know it changes?

Maarten Biermans will take us to the future of finance. Because economy is not only about money, technology, derivatives, crashes, shares, booms & busts; economy is mainly about us. That also means; when FinTech comes about, the main question is: how will wehandle it? ‘Should we trust FinTech?’ therefore does not only say something about the technology, but even more so about the concept of trust and who we are. 
The first comment on Maarten Biermans will be by Ronald Jeurissen. As a professor in Business Ethics, he is familiar with both the financial and philosophical arena. Will the new era of FinTech really break the dawn for a new ethical arrangement of finance, or does the nature of this ‘marriage’ never change?

Christiaan Vos will elaborate on questions like: ‘What is there to say about ethics and morality in an ever expanding global financial system?’, ‘Will ethics ever trump finance?’, ‘How feasible is an own European arrangement of structural and societal divergence from the global financial system?’. 
The first comment on Christiaan Vos will come from Ad Verbrugge. He will ask us: in what way can and should universities, schools and students themselves reflect upon the moral, political and cultural questions to come?

About the speakers

Prof. Marleen Janssen Groesbeek is Lector at the Avans University of Applied Sciences in Breda. She was a redactor at the Financieel Dagblad (Dutch: Financial Times) for almost 18 years, and was involved with the sustainability program at both corporate governance forum Eumedion and Royal DSM. She has (co-)written numerous books on sustainable economics, CSR and good governance, of which the title Duurzamer Ondernemen might be the best known. She is also member of the Sustainable Finance Lab.

Haroon Sheikh Ph.D. is researcher at Dasym Investment Strategies, and member of the European think-thank FreedomLab. He is member of the staff at the Ethos Centre for research and education at Vrije Universiteit (VU), Amsterdam. He regularly writes in different (inter)national media, such as Financial Times, NRC Handelsblad and Het Financieel Dagblad. His first book De Opkomst van het Oosten (The Rise of the East) was published in 2016, and he is currently working on the second volume of his work on geopolitical thought.

Peter Blom is sinds 1989 directievoorzitter van Triodos Bank, de bank waar hij sinds 1980 (het jaar van oprichting) werkzaam is. Hij is daarnaast bestuurslid bij de Nederlandse Vereniging van Banken (NVB), en lid van de centrale plancommissie van het CPB. Bovendien is hij mede-oprichter en voorzitter van de Global Alliance for Banking on Values, en voorzitter van de BioRaad. Samen met Arnoud Boot is hij voorzitter van de raad van bestuur van het Sustainable Finance Lab. De Financial Times noemde hem eerder al ‘de duurzaamste bankier van de wereld’.

Maarten Biermans Ph.D. is currently, as manager and advisor, employed at Rabobank, working on the sustainability agenda of the bank. Before that, he was an associate at Spring Associates. He is currently visiting lecturer at the Universiteit van Tilburg (UvT), and earlier was visiting scholar at Stanford University. Furthermore, he is coordinator of the Ethics & Finance program at the Socires Foundation.

Prof. Ronald Jeurissen is Professor of Business Ethics at Nyenrode Business Universiteit and director of the European Institute of Business Ethics (EIBE). Prof. Jeurissen has published widely on business ethics, including six books, and numerous articles in international journals, including the Journal of Business Ethics and the Business Ethics Quarterly. His textbook on business ethics (translated into English as Ethics and Business, Van Gorcum, Assen, 2009) is the most used business ethics textbook in the Netherlands.

Christiaan Vos, fiscal-economist and philosopher, is senior policy advisor capital requirements at the Dutch Central Bank (De Nederlandsche Bank) and is visiting lecturer financial geography and ethics and methodology of taxation at the Universiteit van Amsterdam (UvA). He has been tax adviser for more than 25 years, and is known publicly from different news media (a.o. Follow the Money, de Volkskrant, Nieuwsuur).

Ad Verbrugge Ph.D. is head lecturer of Social and Cultural Philosophy at Vrije Universiteit (VU) Amsterdam and visiting Professor at the University of the Free State (Bloemfontein, South Africa). He is the chairman of both ‘Beter Onderwijs Nederland’ (BON), an association for better education in the Netherlands, and Centrum Èthos at the Vrije Universiteit, which is a centre for education and research into philosophical-, cultural- and societal issues. Furthermore, the public knows him for his book publications, which are (amongst others): Tijd van Onbehagen, Staat van Verwarring and Waartoe is de Universiteit op Aarde? (with Jelle van Baardewijk).

1  From this speech: https://www.youtube.com/watch?v=rkhxMdilxJE

2  Finance: Servant or Deceiver? Financialization at the Crossroads , Palgrave Macmillan (2009)

3  Europese financiële regulering, voor en na de crisis, WRR (2015)

4  These themes were broadly mentioned at earlier seminars organized by Socires, in preparation of the international conference.