In my research on Public Interest Capitalism, I argue that markets and self interest do not necessarily serve the public interest. This research draws on theoretical work by the respected economist Douglass North, who argues that institutions (i.e., values, social norms, and regulations) determine whether economic actors engage in wasteful redistributive activities, or productive value-creating activities. When resources are squandered on redistributive activities, societies decline. Recently, similar concerns have been echoed by Yukio Hatoyama, Japan’s prime minister to be. Today, the Telegraph reports on a remarkable speech by Stephen Green, the chairman of HSBC. The following are quotes from his speech, as reported by the Telegraph.
At their worst, financial markets can be engines of destructive excess. In recent years, banks have chased short-term profits by introducing complex products of no real use to humanity.
capitalism generally, and banking specifically, needs to reaffirm its commitment to contributing to social and economic development
There is no question that the markets – in the form of investors and traders – have often put pressure on boards to pursue short-term strategies and profits.
The results of that pressure are now plain to see in the broken businesses and weakened economies around the world. This was the basic failure of corporate governance.
Legislation is not and can not be sufficient without a culture of values in our industry
If this crisis leads to a genuine reassessment of the role of business and banking in market economies, it may come to rank as one of the great turning points in history of the modern world.
These points closely parallel the arguments that my colleagues and I make in our research on Public Interest Capitalism, so it’s encouraging to see these views articulated by a senior bank executive. North would surely applaud Green, too, for recognizing that values are an essential complement to legislation (see also my discussion of Why Greed is Bad). Finally, I think that Green could be right about the potential historical significance of reassessing the role of business in society: if businesses seek to profit through contributing to the general welfare, instead of seeking to profit at its expense, we may enjoy more equitable, sustainable, satisfying, and rapid economic growth.
I doubt that Green or any of his close associates will stumble across this blog, but I invite anyone at HSBC to contact me to discuss Public Interest Capitalism.