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  • The White Swan Formula: Part. 4


The White Swan Formula: Part. 4

The White Swan Formula: Part. 4


The White Swan Formula: Part. 4

The White Swan Formula: Part. 4


James Featherby will be visiting the Chanel Islands later this month to speak at Business Connect hosted events (register here) In the run up we will be serialising his post crash analysis here on the blog

Part Four: Wrong-Headed Notions

The fırst is the myth that the market provides a substitute for morality.

The credit crunch has proved that in fact the opposite is true. The market cannot function if not based on mutual honesty and trust. Banks do not lend to other banks they do not trust. Take another example, the securitisation market. This market has become so overly complex in terms of information and structure that it is now well nigh impossible for an investor to judge either the risks he is taking or where he should place his trust for particular aspects of the transaction. This is why the securitisation market has now all but ceased to exist.

Neither Government regulation nor commercial contracts can span the chasm caused by a gap in values. The market needs morality.

The second misunderstanding is that since business depends on profıt, and profıt depends on self-interest, morality is the enemy, and not the friend, of business. This mistakes both the moral nature of self-interest and the moral nature of profıt. The choice between profıt and service is a false one.

All of us, including those in the public sector, work for a profıt to provide for ourselves and our families. In doing so we contribute to our society by paying taxes, and by providing our communities with services and products. And we relieve the state from the burden of our care. There is everything moral in that exchange.

In addition, it is clear that the mere redistribution of existing wealth is no long-term answer to the poverty that still besets the three billion people, almost half the world, who live on less than $2.50 a day. As the Pope said in his recent New Year message on the importance of economic development in creating peace, “The creation of wealth is an inescapable moral duty”. So a wrong response to the credit crunch is to decry business in general, or fınance in particular.

The creation of wealth is for many in the West both a duty and a “The creation of wealth is an inescapable moral duty” pleasure. For many elsewhere it is a pressing necessity. The investment of capital or labour to earn a reward is one of the bedrocks of creating a civil society. We can celebrate those who take entrepreneurial risks in order to build successful businesses. Life would be the duller, and we would all be the poorer, without those whose passion it is to create wealth. And a dynamic and thriving fınancial services sector – including an element of merely fınancial trading in order to provide liquidity – is an essential part of a dynamic and thriving economy.

The third wrong-headed notion is the myth that obeying the law is a substitute for morality.

We may prefer legal compliance, since that absolves us from responsibility. Compliance then becomes the only limitation on conduct and therefore on conscience.

But legal compliance is not enough. We have been making the same mistake with credit control. We have been assuming that any business that passes the credit risk test is good business. Business is not profıtable or healthy just because it is allowed.

Values on the other hand operate as an ever-present plumb line, reminding us of dead centre. Values do not legitimise a creeping movement from precedent to precedent as one drifts away from true north.

Values are the spirit, not the text, of the law. Values inhabit the space that lies between the regulations.

Fourth, business has become increasingly de-personalised, and when relationships are de-personalised values appear to be less important. Appearances, however, are often deceptive.

The effıciencies of scale and depth provided by modern capital markets are undeniable. But the limited liability company, the move to screenbased trading, and the selling of consumer and corporate debt across national boundaries have made it diffıcult to keep in mind the human beings at the end of these long chains of commitments.

We should remember that a business has no real existence. A company is only a construct of convenience of creative imaginations and legal propositions. In reality there are only human beings, trading with each other, albeit at a distance.

Indeed, recent events have given us an object lesson in the correlation of risk. We had assumed that we could diversify risk by diversifying our investments. To our shock we have discovered that all of our investments, and indeed all of our livelihoods, are in fact connected. We can now see that all of us are neighbours of each other.

It is no longer enough to say that a lawful trade between consenting adults is only their affair. We can now see that an accumulation of lawful trades can in fact add up to systemic risk, and unforeseen consequences, that endanger all of us. And we have seen that the money we lend wrecks lives if we do not lend responsibly.

I may not be my brother’s keeper, but he is my neighbour.

Fıfth, we have forgotten that good values are good for business.

The evidence demonstrates that it is quality goods and services, at reasonable prices, that delivers a continuation in sales, and that it is inspirational leadership and positive management that releases the creative energy of employees and builds a culture of loyalty. These values deliver immediate and tangible benefıts to the bottom line.

Lastly, we have accepted the wrong-headed argument that economic growth must silence all other voices.

But only a moment’s reflection tells us that a life based solely on the accumulation of money is a life not worth living. In fact, research demonstrates that despite our huge economic growth since the Second World War happiness in the UK has not risen, and that our children are some of the unhappiest in the Western world.

We are familiar with the concept that medical ethics needs to keep pace with advances in medicine. Put simply, the quality of our economic and business values has not kept pace with the sophistication of our fınance.

This paper was orgianlly published by the LICC in 2009. You can access the whole paper here

James Featherby

James Featherby

James Featherby has worked in the City for more than 30 years. For most of this time he was a...

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