Chairman’s Column government’s economic policies (incl. lower corporate taxes) and Sterling’s depreciation seem to have done the trick. Economic growth is now picking up (IMF predicts 1.5% real GDP growth in 2014) and approximately 2.5 million jobs have been created in the private sector. The net gain is considerably lower since the public sector has successfully unloaded about one million jobs. Please check our article about Bentley’s success as an automobile manufacturer adamant at bringing back jobs to Britain. The monetary policies of Europe are based on a single objective pursued at all cost: That of maintaining minimal levels of inflation. This quest finds its origins in German fears of a return – how unlikely that may seem – to its Weimar Republic past. It is therefore most refreshing when the Bank of England announces a monetary policy based on the premise of lowering the level of unemployment.
The cover of this issue illustrates the dawn of a new age for banking. The recently appointed Governor of the Bank of England (BoE), Mark Carney, in many ways represents this coming era. But are these indeed new times - or are we just reverting back to days gone by, when bankers actually saw it as their mission to provide sensible services for normal people and businesses?
Chairman’s Column
Many of today’s top financiers seem to operate as dysfunctional, albeit polite, self-service providers for the selected few, such as the bankers, hedge fund managers and those born to the proverbial silver spoon. In other words: The 1% (see articles by Jackson in this and prior issues of CFI.co and for another take, our section on Good Bankers). CFI.co welcomes the new Governor of the BoE who has his work cut out for him as his predecessor left an unholy mess in the form of a poorly regulated financial sector, inadequate banking reforms, counter-productive remuneration and incentive systems. This happened after BoE had failed to do its job as regulator properly. It also failed to foresee the full extent of the financial crisis which had a big British domestic side to it in the form of real estate and financing excesses. Finally, the BoE also fell dramatically short of putting timely and adequate safeguards in place. QE – the printing of money to buy (“monetize”) public debt – benefits only the very few: Only less than the top 5% of the population in the US where still only a minority of the people own shares. However, at the same time, austerity policies in Europe ended up hurting most echelons of society – save perhaps for a few lucky individuals and businesses that may stand to benefit from buying up distressed assets. In the Britain, QE combined with the coalition
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Running the printing presses at the mint has not (yet) unleashed inflationary pressures in the developed Western World. Competitive pressures on salaries, cost and productivity – have kept prices in check. We have the emerging economies (see CFI.co article by Moynihan, Autumn, 2012) to thank for this. Thus, Germany’s national obsession with inflation has been largely misguided. It is also out of touch with the challenges of current times. The result of Berlin’s failure to reach closure on its past: A Europe that is losing entire countries and a whole generation of potential workers. The German-inspired monetary policies followed by the European Central Bank are leading to a progressive deterioration of the continent’s social and democratic fabric as well as to a diminishing of long-term competitiveness (see various previous issues articles by Stiglitz). BlackRock and Sampension explain in this issue of CFI.co how Public-Private-Partnerships (PPP) with the active participation of private institutional investors - such as pension funds - can effectively contribute to filling the void left by jittery banks when it comes to the financing of important infrastructure projects, including those in emerging economies. Excellence in client services and customer satisfaction are keys to success for all commercial banks anywhere in the world (CFI.co is consistently looking to unearth and document excellence in management and innovative business practices in this field). For the European central banks, the customer satisfaction of their constituencies – i.e. the populations of their respective countries - have been ignored for too long as they have been hijacked by German paranoia and – we must say - to the sole benefit of German industry (see Pettis
CFI.co | Capital Finance International
article in the CFI.co summer issue). Combatting inflation and all its perceived dangers has come at the expense of job creation, economic growth and societal prosperity. As mentioned earlier, it is a most welcome change to see the Bank of England question and re-think these policies, acknowledging the fact that they are not quite set in stone yet (although Berlin is working on that too). We might even see a return yet to the monetary countercyclical policies of the past - Hi there Keynes! Everybody should accept a shared responsibility to get Europe’s wheels spinning again. Policies must be put in place to jump-start bank lending to SMEs. More capital must promptly be made available for investments in innovation, infrastructure and other major undertakings. Multilateral organisations such as various EU bodies, EBRD, EIF, EIB, and the World Bank Group can all be called upon to make more valuable contributions to a much needed economic renaissance. One of the benefits of receiving “intelligent capital” from the World Bank and its various institutions, such as IFC, is the emphasis placed on corporate governance. We, at CFI.co find great satisfaction in seeking out and reporting on models of excellence in corporate governance. In fact, we see it as a prerequisite for sustainable success in business. In this issue, The World Bank and the IMF report on governance at state level and how this, in conjunction with adequate reforms, strong institutions and currency depreciation, softened the blow from the financial crisis in several emerging economies, such as Chile. A recent IMF study on emerging economies shows quite clearly that adequate economic, monetary, and fiscal policies as well as currency depreciation and good national governance all have a solid impact on stemming capital outflows at times of crisis when money gets scarce. Thus, emerging economies that adapt are able to better weather the storm than those countries that continue with business as usual. The same holds true for private business – innovate, keep a sharp focus on corporate governance and listen to your customers or perish. Take India where voters are now beginning to demand good governance. Vigorous social movements against injustices – caste oppression and environmental degradation – are making a real dent and may yet crack the walls of power. CFI.co’s World Bank columnist explains in detail how the provision of liquidity to banks has not created “monies” in the broad sense, but has led to the availability of easy and cheap credit to emerging market economies. As in the UK’s case, this printing