Investing not betting
What’s the problem?
You’ve heard the saying ‘money makes the world go around’, so you know where you spend your money makes a difference, and it’s obvious that where and how you lend and invest money makes a difference too. Right now, financial firms are directing your money around the world wherever it will make the most money.
What’s so bad about that?
The problem is that money so often seems to miss projects that you and I might consider useful for providing a decent life for people now and for generations to come. Instead, it ends up in projects where people spend time, energy and resources betting against each other for short term gains. Trading firms invest millions in technology, even installing new transatlantic cables and drilling through mountains, all just to shave milliseconds of the trading times of their computer programs. Bitcoin and other crypto currencies are fast becoming a financial asset but Bitcoin alone uses as much electricity as Ireland, a high price to pay if it used mainly as a plaything for traders. Meanwhile we continue to invest in coal and dirty industries even though we know they are threatening human life on this planet.
What’s the alternative?
The alternative is to construct a financial system that directs our money to projects that society needs, to help stave off environmental Armageddon and to secure a decent life for all of us and our children. We already stop financial firms investing in criminals and rogue states, so we know what can be done. Instead of standing back as the financial system miss-fires, we should steer firms to lend and invest in projects that will address societies issues. We should clamp down on wasteful and harmful activities such as tax avoidance and the “hot money” flows that can damage developing countries.
How will it help?
The financial system can help move money to the places where it is needed, to construct new energy sources and to make possible new projects. But to make sure it is focussing on the best outcomes for society and not solely on its short-term profits, we need to take much greater control and improve the shape and incentives of the financial sector to reflect its long term social purposes.
What steps could we take to get started?
- Change where society lends and invests. Use regulation to direct lending and investments towards productive, long-term and environmentally beneficial projects and away from speculation. Use sectoral lending targets, capital adequacy rules and other forms of credit guidance, including quotas or prohibitions on finance for unproductive or environmentally harmful activities.
- Introduce and strengthen credit allocation quotas, both for private and public financial institutions. For example, Central Banks can alter their policies to meet social and environmental goals. Their quantitative easing (QE) could be changed to promote QE for People and to use QE to help fight climate change.
- Change the mandates of public financial institutions. For example, e.g. central banks should include in their mandate the responsibility to protect the climate and environment.
- Outlaw and discourage speculative, short term lending and investments, including food and commodity speculation. End the incredible waste of energy involved in very short term, speculative forms of finance such as high frequency trading and crypto-currency speculation (like bitcoin).
- Use capital adequacy rules and climate stress testing to direct lending and investment towards long term environmentally beneficial projects.
- Promote public banks, stakeholder banks, network of people’s banks, ethical banks, and small banks.
- Promote local, mutual and cooperative banks, pension and insurance providers and other financial institutions to give stakeholders a say in what gets financed.
- Promote democratically accountable multi- and bi- lateral development and investment banks, including green investment banks.
- Launch citizen wealth funds where the people have a direct input into which projects are financed.
- Remove state aid, fiscal accounting, and other barriers to public banking.
- Use public guarantees to support green investments.
- Alter investment and lending horizons using a Financial Transactions Tax (FTT).
- Make firms and public finance institutions disclose a lot more information about where their money goes e.g. where and to which sectors of the economy.
- Make the disclosure of loans to sovereign borrowers a condition for their validity.