You know things have reached a low ebb when the counsel assisting the banking and financial services royal commission asks ruefully what financial institutions are up to when “left alone in the dark with our money”, before going on to answer his own question with a litany of inglorious, technicolour skulduggery. The Australian Banking Association adds a truly surreal flavour to the mix by announcing that it has “refreshed” its industry code with the aim “to stop banks charging fees to dead people and to ensure they only extract fees from customers in exchange for services actually provided”. Really?!
As a matter of fact, rafts of criminal, corporate, contract and consumer protection laws already prohibit such nefarious activities, yet their practice, evidently, is rife. The problem, as Commissioner Kenneth Hayne pointedly puts it, is not the law but the chronic lack of compliance with it and enforcement of it. That the finance sectors’ excuse for this circumstance boils down to “everybody else is doing it” (what Warren Buffett calls the five most dangerous words in business), bears out Hayne’s argument.
Appearing before a parliamentary inquiry in mid-October, National Australia Bank’s CEO Andrew Thorburn used almost identical words to explain how banking has “drifted” over the last 20 years away from “serving customers” and towards … well, he wasn’t so clear about that, but he implied that it was profits and the expectations of shareholders. Maybe we shouldn’t be surprised by all this. After all, banking and finance cultivates selfishness, encourages deceit, and rewards avarice – don’t they? Maybe, but not always and not all the time. In fact, finance can and has been an enormous force for good, as well as bad.
The wealth it has helped generate, especially over the past 50 years or so, has allowed global poverty to plummet and people’s health, education and general living standards to rise markedly.
Financial inclusion has helped individuals and families to break cycles of poverty, and publicly funded welfare systems have enabled communities to look after the disadvantaged and less able.
And so it should. As Adam Smith reminds us, the only valid reason for any economic system built on “the pursuit of self‑interest” is that it promotes the greater good of society.
In writing Necessary Evil, I set out to argue that very point on a global scale in the specific context of human rights. To investigate how finance, through its myriad forms – from capital, cash, bonds and shares, through lending, credit, trading and insurance services, to taxation, remittances, foreign aid and philanthropy – can be harnessed in ways that help human rights, not harm them. Standing in the way of that goal are finance’s hubristic tendencies. The sector’s immense size, power and prevalence promote the notion of “financial exceptionalism”, whereby finance justifies its own existence; deemed an end in itself, rather than a means to help achieve other ends.
I argue a way around this obstacle. To reassert finance’s role as a utility intended to serve society, not to subvert it. Where it can be just and fair, as well as efficient and profitable, and thereby better serve human rights ends. In part, this can be achieved by enhanced regulation (clearer, better enforced and above all, less beholden to the sector), but more importantly, it can and must come from within the sector itself. For if finance is truly to regain the public trust it has so spectacularly lost in recent years, the prevailing perversities of its institutional culture and the incentive schemes must be fundamentally overhauled.
Putting people before profit means that bankers and financiers must take seriously their human rights impact. By doing so, not only would they help protect human rights, they could rehabilitate themselves.
Necessary Evil: How to Fix Finance by Saving Human Rights by Professor David Kinley, is published by Oxford University.