“Regulation, markets, virtue.” That’s how the Archbishop of Canterbury Justin Welby summed up the preconditions necessary for a healthy and socially useful banking sector at an event organised by the St Paul’s Institute last week.
The interesting and somewhat remarkable thing was that the four other members of the panel – the CEO of one of the UK’s largest banks, a former head of the Office of Fair Trading, the BBC’s Economics Editor, and the head of a campaigning organisation trying to encourage the British public to switch their bank as a way of punishing those that have let them down in one way or another – all nodded in agreement. Archbishop Welby had put his finger on a new consensus view.
To be fair, it’s not as though the Archbishop was peddling anything radical or particularly new, but the mere fact of achieving consensus (something that the Commission on Banking Standards, on which Welby also sits, has had a rather harder time achieving, by all accounts) was, in itself, noteworthy.
Of course, if you scratch beneath the surface, there’s still a long way to go in terms of getting all to agree on what exactly constitutes an appropriate level of regulation, or a well-functioning, truly competitive “free” market, or indeed virtue for that matter, but it’s a start at least.
In some ways, the most innovative of the Archbishop’s trio is virtue. The debate about the right level of regulation is as old as the idea of government itself, and markets have long been a touchstone for political controversy, but the idea that bankers could/should behave virtuously is almost as novel to the bankers themselves as it is to their critics.
The role of virtue as a significant element of the social and political contract that binds together commerce, society and government has, in my view lamentably, been largely ignored since the eighteenth century. One of the key breakthroughs of the Age of Enlightenment and the political revolutions that followed was to establish the rule of law as superior to the rule of men. As a result we’ve ended up with a political discourse obsessed with rules and structures (“checks and balances” as the American founding fathers put it) as opposed to behaviours.
That’s not quite true. We’re very interested in the negative side of behaviour – lack of virtue, or corruption – but mostly too cynical to give any credence to the idea that virtue might have a significant role to play in solving the crisis of morals and standards of behaviour that has plagued the financial industry.
I was particularly struck when reading the Salz Report (on Barclays’ culture) by just how technocratic its 34 recommendations were. For a report that purported to be about culture, it had remarkably little to say about the things that define a culture, namely the attitudes and behaviours of the people who make up a particular cultural system. Instead Salz focused almost exclusively on issues of corporate governance – how to build a system of checks and balances that would prevent the next round of failures.
That’s not to say the Salz report didn’t have some very sensible suggestions (albeit rather expensive ones, coming in at half a million pounds per recommendation). It did, in as far as it went. But it’s emblematic of the narrowly circumscribed traditional view of what’s possible. The best we can hope for, it seems to suggest, is a new system of rules and regulations that will be a bit better at checking the worst abuses that occurred under the old regime.
What if for a moment though we suspended our disbelief and imagined a world where bankers really could be virtuous, rather than Gordon Gecko-esque villains. What systems, regulations and governance structures would we then create to empower and encourage people to do the right thing, rather than simply blocking them from doing the wrong thing? And how would we think differently about the various sticks and carrots that are used to shape corporate culture – remuneration policies, recruitment and induction practices, professional training and development, the celebration of appropriate role models?
Archbishop Welby suggested we need to stop talking about “systems” and “systemic failures”, because these suggest that what went wrong was somehow beyond our control and not related to human behaviour. Instead, he argued we should follow the Church’s example and talk about “bodies”.
Use whatever words you like, but Welby is right in one key respect: we need to start talking about human behaviour and the complex web of cultural, social and financial factors that affect it, rather than assuming virtue is an irrelevance to this whole debate.