Big risks, big rewards

My goodness, we really are in a right mess.  Our money is being used to bail out banks - possibly to the tune of £500 billion.

You can't really blame the politicians for not having all the detail sorted yet - in terms of what they'll ask for from the banks in return for our investment in them.  But let's hope that they get their best negotiators around the table when the first bank comes to them asking for our cash.  The banks have got us over a barrel, but we've now got them over a barrel too.  The Bank of England is no longer the lender of last resort - it appears to be the only lender in town at the moment, so surely that's a strong negotiating position. 

I was doing a talk at a Soil Association event this morning about social enterprise start-up, and in preparing for my talk, I watched a short video of ex Dragon's Den man Doug Richard - speaking at a British Library event about starting up in business:

One of the things he talks about is how to communicate risk in a business plan.  He says he's up-front with investors about the risks in any business he's setting up.  He thinks people respond to the openness - and also recognise that where there's a lot of risk, there's likely to be a lot of potential reward.

You can bet that there's one hell of a lot of risk in us bailing out the banks.  No matter what Alistair Darling said on the Today Programme this morning - our money is at risk.  I got the sense that he was doing what many economists do - looking at past events in order to explain the future.  In doing so, he's made a judgement that things will eventually stabilise, and then improve.  If that's the case, we'll have invested at good rates, bought cheap shares, and the taxpayer will eventually make money. 

But there's a strong argument for saying that what we're going through is like nothing we've ever experienced before - and therefore the future won't look like the past.  In such a scenario, we're making an incredibly risky "investment".

So, following Doug's example, where there's big risk, we need big reward.  I'm interested in the social rewards more than the financial ones.  We have to take this opportunity to come up with a different kind of capitalism.  One that focuses on using capital to add value through offering useful products and services - and where the social costs of business are not externalised as they often are at present.  Reform of the financial system has to be at the heart of that.

This new world is going to look very different.  In recent years the financial sector has apparently accounted for 25% of our economy.  It's going to be worth a lot less in the future.  Even given the fact that financial services haven't contributed as much as they should have done through taxation, that will inevitably mean less money to spend on "social" services.  That's a worry.  But if we were to develop a brand of capitalism based on values such as fairness, trust and accountability, where adding social value matters as much as adding financial value,  maybe we wouldn't need to spend quite so much on services which fix the mess we've got ourselves into?   I know that sounds a bit simplistic, but maybe now's the time for that kind of thinking. 

Comments

[Gonzalo]

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Gonzalo