Old paradigms of money have become obsolete
Money is the barometer of a society’s virtues,” was Ayn Rand’s credo. Milton Friedman preached “money matters” as the guiding principle of monetary policy, and Alfred Rappaport introduced “shareholder value” as the lodestar of corporate management strategy. A monstrance in the shape of a dollar sign was carried in front of the coffi n at Rand’s funeral. And some people still claim that all the Jews gave us was Communism! These ideas took root in Germany in the 1980s. Academics, management consultants, rating agencies, and above all the financial industry worked to make this revitalized brand of capitalism a part of the corporate landscape. The financial and debt crisis that has been smoldering since 2007 seems to be the Waterloo for this kind of thinking. European politicians, at least, are using the crisis to position themselves as anti-capitalist agitators. Take the socialist French presidential candidate François Hollande, for instance. Across all party lines, he and his comrades are playing the part of uncompromising prosecutors, taking on the unquenchable greed of finance capital. The media are also falling all over themselves to be seen at the vanguard of a crusade on behalf of the little people against the players at the poker table of casino capitalism.
Based on envy
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| Germany’s financial capital Frankfurt am Main, nicknamed ‘Mainhattan’, is waiting for clearer skies |
The current global pc-code makes it difficult to have a reasoned and informed debate about the future of the financial and banking structures in developed economies. Talk of a just world, without banks bien sûr, seems to be on everybody’s lips. Financial institutions and their employees are subject to a cascade of slurs and vilifi cations based on envy. It has always been easier to fi re away at a common enemy than to take a hard look and tackle the essence of the problem.
In Germany, people took to the streets to “march on the banks,” and the banks hardly said a word in their own defense. The banks, supposedly so powerful, have largely been absent from the public discourse. Instead, they leave it to amateur economists like the Communist member of the Bundestag, Sahra Wagenknecht, to explain the financial system to the public based on the Communist Manifesto of the year 1848. “Capitalism experts” sing much the same tune. Even public authorities – the European Commission first and foremost – have apparently discovered the philosopher’s stone that is the key to the future structure of the European banking industry. Time to break up the big banks, then, no matter what the cost. The crystal ball apparently shows a world without system-relevant institutions, maybe even a world based on the kind of microfi nance practiced in India. German global companies will have their fi nancial affairs managed by small institutions, and that, supposedly, will put our financial house in order. At least, that’s what the guests on German TV talk shows are suggesting. However, there will be a time after the debt crisis, and there will be institutions that are willing and able to build a business model around the transformation of risk and maturity. Is the silence of German bankers a sign of their cluelessness about how to move forward? Will Germany and Europe really have to survive without large banks because some divisions – take real estate banking – don’t have a sustainable business model anymore? Or are the few major players in the banking industry really just planning to let things take their course? What we need is more courage! Without a functioning banking system, a modern national economy cannot survive.
Key prerequisites
If this attitude takes root and the negative image of the banks in German society doesn’t change, then we really can count on a shift in the competitive landscape that favors savings-andloans and cooperative banks over the medium term. Foreign institutions are already looking toward Germany with increasing interest. Large German companies may soon turn to foreign fi nancial institutions to meet their credit needs.
Bank employees in Germany are under massive pressure. Banks and customers alike raise highest demands. And, after all, who wants to work in an industry constantly under attack? The reputation of bankers now is the lowest in years. By doing nothing, the banks are making the situation worse. So what should they do? The banks need to score a decisive coup. On the one hand, they must correct past mistakes. On the other hand, they must make it clear that a modern global economy cannot feed and shelter seven billion people without a well-developed banking system. When social romantics dream of a return to a barter economy, then someone has to tell them that one consequence of such a transformation would be to drive many people into hunger and misery. Collateral damage?
A key prerequisite for a renewed banking system is to dispense with the notion, propagated in particular by the major management consultancies, that banks’ performance can be optimized according to the principles of the value chain model originally formulated for industrial businesses. But banks’ focus is not on products, it is on advising their clients. Banks are service providers, not manufacturers. Rather than manufacturing, products, and sales, a successful banking business is defined by the service it provides its customers. That includes an obligation to educate consumers about banking. Banks no longer serve as advisers in terms of selling specifi c models to businesses, those supply-side days are over. It is time to re-envision the role of banks from the perspective of demand. It is scandalous that the average German spends more time deciding on an automobile purchase than on saving for retirement – by a factor of about 20.
This is the case, however, because the German car industry knows how to do its job and has done it properly. Nearly every German knows how to interpret data about fuel consumption, acceleration, suspensions and braking distances. Of course they know a thing or two about new and used car prices as well. When it comes to banking, however, Germans are nearly illiterate. Consumer education is a critical concept for the future of banking. An education campaign for financial services is overdue.
Competition and Transparency
Despite all prophesies of doom, the slogans and the soundbites, one thing is certain: our society needs a functioning banking and financial sector. It also needs customers who know what to do with the advice they get from a bank. After all, a functioning market is one where there is competition and transparency, and where the relationship between supply and demand is balanced. Those of the bankers who make an effort to transfer knowledge to consumers, thus gaining them as their customers in the long term, have learned the right lesson from the fi nancial crisis. They will grow with their customers, who can provide constructive feedback. There is no shortage of practical proposals for creating such a fi nancial literacy campaign. Many also understand why this is necessary. There is one ray of light: The German central bank, the Bundesbank, under the leadership of the new president Jens Weidmann, has created a central division for economic education that is devoted to these very same goals. We shouldn’t leave the Bundesbank alone to do the heavy lifting here – it is fighting already a lot of battles on other fronts.