"Value(s): Building a Better World for All" by Mark Carney
NOTE: I borrowed this book from the library, returned it months ago, and have no way to double check the accuracy of my transcription of the quotes I used. I had recorded them using word recognition in a WORD document. There will be glitches. The bolding is all mine, done for emphasis (so readers can skim if they wish and hopefully reduce the risk of glazing over!) |
Whenever I read a book, fiction or non-fiction, I experience myself having a conversation with the author - if only in my head. With respect to Carney’s book Value(s), my personal bias and starting point is such that although I will be voting Liberal in this election, I tend to lean towards the Greens and the NDP. Here is how my recent response to a survey based on party positions was graphed:
I was no more than two pages in before I could see how it could be possible that Carney’s values aligned with mine:
For over 12 years, I had the privilege and challenge of being a G7 governor, first in Canada and laterally in the UK. During this time I saw kingdoms of gold rise and fall. I led global reforms to fix the fault lines that caused the financial crisis, worked to heal the malignant culture at the heart of financial capitalism and began to address both the fundamental challenges of the fourth industrial revolution and the existential risks from climate change. I felt that collapse in public trust in elites, globalization and technology. and I became convinced that these challenges reflect a common crisis in values and that radical changes are required to build an economy that works for all. p2
Although Carney identifies as a globalist, his concerns over globalization resonate with me notheless:
… the big drivers of technology and globalization are magnifying market distortions. Technology’s impact on inequality is felt across all economies, while globalization's contribution is principally felt in advanced economies. Moreover returns in a globalized world are amplifying the rewards of the superstar and, though few of them would be inclined to admit it, the lucky, Milanovic argues that these forces are being reinforced by the structure of modern capitalism in which the wealthy have both labour and capital income, earn higher returns on their capital, have better access to top schools (social mobility) and can influence the political class. p137
There is also disturbing evidence that equality of opportunity has fallen, with the potential to reinforce cultural and economic divides. For example, social mobility has declined in the US, undercutting the sense of fairness at the heart of American Society. p 138
He does not advocate abandoning globalization (as if one even could), but rather he wants to steer us towards a values-based globalization:
Globalization has simultaneously brought great prosperity and caused tremendous misery. As a consequence, the principles of international integration are being challenged, and the institutions that underpin it are losing their relevance. This is happening while the forces of integration through technological change continue unabated. We run the risk of haphazard and uncontrolled integration that compromises our values. Therefore the defining challenge of this generation is to build a more inclusive resilient and sustainable globalization as it enters its fourth phase. p 509
One of the weaknesses of Carney’s book is his use [over-use?] of acronyms. Often, I had to stop reading to look up what they stood for. For example: ESG. ESG funds are investments that are graded using ESG (environmental, social and governance) principles. This is no woo-woo headset:
Consistent with their better ability to manage such episodic downside risks, ESG funds are more likely to survive. Morningstar found that on average over 3/4 of sustainable funds available to investors 10 years ago have survived, compared with less than half -46% - of traditional funds. Examining large global and US funds they find consistently higher average returns of around 1PP per annum across various time horizons over the past five to 10 years. p 424
Carney sees the ESG approach as a guide not only for investments, but also for government, and he includes the following list as a guide for both business and government.
· Environmental impacts: climate change and GHG emissions; Air and water pollution; Biodiversity; Deforestation; Energy efficiency; Waste management; Water scarcity.
· Social contributions: customer satisfaction; Data protection and privacy; Gender and diversity; Employee engagement; Community relations; Human rights; Labour standards.
· Governance and management: board composition; Audit committee structure; Bribery and corruption; Executive compensation; Lobbying; political contributions; Whistleblower schemes. p419
Carney points out that the dangers of conflating the interests of markets with the interests of businesses had already been recognized hundreds of years ago (Trump is just the latest example):
[Adam] Smith was wary of the dangers of capture of government by business. He consistently warned of the collusive nature of business interests, including fixing the highest price “which can be squeezed out of the buyers”. He cautioned that a business-dominated political system would allow a conspiracy of industry against consumers, with the former scheming to influence politics and legislation. Consistent with this view, he promoted free trade to break the power of the mercantilists and increase the share of manufacturers in a competitive market [not a monopoly, for example]. p30
Carney drills down on the financial costs of inequality, again not a woo-woo approach:
The symbiosis between just and economic outcomes is increasingly backed by hard evidence. For example, a comprehensive OECD study using data from the period 1970 - 2010 covering 31 OECD countries measured at five year intervals finds that inequality has a statistically significant negative impact on economic growth. In particular it estimates that for a number of countries including the US and UK, cumulative growth between 1990 and 2010 would be more than 1/5 higher had income disparities not widened. In contrast, the data suggests that decreases in inequality in Spain, France and Ireland over the time period helped increase the GDP per capita in all three countries. On the other hand, greater equality helped increase GDP per capita in Spain, France and Ireland prior to the crisis. p. 125
…unchecked market fundamentalism devours social capital essential for the long term dynamism of capitalism itself. All ideologies are prone to extremes, and capitalism loses its sense of moderation when the belief [ie belief and faith instead of analysis and fact] in the power of the market enters the realm of the faithful. In the decades prior to the crisis, such radicalism came to dominate economic ideas and became a pattern of social behavior.
In the financial system, market fundamentalism - in the form of light touch regulation, the belief that bubbles cannot be identified and that the market is always right - contributed directly to the financial crisis and the associated erosion of social capital. p139
When it comes to the impact of climate change, I was born in 1946 and came of age when the concept of the tragedy of the commons was much talked about. Carney reaffirms the importance of this, but he adds another layer: the tragedy of the timeline. Governments – if they are going to get re-elected – have to be focused on election cycles (4-5 years), while businesses – especially big businesses – are governed by the even shorter timeline of shareholders returns and the short leash of owners’ expectations of future returns.
There is another reason why the tragedy of the horizon is hugely, practically important. Historically, technology adoption follows a relatively predictable life circle, also known as the technology as curve. There are three distinct phases: research and development, mass adaptation and maturity. The first phase tends to be slow, gradual and expensive, until the new technology reaches an inflection point and becomes more cost effective and adoption increases rapidly.
Typically, reaching the second phase of mass adaption takes 45 years, which for climate change, would be too slow to remain within carbon budgets. Moreover, it should be remembered that energy transition takes time …. p286
… public policy provides the foundation for the transition to net zero. The tragedies of the Commons and the horizon mean that private companies and financial institutions will not fully take into account the impact of their actions on the climate. Although leading businesses will anticipate future climate policies and adapt today, ultimately catalyzing a critical mass of private sector actions requires effective, predictable and credible public policies. p332
The policies for achieving our climate goals should be designed to encourage the economic adjustments and technological innovations at the least possible cost, while sharing the burden of adjustment as fairly as possible within countries and across nations. The critical success factors are the establishment of a broad social consensus, the use of clear, consistent communications and the building of credible and predictable track records for government and regulatory policies. The more that these conditions are fulfilled, the more likely that markets will pull forward towards adjustment and smooth the transition to a net zero carbon economy. p339
Carney points out that even though durable consensus leading to effective moral action is essential, it can be damnably hard to achieve:
… trust grows at the rate of the coconut tree and falls with the speed of the coconut. The lesson [for governments] is the same: trust can take ages to build and moments to destroy. p354
Finally, and most fundamentally, experts need to listen to all sides. … reaching out to all stakeholders is essential to maintain social license and to improve performance. When you engage widely, you will find some sharp, firmly held, but often lightly researched differences of opinion about fundamental issues.
Professor Jonathan Haidt argues that this is in part because humans are prone to “groupish righteousness” when it comes to how people reach moral judgments about important issues. This tendency is exacerbated by social media, which provides the ability to communicate exclusively among the like-minded. p360
Finally, in my “conversation” with Carney, I was surprised to read about his personal practice: If I'm particularly busy, I meditate (trust me, it creates time) and then go to work. Nor had I expected to find his emphasis on the need for humility.
Humility … is an attitude to leading and governing. Not an impediment to acting. Humility is recognizing there will be surprises. I have learned that it's worth asking what could happen if things go wrong, even when you think it unlikely. What if subprime isn't contained? What if a cyber attack is successful? What if there is no deal? Humility admits the limits of our knowledge, that there are unknown unknowns which make resilience and adaptability imperative. The humble can plan for failure, even if they don't know how or when it will happen.
Humility allows us to set goals before we know all the answers. If we are humble, we don't think we can make a map of the whole world to chart our course or try to put a price on every value so we can optimize. If we are humble, we can recognize that answers can be found through processes that will bring them out through debate, considering different perspectives and forging consensus.
The humble recognize the limits of meritocracy. Humility admits the role of good fortune and the responsibilities success brings - the duties that should be put into the service of purpose. Being humble is recognizing that we are custodians of our companies, communities and countries. And that all are equal within. That the common good trumps utilitarianism.
Given that Pope Francis died today, his final word seems appropriate to the challenges we all face. I suspect that Carney would agree: