I had missed Mark Carney’s latest book Values – Building a better word for all which came out in 2021. Its summary reads thus -
Whenever
I could step back from what felt like daily crisis management, the
same deeper issues loomed. What is value? How is it grounded?
Which values underpin value? Can the very act of valuation shape our
values and constrain our choices? How do the valuations of markets
affect the values of our society? Does the narrowness of our vision,
the poverty of our perspective, mean we undervalue what matters to
our collective wellbeing?
These
are the questions that this book seeks to explore. It will examine
how our society came to embody Wilde’s aphorism –knowing the
price of everything but the value of nothing. How by elevating belief
in the market to an inviolable truth we moved from a market economy
to a market society. And how we can turn this around. In many
respects, this book is a belated response to a question posed a few
summers ago when a range of policymakers, business people, academics,
labour leaders and charity workers gathered at the Vatican to discuss
the future of the market system. Pope Francis surprised us by joining
the lunch and sharing a parable. He observed that:
Our
meal will be accompanied by wine. Now, wine is many things. It has a
bouquet, colour and richness of taste that all complement the food.
It has alcohol that can enliven the mind. Wine enriches all our
senses. At the end of our feast, we will have grappa. Grappa is one
thing: alcohol. Grappa is wine distilled.
He
continued:
Humanity
is many things – passionate, curious, rational, altruistic,
creative, self-interested. But the market is one thing:
self-interest. The market is humanity distilled.
And
then he challenged us:
Your
job is to turn the grappa back into wine, to turn the market back
into humanity.
This
isn’t theology. This is reality. This is the truth. This book
draws on my experience in the private sector and public policy to
examine the relationship between value and values. How they shape
each other, and how, by doing so, they can determine our livelihoods,
identities and possibilities. And how, once we recognise these
dynamics, we can turn grappa back into wine.
The
book is divided into three parts. Part I examines various concepts
of value and their roots in political philosophy and, more recently
and narrowly, in economic theory and financial practice. It uses
a series of valuation paradoxes from art to the environment to
illustrate the potential disconnects between valuations in markets
and the values of society.
Values
and value are related but distinct. In the most general terms,
values represent the principles or standards of behaviour; they are
judgements of what is important in life. Examples include integrity,
fairness, kindness, excellence, sustainability, passion and reason.
Value is the regard that something is held to deserve – the
importance, worth or usefulness of something. Both value and values
are judgements. And therein lies the rub. Increasingly,
the value of something, of some act or of someone is equated with
their monetary value, a monetary value that is determined by the
market. The logic of buying and selling no longer applies only to
material goods but increasingly governs the whole of life from the
allocation of healthcare to education, public safety and
environmental protection. When
we decide that certain goods and services can be bought and sold, we
decide that they can be treated as commodities, as instruments of
profit and use. And we assume, again at least implicitly, that the
values of society will remain unchanged in the process. But as Part I
shows, when everything is relative, nothing is immutable.
To
draw out the relationship between value and values, Chapters 3 and 4
explain how money is used to measure value and what gives money its
value. The historic formal backing of money by gold is contrasted
with its current informal backing by institutions like central banks.
It reveals how the value of such fiat money is grounded in underlying
values of trust, integrity and transparency. Chapter
5 then looks forward, exploring key questions about the future of
money including whether cryptocurrencies could be solutions to the
mistrust of central authorities and how trust scores in social media
(and the surveillance state) could ‘monetise’ social capital.
Chapter
6 shows that our deepest challenges are rooted in the narrowing of
our values to market fundamentalism, and it explains how this is
contributing to the growing exclusivity of capitalism and the rise of
populism. In particular, it argues that, just as all ideologies are
prone to extremes, capitalism loses its sense of moderation when the
belief in the power of the market enters the realm of faith. In the
decades prior to the financial crisis, such
radicalism
came to dominate economic ideas and became a pattern of social
behaviour. In short, we have moved from a market economy to a market
society, and this is now undermining our basic social contract of
relative equality of outcomes, equality of opportunity and fairness
across generations.—
Part
II explores the three most significant crises of the twenty-first
century – of credit, Covid and climate.
In
each case, it examines the underlying causes and describes policy
responses. The book argues that, when taken together, these events
were driven by a common crisis of values, and that our response could
begin to recast the relationship between values and value, providing
the basis for the strategies for individual, companies, investors and
countries that are described in Part III.
As
Chapter 7 shows, market fundamentalism contributed directly to the
global credit crisis, in the form of light-touch regulation, a belief
that bubbles cannot be identified and a misplaced confidence in a new
era. Authorities and market participants fell under the spell of the
three lies of finance, believing that ‘this time is different’,
that ‘markets are always right’ and that ‘markets are moral’.
Rather
than reinforcing social capital, we consumed it. Banks were deemed
too big to fail, operating in a ‘heads I win, tails you lose’
bubble. Equity markets blatantly favoured technologically empowered
institutions over retail investors. With too few market participants
feeling responsible for the system, bad behaviour went unchecked,
proliferated and eventually became the norm. In such an environment,
means and ends conflate all too easily. Value
becomes abstract and relative, and the pull of the crowd overwhelms
the integrity of the individual. The resulting unjust sharing of risk
and reward widens inequalities and corrodes the social fabric on
which finance depends.
Chapter
8 reviews my experience leading the G20’s efforts to create a
safer, simpler and fairer financial system. It argues that in order
for financial reforms to rebuild social capital they must balance the
tension between free-market capitalism, which reinforces the primacy
of the individual at the expense of the system, and social capital,
which requires from individuals a sense of responsibility for the
system. In other words, a sense of self must be accompanied by a
sense of solidarity.
Chapter
9 describes the causes and dynamics of Covid-19 which has wrought
twin crises of health and economics, both unprecedented in our
lifetimes. This global pandemic has moved with alarming speed and
virulence because of deep global interconnectedness, but its severity
has been magnified by our failure to prepare adequately despite ample
and varied warnings. For too long, we undervalued resilience and have
been forced to pay the heaviest costs. The economic shock has
resulted in deep recessions and enormous jobs losses, and it now
threatens to widen the fissures of inequality in the years to come. Despite
these tragedies, as Chapter 10 outlines, this crisis could help
reverse the causality between value and values. When pushed,
societies have prioritised health first and foremost, and then looked
to address the economic consequences. Cost–benefit analyses,
steeped in calculations of the Value of Statistical Lives, have
mercifully been overruled, as the values of economic dynamism and
efficiency have been joined by those of solidarity, fairness,
responsibility and compassion.
Basing
our response on objectives derived from these values, and not on an
economic determination of where the net benefit lies, will be the key
to building back better. This is completely achievable; our limited
historical experience with such epochal events is that afterwards the
aspirations of society focus not just on the rate of growth but also
on its direction and its quality. In the aftermath of the health
crisis, it’s reasonable to expect public demands for improvements
in the quality and coverage of social support and medical care, for
greater attention to be paid to managing tail risks and for more heed
to be given to the advice of scientific experts.
How
we address the climate crisis will be the test of these new values.
After all, climate change is an issue that i) involves the entire
world, from which no one will be able to self-isolate, ii) is
predicted by science to be the central risk tomorrow, and iii) we can
address only if we act in advance and in solidarity. Climate
change is the ultimate betrayal of intergenerational equity. It
imposes costs on future generations that the current generation has
no direct incentives to fix.
As
Chapter 11 explains, we face the ‘tragedy of the horizon’ in
which the catastrophic impacts of climate change will be felt beyond
the traditional perspectives of most business, investors, politicians
and central bankers. In other words, once the physical effects of
climate change become the defining issue for a critical mass of
decision makers, it could be too late to stop their catastrophic
effects.
Like
the financial crisis, the tragedy of the horizon represents a crisis
of valuation and values. Compare the valuations of Amazon and the
Amazon region. Amazon’s $1.5 trillion equity valuation reflects the
market’s judgement that the company will be very profitable for a
very long time. In contrast, it is only once the rainforest is
cleared and a cattle herd or soya plantation is placed on the newly
opened land that the Amazon region begins to have market
value. The costs to the climate and biodiversity of destroying the
rainforest appear on no ledger.
Chapter
11 highlights how changes in climate policies, new technologies and
growing physical risks will prompt reassessments of virtually every
financial asset. Firms that align their business models with the
transition to a net-zero carbon economy will be rewarded handsomely;
those that fail to adapt will cease to exist.
To
address the climate crisis we need innovation on every front, and
Chapter 12 on climate change details how the financial system can be
retooled to make the markets a part of the solution. With
comprehensive climate disclosure, a transformation in climate risk
management by banks and the mainstreaming of sustainable investment,
we can ensure that every financial decision takes climate change into
account.
This
new sustainable finance can work alongside private innovation and
aggressive government action to help deliver net zero. The importance
of this goal cannot be overstated: the task is large, the window of
opportunity is short and the risks are existential. How our economy
conceptualises value has been standing in the way.
Both
the climate and Covid crises demonstrate the value of society forging
a consensus around common goals, and then letting market dynamism
determine how to achieve them rather than pursuing a trade-off
between what society values and optimising current financial values
as priced in the market.
Part
III of the book builds on the responses to the three crises to draw
out common themes and to create action plans for leaders, companies,
investors and countries. It concludes with a new platform-based
approach to managing the global commons in the wake of the demise of
the rules-based international order.
To
rebuild an inclusive social contract, it is essential to recognise
the importance of values and beliefs in economic life. Economic and
political philosophers from Adam Smith (1759) to Friedrich Hayek
(1960) have long stressed that beliefs are part of inherited social
capital, which provides the social framework for the free market. The
experience of the three crises suggests that the common values and
beliefs that underpin a successful economy are:
–
dynamism
to help create solutions and channel human creativity;
–
resilience
to make it easier to bounce back from shocks while protecting the
most vulnerable in society;
–
sustainability
with long-term perspectives that align incentives across generations;
–
fairness,
particularly in markets to sustain their legitimacy;
–
responsibility
so that individuals feel accountable for their actions;
–
solidarity
whereby citizens recognise their obligations to each other and share
a sense of community and society; and
–
humility
to recognise the limits of our knowledge, understanding and power so
that we act as custodians seeking to improve the common good.
These
beliefs and values are not fixed. They need to be nurtured. Just as
any revolution eats its children, unchecked market fundamentalism
devours the social capital essential for the longterm dynamism of
capitalism itself. Markets on their own will never be adequately
incentivised to build social capital, which requires a sense of
purpose and common values among individuals, companies, investors and
countries. Conversely, values are like muscles that grow with
exercise. The book therefore turns to the imperatives of how to
recognise and reinforce these essential social foundations of the
common good.
Chapter
13 on leadership examines the traits and behaviours necessary for
leaders to catalyse change, help their colleagues realise their
potential and encourage their organisations to fulfil their missions.
To inspire the confidence and trust for their initiatives to be most
effective, leaders must engage, explain and emote. Leaders must
continually earn their legitimacy, and to maximise the impact of
their organisation they must stay true to its purpose – a purpose
grounded in the objectives of clients, colleagues and community.
Great leadership isn’t just effective, it’s also ethical,
building both value and virtue through its exercise.
How
purposeful companies create value is the focus of Chapter 14. It
reviews the evidence of the alignment between purpose and long-term
value creation – dynamism – from the perspectives of both
companies and societies. The chapter then describes various
strategies for purposeful corporations to benefit all stakeholders.
True corporate purpose drives engagement with stakeholders, including
employees (by being a responsible and responsive employer), suppliers
and customers (through honest, fair and lasting relationships in the
supply chain) and communities (as good corporate citizens that make
full contributions to society). Corporate purpose embeds solidarity
at local, national and supranational levels, and recognises the
paramount need for sustainability across generations. By uniting
broader interests behind a common purpose, purposeful companies can
be more impactful, dynamic and profitable.
Chapter
15 then outlines how investors can both reinforce these initiatives
and be rewarded by them. A critical element of rebalancing value and
values will be developing and embedding comprehensive and transparent
approaches to measuring stakeholder value creation by companies. The
chapter shows how best to measure sustainable and financial value,
the dynamic relationship between these two sources of value and the
strategies investors can pursue to maximise both.
Sustainable
investing is developing into an essential tool to bring the values of
the market into line with those of society. It improves the
measurement of what society values from workplace diversity to the
Sustainable Development Goals, the SDGs. It is being deployed to
increase shareholder value through multiple channels by helping
companies to attract and retain the best people, to increase their
resilience, improve efficiency, align better with stakeholders and
maintain social licence. When social needs – such as climate
change– are tackled with a profitable business model, the answers
to many of the most deeply rooted problems we face become scalable
and self-sustaining.
The
many policy strands discussed in the book are brought together in
Chapter 16 to develop a framework for countries to build value for
all. This is built on traditional foundations of strong institutions,
and investments in physical and human capital. Given the far-reaching
changes wrought by new technologies from artificial intelligence to
bio-engineering, there must be a heavy emphasis on mandatory
workforce training, universal skills development, the balancing of
rights of all stakeholders, incentives to promote an enterprise
society, and free trade for small and medium-sized enterprises.
Country
strategies must make existing markets work better and build new
markets. But markets alone won’t solve our most intractable
problems. We need political processes to define our goals and
objectives – to set our values. Markets can then be marshalled to
help discover and drive solutions in a form of mission-oriented
capitalism. As we shall see, however, given that the marketisation of
society has created some of our problems, the market simply cannot be
the answer to every question.
Carney’s book is best read in conjunction with Mariana Mazzucato‘s The Value of Everything – making and taking in the global economy (2018)
