Event highlights,
Capital 7 June 2013

Beast or benefit? Debate on the movement of capital asks who gains and who pays the price


Introducing the sixth event of Zamyn’s Cultural Forum 2013, Ashok Vaswani, chief executive of retail and business banking at Barclays, remarked on the timeliness of the lectures and debates ahead of the G8 summit and stressed the significance of the theme of global citizenship. ‘At Barclays we recognise that businesses can only thrive if the communities in which we do business thrive,’ he said. ‘Citizenship is not a side project or something that we do on the side of our desks – it is an integral part of our business and we seek to build it into our business model.’

He commented that finance and banking can play a critical role as an enabler of social and economic progress, growth and development, and that it is important for businesses such as Barclays to ask how their decisions impact wider society. Drawing attention to the Cultural Forum’s focus on Africa, he said: ‘Capital is flowing into African economies, but all too often the benefits are flowing straight back out. If we are to realise the long-term sustainable growth of sub-Saharan Africa, we need wide-ranging international solutions.’

He put this challenge to the high-calibre panel, which included Maria Ramos, chief executive of Absa Group and Barclays Africa; Lord Turner, former chairman of the Financial Services Authority; and Gayatri Chakravorty Spivak, university professor at Columbia University and a member of the World Economic Forum’s Global Agenda Council on Values.

The chair for the evening, Ian Goldin, professor of globalisation and development and director of the Oxford Martin School at the University of Oxford, initiated the debate by asking: is capital a beast that we have let become the fuel of instabilities? We have suffered and are still suffering the biggest economic crisis of our lifetimes, he said, and many people ascribe this to a failure of capital markets and regulation. ‘What can capital do for development, for poor people?’ he asked. ‘The problem is often too little capital, not too much.’

Lord Turner outlined how economic growth around the world is being accompanied by very significant inequality. ‘Essentially the inequality between countries has diminished, but intra-country has risen very significantly,’ he said. He suggested that, while there is a lot of confidence in Africa, economies on the continent are growing from a very small base and too rapid demographic growth could be fatal for the economic prospects of countries such as Niger or even Uganda.

Maria Ramos, who has ‘worked on both sides’ having served in South Africa’s National Treasury and now in the finance industry, acknowledged that the interconnectedness resulting from globalisation has ‘many positives, but also many things that we need to be concerned about’, in particular the inequality raised by Lord Turner. She talked about how national leaders and international institutions work together to ‘ensure sustainable growth that is inclusive, reversing the trend of rising inequality in most countries in the world’, and noted that the number of people living in extreme poverty in sub-Saharan Africa is being halved. 

The growth of sub-Saharan economies is partly down to commodity prices, Maria Ramos said, but other important factors are what governments have done to create macro-economic stability, improvements in the allocation of fiscal resources – how they spend, what they spend, and what they spend it on – and political stability. ‘All these are important for building sustainable growth and ensuring that over time we get improving levels of equality.’ 

Experts agree there is no such thing as a ‘one size fits all’ economic fix


Emphasising the importance of investments in infrastructure for raising living standards on the African continent, Maria Ramos argued that you cannot finance investment in infrastructure without capital flows and you cannot have capital flows without a higher degree of capital moving between countries in Africa and into Africa.

Lord Turner agreed that movements of capital can be very important to enable investment in countries that don’t have high enough savings to do it themselves, but he warned that it makes a huge difference whether those flows take the form of foreign direct investment, long-term equity/debt commitments, or whether they take the ‘most dangerous form of capital flow of all – short-term, cross-border, bank credit flows’, which caused chaos in the Asian financial crisis of 1997. ‘We must completely reject that all forms of capital flows are absolutely equal,’ he said.

As an example of the fixation with the free-market approach, Lord Turner cited the International Monetary Fund’s position in 1997, when it was on the verge of suggesting that total free movement of capital of all categories should be an article requirement of IMF membership. He argued that it was crucial to recognise that some countries may wish to place limitations on the most short-term and volatile capital flows.

Maria Ramos, who was in the South African Treasury when the IMF was pushing really hard for exchange controls to be lifted, described how her country had taken a very different approach. ‘We didn’t believe we could afford to lift controls in that way,’ she said. ‘We wanted to do it in a measured way, which met our own development needs.’ Noting that South Africa still has exchange controls, she argued that while it is important for countries to interact in a globalised world, they have to set their own terms and move at their own pace.

Lord Turner said that a ‘very big lesson’ had been learnt from the financial crisis of 2008. ‘Before the crisis, we had reached an apogee of a self-confident economic liberalism that we knew the answers – that if we unleashed processes of financial and market liberalisation between and within countries, the processes of economic catch-up by which poorer countries achieved rapid rates of economic growth and caught up with richer countries was inevitable.’ He was not at all convinced that we have ‘the total answer’ to catch-up: ‘it is not inevitable’. While the propositions in favour of free markets are pretty good for some sectors, such as restaurants or cars, ‘they are not so good for finance’.

‘The financial needs of rich developed societies are totally different to emerging economies,’ Lord Turner argued, ‘and you cannot assume that the processes of credit creation left to themselves will end up serving what we think are the fundamental needs of society unless we regulate and manage to quite a significant extent.’ He also expressed doubt over ‘the materialist proposition that relentless growth is required’. 

Maria Ramos recognised that capital controls may be part of the equation, but that you also need solid regulatory environments, ‘clearer rules of the game’ and transparency, as well as involved communities. Observing the relative youth of the audience, she said that it is important that a younger, ‘connected’ generation is asking politicians and company bosses the tough questions – what’s happening and who’s benefiting – and making sure the benefits flow to the right people. 

What we need is a change in desires, says renowned theorist


The Indian literary theorist and philosopher Gayatri Chakravorty Spivak declared that she spoke ‘a completely different language’ to the other panellists. ‘I am not an economist or moneymaker or in the service of moneymaking institutions,’ she said, adding jokily: ‘Though these days one can hardly tell in universities.’

Explaining how, as a teacher, she is ‘interested in producing problem-solvers rather than solving problems’, she said that in order for capital to be turned around in the interests of social welfare, ‘we need a change in desires’. It may be impractical and inconvenient, she said, ‘but unless this is done it’s not possible that we will have a socially just world’.

Challenged by Lord Turner on what she meant by ‘desires’, she replied: ‘The desire to give up something in order that the many may be served.’

Agreeing with Maria Ramos and Lord Turner that there is no ‘one size fits all’, Professor Spivak added that this applies not just on a country level, but also on a sector level within countries. She emphasised the importance of making decisions based on local knowledge and effects, pointing out how statistics ignore the ‘texture’ of societies. ‘Accountability comes from engaging with the electorate,’ she said, not from top-down approaches, and we have to move away from thinking about ‘the people’ as simply the ‘possible benefactors of the growth of the rest of the world’.

Responding to a question from the audience about how capital relates to historical injustices such as apartheid in South Africa, Professor Spivak agreed with Maria Ramos that they could not be undone in 20 or 30 years. But she added that it’s not enough just to invest capital: ‘Unless you also undo the cognitive damage, you cannot have a solution that’s around the corner.’

The audience, which included ambassadors, representatives of non-governmental organisations, psychoanalysts, students and international journalists, joined in the debate about micro versus macro finance and the need for multiple models; remittances as a major form of capital flow; what is needed to make resources a benefit rather than a curse for growing economies; the meaningfulness (or not) of statistics; and who was right: Karl Marx or John Maynard Keynes?

Watch the video here.