Ann Pettifor is an expert on sustainable development and executive director of consultancy Advocacy International. She is co-author of Green New Deal, which examines the threats of the credit crunch and climate change. Ann is often credited with predicting the bursting of the credit bubble after editing The Real World Economic Outlook for the new economics foundation.
Real World: What is the alternative to conventional finance?
AP: Well I think the big alternative is a financial system which serves the interests of society instead of the other way around. What we’re hoping is we can now reconstruct the financial sector, so that it does begin to serve the interests of society and in particular of the environment. If we want to invest in wind farms or home insulation or other alternative energies we need a finance sector that will take the risk of investing in those new technologies and do it at rates of interest which would be repayable on the basis of returns generated by those green industries.
RW: Does the current financial system have the wrong priorities?
AP: I would say yes, it has. We’ve built a financial system which feeds on itself, which has become parasitical on the real economy. Making money from money has become the most important priority of the economy whereas actually money should be an asset that’s available to the productive sector of the economy so that it can grow.
RW: One of the motivations for graduates going into finance is presumably that they want to make money. Why should they care? AP: Well, I think there are several reasons. There’s an enormous amount of job satisfaction from doing something you know is useful and meaningful to society – such as providing it with the thing that oils the wheels of the economy: money and credit. Someone who works in the finance sector to achieve a more balanced economy and a more stable ecosystem will be doing an enormous service to society and that’s ultimately far more satisfying than simply making lots of money.
RW: If you want to do good, why ethical finance and not charity work or a social work?
AP: There are plenty of people doing that and we need more people in the finance sector working to reorganise it so that it finds its ethical legs. My colleague teaches Islamic finance and he finds himself overwhelmed with applications. In Islamic finance the lender takes a stake in the business and therefore shares in the risk of the business. The fact that so many students are applying for his course shows that there is a yearning for that kind of ethical work. We need those people to take their place in the City of London and start transforming the way it operates.
RW: Should graduates about to start working in the City see now as a time of crisis or an opportunity?
AP: It’s a time of crisis and they are certainly players in resolving that crisis, and I don’t think the crisis is over yet by any means. The banks are still in a very fragile position; they still have enormous liabilities and exposure to debt which looks to me as if it won’t be repaid. The banks are behaving as if nothing has happened, nevertheless there are going to have to be changes. That’s both a challenge and a huge opportunity to rebuild the finance sector for a world of climate change which is going to be quite terrifying in the scale of its impact. It could be life changing, both in terms of your own experience but also in terms of what you could be doing for society.
RW: Can you really make a difference by getting into finance?
AP: Yes. We went through this period from the 1980s onwards, where the theme was ‘look after yourself’ – and ‘loadsamoney’ was what you had to have. What that did was to drive up consumption. So people went shopping and we consumed beyond our means and beyond the capacity of the ecosystem to absorb the emissions that were generated by churning out all of this stuff in China and consuming it in the West. That was partly driven by greed and the fact that we like shopping but it was also driven by the fact that we had easy credit. That’s how fundamental credit is to the ecosystem. It’s the thing which drives consumption, which in turn drives emissions. If we manage credit properly we can manage emissions at the end.
RW: Is now a good time to join the industry?
AP: I think I would be telling fibs if I said it was a good time to go into finance. The 1980s must have been the best possible time because it was a kind of gambling and if you were good at gambling you could make a fortune. If you simply want to go in to gamble then perhaps it’s not the best time because quite soon governments, whether they want to or not, are going to have to put the clamps on speculation in the financial system. If you want to make a difference to society it’s a very, very good time because we’re going to need people who want to change and who will be courageous enough to go along with those changes and to understand the bigger picture.
RW: What do you think of how the current government has dealt with the financial crisis?
AP: I would sum it up by saying the government has been captured by the finance sector. We have several political bankers running the Treasury. The bankers have fought very hard to defend their corner and to dissuade government from doing anything which restrains their activities. I think that’s counter-productive. The finance sector depends on stable government, on a healthy economy and on social and political stability and we’re going to lose all of those if this financial crisis plays itself out. Before, they were gambling with their own money. They’re now gambling with taxpayers’ and believe that whatever happens the taxpayer is going to bail them out. Well, actually, the taxpayer is about to go broke too so that’s not going to happen.
RW: You support breaking up the ‘too big to fail banks’, why?
AP: Precisely this point that currently the taxpayer is guaranteeing not just the deposits of ordinary people who put their savings in a bank, but also the gambling and speculation of young men fooling around on desks not quite knowing what they’re doing. ‘The taxpayer is about to go broke so they are not going to bail out the financial sector now’
RW: What would happen if they were broken up?
AP: Well it would mean there would be two kinds of bank to go and work in: the more straightforward bank that takes deposits and manages savings, and the speculative bank. That’s often depicted as being the boring banks versus the exciting banks and that’s not true. If we split them up like that we would have banks that would act responsibly, that would be looking to society’s needs and would be providing funding for productive investment. ‘The big alternative is a financial system which serves the interests of society instead of the other way around ’
RW: If finance has to change what can graduates do to prepare for that?
AP: I think it’s a matter of mindset, isn’t it? If you go into your new career thinking “I’m going to go in there and gamble and make as much money as I possibly can overnight and I’m only going to think about number one” then your mindset is going to produce the kind of chaos we’ve had. But if there is any sense among the establishment within the banking sector, they will want people now who are more open-minded. How you go about doing that, of course, will require some subtlety, but I think having people that are more open to these ideas is going to be helpful to the bankers and to the system ultimately, even though it might be difficult for anyone going into the sector.
RW: You’ve been credited as one of the people who predicted the credit-crunch. What do you see happening next?
AP: Well I happen to be quite gloomy actually, and I hate being gloomy because I’m a natural optimist. The thing is, what I did was what so few bankers do, which is look at the fundamentals. Anyone going into the finance sector from now on should understand the tectonic plates that underpin the financial system and look out for a tsunami or a volcano or an eruption. That’s not hard to do but it really requires standing back and looking at the big picture. When you stand back what you see is a mountain, no, a mountain range the size of the Himalayas of debt. There’s more debt out there than can be reconciled with assets, therefore some of that is going to be written off.
RW: What advice would you give to any graduate looking to work in finance?
AP: I would say the finance sector and economics has been dominated by an ideology over the last 30 years. So my advice to anyone going in to the finance sector is to open up your mind. If you have a closed mind you’re not going to be able to see the crisis coming, you’re not going to be able to give good advice to your clients and you’re not going to be able to give good advice to your employers.