Midway into the work of the Commission of Inquiry into the Future of Civil Society, the economic skies fell in. In Autumn 2008 global markets melted in dramatic style as major financial institutions collapsed or were brought back from the brink with eye-popping tax payer bailouts. Unsurprisingly given such events in the lifetime of the Inquiry, the final Report hones directly in on civil society’s potential role in reshaping of the financial system and in securing its alignment with values that emphasise responsibility, good governance, human well-being and environmental sustainability.
‘Growing a Civil Economy’, Chapter 1 of the report, is dense with ideas and proposals for reform. A twin track approach is advocated: “on the one hand, building up a greater plurality of economic organisations rooted in civil society, including co-ops, social enterprises, charities and trust, and on the other, enhancing the influence of civil society on decision-makers throughout the economy, including regulators”.
The report acknowledges that ‘the eco-system of civil society activity in relation to the financial sector is weak’. This is an understatement. Despite the enormous impact of financial markets and financial institutions upon each of us, it is probably possible to count on two hands the number of UK civil society organisations with an effective critique of the financial sector, let alone any meaningful plan to address the sector’s most out-of-control tendencies and the multiple problems arising from them. The Commission’s report is perhaps the first document to identify this lack of effective engagement by civil society as a contributor to the financial excesses proceeding the crash, excesses which appear to be fast returning.
Much was said at the height of the financial crisis about the need for deep regulatory reform and behavioural change, but as stock markets rallied throughout 2009 the impetus for radical change seemed to die a little each day whilst civil society largely watched from the sidelines. The costs to society of that crisis remain very real: an estimated $11trn of global GPD wiped out with 200 million job losses across the world economy. Meanwhile as the UK’s political parties head into a general election campaign, none of them will quite admit the likely scale of public sector cuts to be imposed as a result of debts incurred during the financial crisis and the recession which followed. The report argues convincingly that we simply cannot afford for civil society to be missing in action from the debate on the future of financial markets, their regulation, and the social and environmental obligations of their key participants.
The actions of governments to tackle the cardiac arrest in global markets of late 2008 and early 2009 were undoubtedly effective. Banks have quickly returned to profitability but, perhaps unsurprisingly, a recent joint poll of investment professionals showed that nearly 90% believe moral hazard has increased in the last eighteen months. In other words many of the conditions for another crisis in a few years time are in place. Averting such an outcome, and indeed driving into the financial sector and the economy a renewed emphasis on social and environmental responsibility, must now become a core concern of the UK’s otherwise vibrant civil society sector.
The report points the way as to how this might happen. Charitable trusts and foundations are enjoined to resource the development of a far stronger civil society infrastructure to undertake independent analysis and scrutiny of financial markets on behalf of the public. Substantial investment is required to develop the relevant expertise both within existing civil society institutions and in new ones which emerge for the purpose. Moving beyond the resourcing of analysis to action, the report proposes that philanthropists invest in the development of a vibrant social movement for international tax justice, socially responsible investment (particularly of citizens’ retirement savings), and appropriate financial services for all.
There are signs of such a shift within the world of philanthropy. For example, a number of foundations with an interest in averting catastrophic climate change now recognise the critical role of financial markets and of investors in making headway. From these trusts and foundations, money is starting to flow into charities and third sector organisations which have developed the art of holding accountable banks and institutional investors for the impacts they have, directly and indirectly, on global greenhouse gas emissions.
The report proposes a set of conditions which would characterise a truly civil economy. Amongst these is the proposition that institutional investors, such as pension funds, become significantly more accountable to those whose savings they invest. Making this happen is the mission of FairPensions, the organisation I run. Pension providers are powerful bodies legally charged with acting in our best interests. The collective muscle of such institutional investors, domestically and globally, is more than sufficient to drive significant financial market reform in favour of the public good. But without an urgent and broad-based civil society campaign for transparency, accountability and social responsibility on the part of the UK’s wealthy pension providers, we are most unlikely to see their muscles exercised energetically for the long-term benefit of their millions of members.
Just at the moment FairPensions is running a campaign which is putting to the test citizens’ and civil society’s ability to hold accountable the City’s major investment houses. Shareholder resolutions have been filed at BP and at Shell calling upon the boards of those companies to explain the sustainability of their operations in the Canadian tar sands. All shareholders in the companies, including the UK’s pension providers, get to vote for or against the resolutions this Spring. The campaign has seen thousands of people petition their pension provider to support of the resolutions. This unique grassroots mobilisation of ‘pension fund people power’ is a demonstration that it’s entirely possible to organise effectively across civil society so that the City’s institutional investors are thoroughly shaken from their habitual complacency and inertia. Taking both lessons and encouragement from this campaign, we and our diverse partners across the Third Sector need to become far more ambitious still with a confident strategy to bring the values, energy and vision of the good society into our nation’s economic life. The Commission’s report has laid out a bold and inspiring prospectus for doing this. Now the time has come for concerted and fearless action which delivers the goods.