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What Is the Role of Finance in The Emergent Future?

Posted By E. Alex Floate, Friday, December 6, 2019

Alex Floate, a member of our Emerging Fellows program believes that the role of finance in the emergent future is made by our choices. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

2050 – Continued status quo

WNN, the World News Network, announced the closure of the Tokyo, New York, and London exchanges today, citing the owner’s announcement that the exchanges were no longer profitable due to the lack of publicly available stock assets. Finance watchers had been warning for years, even decades of the growing disparity in wealth in all nations, especially those with extensive and politically influential financial systems.

 

The concentration resulted in privatized holdings that were no longer accountable to public transparency, or hijack by minority investors. Other investment vehicles that the oligarchs could control, and usually skirted many archaic government regulations, were still offered for the masses. The money raised from these token offerings were then used to make the riskiest bets, ones the corporate monopolists and oligarchs did not want to risk their own money on.

 

The governments overseeing the economy were content with maintaining the status quo of reasonable stability in the broader economy. If the masses were content with meager returns, and a standard of living that allowed them to plug-in to a large selection of neuro-linked content, why not let the rich have their way?

 

2050 – Transformed by design

WNN, the World News Network, announced the renaming of the Tokyo, New York, and London exchanges. The exchanges now track the true costs and benefits of each company, both private and public, and their social responsibility scores. This allows governments to levy appropriate taxes and gives investors full information on the companies’ ability to create social goods in addition to profits.

 

Also announced was a unified global taxing and currency structure. This will stop corporations and individuals from using tax havens that reduce tax liabilities in primary markets. The move is aimed at corporations who gain all the benefits of a market without having to bear any of the costs. Additionally, it will restrict the ability to manipulate currency or financial assets in one market for financial advantage in another. These changes deal a blow to the world of ‘paper profits’ and the financialization of markets that enrich a few at the cost of the broader social good.

 

Present Day – What role do we want finance to play in our future?

The future of finance is dependent on the role we believe it should play in our society and economy. If we decide the status quo is sufficient, we can expect that financial profits will remain the priority of those who earn them, and they will continue to seek power to protect them. We can expect continued attempts to keep profits as private gains, and costs and losses turned into public debt. We can also expect other aspects of life, such as freedom of movement, expression, and privacy, to become luxuries that are priced and sold as commodities. Ultimately, the role of finance in the emergent future is what we make it. It is up to us whether it is our servant or master.

 

© E Alex Floate 2019

Tags:  finance  future  profit 

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What is Missed by a Focus on Profit?

Posted By Administration, Tuesday, April 2, 2019

Charlotte Aguilar-Millan shares her concern about the mere focus on profit in her fourth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

For a company to grow, profit is required. This has been the age old mantra that those in the world of business have restated again and again. Why, when we look at fast growing companies, do they make limited profits? Deliveroo, a food delivery service, whose revenue increased by 116% in 2017, saw profits grow only by 1.5% during the same period. This is as a result of reinvestment into their technology apps. It is also an indication of the changing landscape. For companies to deliver long term shareholder value, profits are not the key driver. Instead, profits act as a by-product from placing value on other areas.

 

Too often companies focused on profit look to scaling efficiency and reducing costs, resulting in missed opportunities. Amazon is a prime example of a company which reinvested into its services including delivery and inventory availability. This has enabled fast growth and expansion into new markets. It has also added an edge to the market. Companies focussing on profits cannot compete with this edge. 

 

Globalisation has enabled more end user awareness of the behaviour of a profit focused company. Poor treatment of staff stops a brand from being able to convey aspirational attributes. Potential employees are able to research these workplace habits and have become aware of the working environment of a profit focussed entity. This has made potential employees wary of those companies tarnished with a profit only focus.

 

There are longer term impacts on society where companies solely focus on profits. When cost reduction is a main factor, the contribution to the remedy of global issues is weak. Measures to help reduce climate change and poverty from seeking the lowest cost are often retrospective. Often this action is as a result of external pressures only. Take corporate social responsibility (CSR) as an example. This is a tool now used by companies to demonstrate they are ethically aware. However, companies persevere with using suppliers who do not pay a living wage. They offset this in retrospect by allowing employees to take a volunteering day or sponsored run. Rather than take responsibility for the repercussions of their cost saving exercises, companies introduce CSR policies and assume that this is sufficient. It is the individual who has to pay the price for a company focussed on profits. Whether it’s by accepting higher prices or lower quality. Whether it’s by downsizing with fewer staff but the same workload. Or even whether it’s accepting climate change as a consequence of the profit focus.

 

Shareholders have a responsibility to make the directors of a profit focused company accountable. They have the opportunity at least annually to demonstrate an activist investor approach. Activist investors can use their equity stake in a company to put pressure on its management. Companies have historically taken no action where no pressure or incentive is given.

 

The end user can also demonstrate more self-awareness of the products and services they are consuming. We have seen the growth of ethically sourced products, such as Lush and The Body Shop. This is starting to develop within other industries. The size of ethical funds is at the highest level it has ever been before, peaking at roughly £4bn in May 2018 on the London Stock Exchange.

 

The choice lies with consumers. Consumers can use their purchasing power for positive change. Activist shareholders can place pressure on companies in the future to enable the change they want to see. This could change the approach of companies to effective climate change mitigation, reducing unequal director to employee pay ratios and increasing staff welfare. In the future, companies may have to pay more attention to those issues which are missed by a focus purely upon profit.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  company  economics  profit 

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