We thus have a rich and varied set of literatures that can help us understand
why we have the financial systems we do. There are two main elements: first,
there are the forces which shape finance at the national level; second, there is the
spread of policy between countries, generally from developed countries (with major
financial centres) to developing countries. Thus, while domestic finance is often
quite weak in developing countries, governments may still adopt liberalizing
policies because of the international diffusion of these ideas.
Some concluding thoughts on achieving transformations
Reforming finance to support light-green transformations seems possible. If the
right incentives were put in place – most importantly that environmental costs
were priced into investment decisions – the financial sector might even become
a force driving transformation globally (Newell, this book). As mentioned
previously, the financial lobby is broadly supportive of environmental change – as
long as new financial asset classes are integral to this process. With ‘light-green
transformations’, therefore, the obstacle is not finance, but the incumbents who
benefit from the status quo, as well as collective action problems operating at the
international level. It is possible to envisage alliances of public, private and civic
groups becoming strong enough to overcome these incumbents (Schmitz, this book).
Were the financial lobby, with all its power and influence, to be part of such
alliances, the chances of success would be greatly increased.
The situation is more complex with the other forms of transformation identified.
Each would require reforms that would be opposed by financial actors, vehemently
in some cases. It is reasonable to assume that financial actors will try to protect
their own interests. History suggests these are equated with profit maximization
through financial ‘innovation’ and leverage, and that this requires minimal
restrictions on financial institutions. Achieving reductions in inter- and intracountry
inequalities would require measures likely to reduce the freedoms and profitability
of the financial sector, and so be strongly opposed.
As a result, alliances working to achieve transformations of this kind would need
to be different, not least as the financial lobby would be found in the opposing
camp. This does not mean they could not succeed, however. The attention
captured by Thomas Piketty’s (2014) work on capitalism and inequality suggests
a strong appetite for change. Moreover, the interests of the ‘real economy’ are
often ill-served by finance. Reforms that reoriented finance towards the real
economy, and which encourage transformations to more equitable societies, could
potentially garner support from a range of actors.
While the international mobility of capital suggests that these alliances would
need to be transnational, the international spread of finance-friendly policies from
particular countries points towards an initial focus on reform in the major financial
centres. This is difficult. The authorities with power to reform these centres – i.e.
the governments of the jurisdictions in which they operate – are those which are
Financing green transformations 167
why we have the financial systems we do. There are two main elements: first,
there are the forces which shape finance at the national level; second, there is the
spread of policy between countries, generally from developed countries (with major
financial centres) to developing countries. Thus, while domestic finance is often
quite weak in developing countries, governments may still adopt liberalizing
policies because of the international diffusion of these ideas.
Some concluding thoughts on achieving transformations
Reforming finance to support light-green transformations seems possible. If the
right incentives were put in place – most importantly that environmental costs
were priced into investment decisions – the financial sector might even become
a force driving transformation globally (Newell, this book). As mentioned
previously, the financial lobby is broadly supportive of environmental change – as
long as new financial asset classes are integral to this process. With ‘light-green
transformations’, therefore, the obstacle is not finance, but the incumbents who
benefit from the status quo, as well as collective action problems operating at the
international level. It is possible to envisage alliances of public, private and civic
groups becoming strong enough to overcome these incumbents (Schmitz, this book).
Were the financial lobby, with all its power and influence, to be part of such
alliances, the chances of success would be greatly increased.
The situation is more complex with the other forms of transformation identified.
Each would require reforms that would be opposed by financial actors, vehemently
in some cases. It is reasonable to assume that financial actors will try to protect
their own interests. History suggests these are equated with profit maximization
through financial ‘innovation’ and leverage, and that this requires minimal
restrictions on financial institutions. Achieving reductions in inter- and intracountry
inequalities would require measures likely to reduce the freedoms and profitability
of the financial sector, and so be strongly opposed.
As a result, alliances working to achieve transformations of this kind would need
to be different, not least as the financial lobby would be found in the opposing
camp. This does not mean they could not succeed, however. The attention
captured by Thomas Piketty’s (2014) work on capitalism and inequality suggests
a strong appetite for change. Moreover, the interests of the ‘real economy’ are
often ill-served by finance. Reforms that reoriented finance towards the real
economy, and which encourage transformations to more equitable societies, could
potentially garner support from a range of actors.
While the international mobility of capital suggests that these alliances would
need to be transnational, the international spread of finance-friendly policies from
particular countries points towards an initial focus on reform in the major financial
centres. This is difficult. The authorities with power to reform these centres – i.e.
the governments of the jurisdictions in which they operate – are those which are
Financing green transformations 167