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From Speculative to Sustainable Finance: Can Markets do Good?

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If you have a question about this talk, please contact Louise Ovens.

Financial markets have largely stopped fulfilling their role in providing funding to the economy. The 2008 crisis not only intensified the grip of that view but also gave rise to anti-capitalist movements like “occupy”.

Greed, avarice, and short-termism were all found to be rife in modern markets. Financial intermediary power and rent-seeking (so-called financialisation) and excessive leverage due to uncontrollable supply of liquidity, have made markets less rather than more efficient. Moreover, incontrollable speculation and short-termism are also responsible for rising inequality, failing infrastructure, low growth and lower productivity post-2008.

All of these factors are also implicated in the recent rise of populism in the USA and Europe. Yet history has convincingly shown that markets can also do good and become the steam-engine of economic growth and social development. While recent regulatory reforms have increased short-term financial stability and consumer protection, policy-makers have neglected another very important aspect of modern finance: allocative efficiency. Financialisation and short-termism have reduced the level of private long-term funding for investment. The dearth of long-term private finance was also one of the most hotly debated issues in the recent Presidential election in the USA .

Professor Avgouleas suggests that the public ordering of financial markets requires a radical rethinking. In this context he proposes a series of policy reforms to incentivise financial markets to move away from debilitating short-termism to supplying long-term (committed) finance for sustainable growth.

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This talk is part of the Capitalism on the Edge series.

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