What’s the problem? A look at John Kay and John Plender’s latest books

Two books by two Johns pique the interest of George Littlejohn MCSI this month. And there’s a common theme: problems within financial services

Two Johns, Kay and Plender, have made distinguished contributions to the CISI’s life over the years, in talks and lively inputs to debates. Best-known to many the Review  readers as regular columnists in the Financial Times, this summer, they each published thoughtful, stimulating and highly readable accounts of present-day economics, ethics and finance. 

Both Johns have been thoughtful observers of – and participants in – the financial services industry from a variety of different perspectives over a long period. Unlike occupiers of St Paul’s or Wall Street, or other commentators on the far left (or right), they are, for many in our business, inconvenient critics – well-informed, balanced, in the thick of it.

John Kay is one of the world’s leading economists. He has worked in business schools and universities, consultancies and think tanks, and as a director of numerous financial firms and other major businesses. He chaired the UK Government review of equity markets, which reported in 2012, recommending substantial reforms. He is a visiting Professor of Economics at the London School of Economics. So he has form.

Some of his most influential recent work has been on banking regulation. Other People’s Money: Masters of the Universe or Servants of the People? (Profile Books) focuses directly, and with surgical precision, on the problems of our industry. His chief question after prowling the financial world in the decades of explosive growth is: “What do these people do?” The answer for the most part is that they are masters of the universe – “to an extent that staggers the imagination, they deal with each other.” 

The dark heart of financeThe traditional business of storing money, managing payments, financing housing stock, building and restoring infrastructure, funding retirement and supporting new business comprises only a tiny sliver of the sector’s activity. Kay’s view is that the industry has grown too large, detached itself from ordinary business and everyday life, and “has become an industry that mostly trades with itself, talks to itself and judges itself by reference to standards which it has itself generated”. 

And the outside world, he believes, has itself adopted those standards, bailing out financial institutions that have failed all of us through greed or mismanagement, in “the dark heart of finance”. 

How to make things better? Since the global financial crisis, there have been widespread and repeated calls for more regulation. What the advocates of “more regulation” have in mind, says Kay, is yet more detailed rules about the everyday conduct of finance. “This course of action will fail,” he warns. Instead, “personal responsibility is vital to reform”. 

A divisive denominator John Plender’s journey has been different but no less valuable in terms of understanding the way the financial cookie crumbles. After qualifying as a chartered accountant, he moved into journalism and became Financial Editor of The Economist in 1974, where he remained until joining the Foreign Office policy-planning staff in 1980.
“Nothing, apart from religion, has so divided the human race as the issue of how to regard money...”On leaving the Foreign Office, Plender became a senior editorial writer and columnist at the Financial Times. A former member of the London Stock Exchange’s quality of markets advisory committee, he is Chairman at the Official Monetary and Financial Institutions Forum and of the Advisory Council of the Centre for the Study of Financial Innovation, and he was for some time Chairman of major listed property firm, Quintain.

Capitalism: Money, Morals and Markets (Biteback Publishing) is a wise, eloquent and timely tour d’horizon of our ambivalence towards money-making over the centuries – since long before the dawn of capitalism. “Not only has money throughout the ages had a terrible press on ethical grounds; nothing, apart from religion, has so divided the human race as the issue of how to regard money, wealth and markets.” This book’s journey leads from the Venetian merchants of the Renaissance to the silver-mirrored canyons of today’s Canary Wharf. 

Time to watch outPlender notes Maurice Saatchi’s view that capitalism feels “unbalanced”, which brings two clear messages for financial services and markets: “When finance becomes increasingly remote from servicing industry and commerce, it is time to watch out. And when it becomes disproportionately large in relation to the economy, it needs to be cut down to size.” The last financial markets crisis, he astutely points out, was the first proper shock since the demise of the last alternative to capitalism – communism. The next crisis, on which he will not put a time but which is likely to be much bigger, could be a far more raucous rattle.

But Plender concludes that Winston Churchill’s verdict on democracy applies with equal validity to capitalism: it is the worst form of economic management, except for all those other forms that have been tried from time to time.

Watch John Plender discussing his book on CISI TV.
Published: 13 Oct 2015
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