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The press cannot regulate itself

The main mass circulation UK newspapers have set up IPSO to regulate themselves. Everyone else wants something independent of the newspapers to regulate the industry. The main alternative proposal is Impress, supported by Max Mosley and the Rowntree Trust.

The newspapers say that if anyone else controls them it could mean the end of press freedom – something crucial to a functioning democracy.

But they should not pretend that they can regulate themselves. The conflict of interest is obvious and fatal. It is to the credit of the Financial Times, Independent and Guardian that they will not join IPSO. However the Financial times and Guardian are trying to regulate themselves directly through a private complaints system. That doesn’t really help.

If the press want any kind of public respect, the onus is on them either to join Impress – or come up with something better.

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Brexit after Brexit

Now that Brexit is on its way, everyone is trying to work out what it means. I believe the most profound implications are not about the re-configuration of the UK’s political parties, or the length of time withdrawal may take, or the possible economic impact – or even the fragmentation of the United Kingdom.

The most important implications will be what it means for social conditions and the environment. Brexit is a giant exercise in re-regulation.

Clearly part of the motive for leaving was to achieve a reduction in the regulation of business. I fear that will mean harder working conditions for the majority of the very people that voted to leave. But what no-one is talking about is a possible relaxation in environmental regulation.

It will be a Pyrrhic victory for Britain if the planet is defeated.

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What's wrong with finance?

Why are there so many scandals within the finance sector? From the many news reports the banking, finance and insurance sector across the world seems rife with malpractice.

Insurance seems to be commonly mis-sold – to those who don’t need it and to those who don’t care enough to shop around at the end of the year. Banking often provides poor service and finds it hard to justify its charges. (But it can help you avoid tax.) And then there’s finance. Apart from crashing the world economy, a surprising number of markets seem to have been rigged and operated for the benefit of the industry rather than the market participants.

It doesn’t look as though it’s a matter of a few rotten apples spoiling things. The entire barrel looks badly decomposed. It is tempting to think of the sector as a zombie – still out to get you even though it is clearly dead. But that would be wrong.

It is true that there are so many separate companies involved in all these scandals that it must be a systemic problem. And because finance is the life-blood of the economy, an infection in one part of a bank can spread everywhere.

Also, the typical reaction of the management of financial companies rarely helps. The response to a scandal is almost invariably a variation on this theme: “we’re sorry that [something] has gone wrong. This behaviour does not represent the ethics of the bank as a whole, it is the result of a few rogue individuals. However we have already put in place far stricter controls that will prevent this sort of thing ever happening again.” With a few changes, that could also have come from the mouth of the regulator.

But a few weeks later, it happens again…

Which matters because we have little choice in where to put our money. True, crowd-sourced finance, local money schemes and friendly societies are beginning to push the mainstream finance sector out of the way. But can this disintermediation spread beyond smaller ventures? As a result, trust in a fundamental institution of our economy is falling away. The final result may be increasingly ‘irrational’ behaviour by all of us that will make the smooth functioning of the economy – and of our lives – increasingly difficult.

The question remains, however – why is the finance sector in particular in this state?

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Paying for purity with disaster

Money laundering is a bad thing – it supports crime and terrorism. And the banks’ payments payments systems are the soil in which money laundering can grow. So Barclays has decided to close the accounts of 100 of the money transmission businesses that transport remittances from the UK to Somalia through accounts with Barclays. No doubt it has been frightened by the $2b fine that HSBC received for its part in the black economy. Yet these money transmission businesses are a vital support of a substantial part of the Somali economy.

Moreover Barclays has in the past recognised that access to finance contributes to development and to the Millennium Development Goals. However most of the contribution that it acknowledges to the MDGs seem to be in the form of charitable activities. These may be worthy, but the £100m a year that Barclays’ money transmission services send back to Somalia alone from the UK must entirely dwarf that.

So what will happen? Most likely the money transmission will go on through unregulated channels such as hawala. Unfortunately these are precisely the mechanisms that are most likely to support criminal and terrorist activity. Beyond that, any further economic chaos created in Somalia by this decision is only going to exacerbate the forces of terrorism.

Time for some joined-up thinking?

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Royal Charters: the way forward for voluntary self-regulation?

It looks like the new UK press regulation regime will both be voluntary and have teeth. It will have the power to impose significant sanctions on those who break their own rules.

So why can’t other industry sectors adopt this approach – alcohol production, gambling and retailing perhaps? At the moment, where self-regulation exists at all, it is weak and ineffectual like the Press Complaints Commission. If companies don’t like the rules, they either ignore them or change them. Not much to respect there.

What it took to change press regulation was a huge scandal. So can similar scandals  in other sectors be avoided by establishing meaningful self-regulation first?

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2013: the difference between hope and expectation is 20 years

What hope can we hold for 2013?

I think the most profound change we can hope for is that the recent growth in awareness of sustainability becomes real, rooted and universal.

Read my hopes and expectations, and the difference between the two on the Guardian blog.

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Making corporate responsibility personal responsibility

Taking personal reponsibility for bank failure is one way the size of banks could be limited. And according to the director of financial stability at the Bank of England, there might be a need to do so.

One way to limit both company size and appetite for risk is to tie the fortunes of directors and shareholders directly to the fortunes of their company. This could be accomplished by removing limited liability for companies above a certain size. Removing limited liability would mean that directors and shareholders would be personally liable if things go wrong. So removing it above a certain size of company would provide strong pressure to keep a company under the size limit and generally to behave with more caution.

But what about other companies? Non-bank companies may not be quite so structurally important to the economy, but if Walmart or Tescos collapsed, people would go hungry…

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The UK is not on the Pacific rim – but it could soon be…

The USA and countries on the Pacific rim are negotiating a new trade agreement under conditions of great secrecy. The Trans-Pacific Partnership (TPP) seems to favour trade interests above those of national governments. There are numerous problems with the intent of the TPP from giving up democratic rights to a non-democratic body to lowering sustainability standards. It will, in effect, be like those state-investor agreements under which governments agree to compensate companies if improved environmental or social regulation hurts their profits – but on a larger scale.

And while the public is excluded from the negotiations, companies are probably at the table. According to the Guardian “The top executives at General Electric, Goldman Sachs, and Pfizer probably all have drafts of the relevant sections of the TPP. However, the members of the relevant [US] congressional committees have not yet been told what is being negotiated.”

But what has the fate of Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the USA got to do with the UK?  (Apart from the injustice.) Well it seems that the TPP is intended to be open to any country to sign up to, including the UK.

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Barclays over the edge

What happened to the corporate citizenship that Barclays was proclaiming back when LIBOR was being corrupted? Even the Chancellor has taken Barclays to task for manipulating the crucial LIBOR interest rate. “Through 2005, 2006 and early 2007 we see evidence of systematic greed at the expense of financial integrity and stability and they knew what they were doing.”

The financial consequences of these banking practices, which are not confined to Barclays by any means, begin with the fines from the regulator at a few hundred million pounds. But the consequential losses – and the work involved to unravel them – could be vast. (Imagine calculating how many people paid too much for their mortgage back when LIBOR was nudged up? And paying them.)

One lesson for the CSR community is that you ignore the core business at your peril. The biggest corporate impacts usually start when the core business is done irresponsibly.

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Responsibility for Europe

Europe teeters on the edge of the Eurozone and markets thrash. So whose fault is it?

Is it the fault of those who cannot pay back their loans (poorer countries like Greece)? Or of those who made them in the first place (richer countries like Germany and investors in debt)? No doubt both sides are guilty to some extent.

But what all sides are equally guilty of is blind faith in ‘the market’. Markets will not reflect reality unless:

  • participants know the underlying economic situation of the other party
  • failure to honour a debt is always punished.

Yet the first proposition is usually untrue and the second is both untrue and undesirable.