The weight of the financial sector has grown significantly in the global economy in the last four decades. More important, it has grown in ways that may have been unanticipated at the time of drafting the Universal Declaration on Human Rights, which turns 64 today. For instance, when the Declaration proclaimed that economic social and cultural rights should be realized “through national effort and international cooperation,” surely the governments negotiating the text had in mind a different financial system than the one we witness today.
So, with the greater role of financial markets in the global economy comes also a greater responsibility in the realization of human rights. An urgent exercise of rethinking and redeploying financial regulations is essential for, without it, declarations on rights will remain mere aspirations left to chance in the vagaries of unfettered financial markets – which so far have tended to favor a very small group of winners.
The 64th anniversary of the Universal Declaration on Human Rights offers a good backdrop for the essential reflection on what this rethinking entails. In a recently-published primer the “A bottom up approach to righting financial regulation initiative” offers some initial ideas.
Firstly, there is a need to downplay the notion of GDP as an accurate benchmark of progress. Before the crisis, a large part of the growth in GDP had been driven by growth of financial sector assets with no productive counterpart in the real economy. There are a number of alternatives to GDP that suffer of the same limitation.
Secondly, it is important to check what type of activity financial regulation is encouraging in a society. Can sustainable modes of production –oftentimes small scale endeavours– expect to receive appropriate financial support in the system? Can innovation and technologies needed to cut waste and pollution earn a reasonable profit?
Thirdly, the new financial regulation paradigm should encourage financial agents to channel real resources to real activities, rather than simply expanding the “chips” for owners of financial capital to bet with (in the process draining the real economy). This latter seems to be the case with proposals to create markets for the ecosystem or “natural capital.” The extreme volatility and unbalanced accumulation patterns observed in financialized commodity markets provides evidence of the risks in this approach. Indeed, when sustainable development and nature conservation are all about thinking of the long term, why would we expect the short-termism of financial capitalism to do any good when extrapolated to those areas?
Finally, it is important to not forget that whatever we might think the new paradigm should be, or do, its suitability will depend on the extent to which it is not a theoretical, but a social construction built with deep participation of citizens, including civil society and movements. We all have a task to be part of such construction.