Abstract
There are three main questions concerning the potential role of social finance in the global system, seen in its increasing interdependence with the most important economic, financial and political trends: first, what will be the place of social finance in the new tripolar world order comprising the G3: United States, China and Europe? Can social finance continue its original scope of fostering the real economy and contributing to the greater good of all, rather than being used for political purposes in the competitive politics between the G3? As China is forced by its rapid development to link its government-controlled financial sector with the global financial system dominated by the West and the latter’s international private actors, the question of who has the more ‘social’ approach has become a tool of ‘soft power’. The battle is over the future orientation of the global financial industry, and pits communitarian (Europe), socialist (China) and individualist (United States) against each other as the three main approaches to the social dimension of finance. Which of the three approaches will predominate? Can Europe play an intermediate role bridging socialism and individualism through communitarianism? And if so, what will be the role for the more narrow and specialized sector of social finance in such a constellation?
Second, can social finance address the challenges posed by the social and ideological polarization between the left and the right in networked societies within the current phase of globalization? Among the issues is the rise of 50% leftist against 50% rightist open societies in many parts of the world, and the resulting confrontation between liberty on the one hand and equality on the other. Both pressure social finance to fit within their agendas. While Europe tends to rather favour equality, the United States in comparison continues to underscore freedom – with different consequences for the concept and practice of social finance not only in the West, but on a global scale. In China, the power battle between the new left and the new centre is similarly helping to shape the debate.
Third, the growing pressure of the new global core dialectics: democratic versus authoritarian, open versus closed and liberal versus illiberal societies; how can social finance contribute to a balanced development for the sake of everyone, potentially giving rise to the first ever ‘civilisation of humanity’ as a whole? Is there a need for a meta-position towards the current, very different political, social, economic and financial realities on the globe? Should social finance take a clear stance in favour of democracy against illiberal societies like contemporary China? Or should it seek for alternative, third-way positions? And if so, how and with what consequences?
What are the implications of this constellation?
The positive ethical impact of social finance on the international financial systems will not come about through the ‘invisible hand of the market’. On the one hand, there is a sense that it is time to return to the real role of banking as a service for the economy. On the other hand, governments have done far too little to encourage a positive change in the financial sector to further the expansion of social finance as motor of enhancement and dialogue.
Consequently, four measures are now urgently needed:
Governments must agree to establish ways to provide political and institutional incentives, including infrastructural benefits, to the social finance sector, for example, by giving its institutions special tax status or reducing its overall tax burden compared with mainstream banks, or by exempting it, under certain criteria, from the international transaction fee. The social finance sector should also get special conditions in public and public–private endeavours. Large bodies like the European Union or the South East Asian coalition should foster social finance as motor of cohesion, solidarity and the greater good.
Governments should help to establish Transfer Institutes for best practice between mainstream and social finance. Such institutes should be public rather than private. The West should take the first steps and pave the way, as it did with the innovations with the Rating Agencies in Europe (i.e. create public–private bodies as examples and role models). Beyond that, a greater involvement of international bodies like the United Nations, the World Bank or the International Monetary Fund is also imaginable.
Governments on all levels, local, regional, national and international, especially those in charge of the interplay between these levels, should be much more aware of the fact that the main conflict on the global scale will be between democratic and non-democratic societies. Governments should use social finance as ‘soft power’ defining ‘good’ capitalism. If the West wants to save capitalism, it has to promote social finance in order to show that democracy is not a system that allows predatory instincts to exploit people aorund the world for the benefit of just a few.
Governments should recognize social finance as a chance for strengthening the global trend towards regionalization that is increasingly balancing purely national interests by expanding boundaries beyond borders. This is because social finance is about the real economy, which always transcends national egoisms by its very cooperative nature, and because it is about local and regional economic circles. So it is in principle congenial to regionalization and should be better used through additional incentivization on the ground by local communities, which will have to discover the potential of social finance for developing regional wealth and as a tool against nationalist homogenization.
What can be the tentative conclusion?
In my view, the global financial system, and the role of social finance within it, will remain crucial to the shape of the rising multipolar world. Its fate will dramatically influence prospects for the rise of the first global civilization of humanity. Last but not least, social finance will increasingly prove to be a core element of the global ‘resilience’ discussion.