Evolution and not revolution needed in the financial sector

The global financial crisis led to popular protests and calls for change in the financial sector and in the political arena. Currently, however, criticism against those behind the crisis appears to be dwindling, just as proposals for reform no longer top the agenda, asserts a team of researchers at CBS involved in a project that will analyse how future financial crises can be averted.
 
According to the researchers, even though criticism is not as hefty as it was just a few years ago, the need for change remains just as strong. Moreover, concrete measures can be taken that do not radically break with the current financial system but that nonetheless have the potential to change it. Awarded 5.8 million kroner from the VELUX FOND, the research project, titled “AlterEcos: Exploring Alternatives to Currently Dominant Forms of Economic Organizing”, will analyse these measures.
 
Evolution and not revolution
The project will attempt to address how a new financial crisis can be averted, or its impact reduced through measures taken from within the system – since it has not yet been revolutionised from the outside, explains Sine Nørholm Just, an associate professor at the Department of Business and Politics at CBS and the project’s principal investigator. She also has an idea of why criticism of the individuals and entities behind the financial crisis has subsided.

“One reason is that when you have a crisis, there’s enormous pressure to find a solution, but the instant the crisis becomes less visible, it’s easier to say: ‘We’ve done enough now’, consequently increasing vulnerability in the event of future crises – because the underlying problems remain unresolved. Moreover, the idea of a revolution to change the system in one fell sweep is in many ways unrealistic, which is why our project involves not a revolution of thought but the evolution of thought,” she clarifies.
 
The name AlterEcos also communicates this, as Just explains, mentioning that “The name is a play on the term ‘alter ego’. In other words, the aspect is also a part of us.
 
For the financial system, this means that the methods used to avert or manage a new financial crisis are already a part of the system. The research group will examine four levels where alternative solutions can be found.
 
Changes at multiple levels
On the regulatory level, Just will study the importance of the EU’s Banking Union, which includes joint rules for banks, joint banking supervision and joint liquidation of failing banks. Using Iceland as a starting point, she will analyse the options countries have for gaining control over their own money after a financial crisis.
 
One of the other levels the project will look at is an already-existing alternative in the internal sector: social banks, which aid in reinforcing the financing of socially, culturally and environmentally sustainable projects. One of the questions the researchers will address is: will social banks become so successful that they begin copying the business model most ordinary banks have and thus only pursue making money for the owners?
 
The research team will also examine more closely the activists who criticise the financial system. One example is the Occupy Wall Street movement. According to Just it is necessary to explore how other types of activists can become just as large and influential.
 
The fourth level will involve studying specific individuals in the bank sector. The researchers will focus on whistle-blower schemes and determine whether they have improved conditions for employees who choose to give the industry a wakeup call.
“One of our hypotheses is that major changes do not occur in the financial system because the various levels are not linked together. Scattered initiatives are taken instead. We hope that our studies can uncover some of the connections that exist between the various levels, allowing us to establish a real and viable alternative to the current economic order as reflected in how the financial sector is structured,” concludes Just.
 
The project is expected to take four years to complete.
 
 
Please contact Sine Nørholm Just for questions.