On the democratisation of finance, wealth for inclusiveness

The history of financial markets is, to some extent, one of deliberate government policies to disperse financial interests and economic ownership across a wider segment of the population. Hence, such policies have helped in the democratization of finance for inclusive socioeconomic development. We seldom stop to reflect/realize the extent to which we live in a society that is structured by financial design – for our shared prosperity. This history has brought us - the humanity and societies - to certain financial arrangements that we have, without noticing or being conscious about how these arrangements work for our betterment and in creating a good society.

Yes, a modern market economy seems to many observers increasingly run by a relatively small number of business leaders who are, by the virtue of their financial and general business savvy, becoming excessively influential. These few individuals are sometimes accused of being insensitive, but also praised for being responsible for setting the pace for the society as a whole – given their entrepreneurial ambitions, aggressions and dispose.

Yes, it’s agreeable that a society needs to make it possible for relatively few individuals (i.e., political leaders, policy makers, business owners and managers) to use their personal judgement to decide on the direction of societies’ major activities, however, if this could be achieved in a manner that is also inclusive.

This discontent is nothing new, the kind of loss of sensitivities among the wealthy and the loss of a sense of individual participation in society was a concern that occupied by leading economists of the 20th Century like Friedrich Hayek (the Austrian Economist), in his book The Road to Serfdom – where for him, it is the excessive government intervention which is a source of the problem for lack of a sense of humanity in our finance and business undertaking, rather than the practices of big business, but then he also wrote of government being captured by big businesses. Excessive reliance on such large controlling entities, Hayek believed, lead to a defeated attitude, the attitude of serfs.

According to Robert Shiller (Professor of Finance and Economics at Yale University), in the modern capitalist system with all its regulatory machinery, it may, if power within it does not become too centralized and institutionalized, be liberated from just such serf mentality.

He says, if the right rules are in place, they may pave way for the development of a multitude of creative organizations that can achieve far more than any individual, however free, ever could. This set of rules and assumptions that allow orderly businesses to be initiated and then to proceed represents a kind of social capital that is enabling for creativity.

According to Hayek, dispersal of information about the economy and its opportunities across millions of people – with their different situations, locations, eyes, and ears – is where the society and its political and business leaders should focus on. He argues that the society need controls to facilitate, on top of these arrangements, a dispersal of opportunities, but its control as well. This can be achieved by encouraging broader public participation in ownership of factors of production and especially share holding of corporations, or by giving tax preferences to small firms, or by other means to encourage the dispersal of property holding throughout the population.

Collectively, societies can make deliberate decisions to plan a broader and more inclusive financial market.

Such plan could be modelled after the traditional communism - experienced from the 1960s to 1980s - which similarly sought to equalize the ownership and control of economic opportunities. By the way, this idea also reflects on what is known as “ownership society”, referring to a society in which citizenship and responsibility are encouraged by the widespread ownership of and control over properties and assets.

So, how can this be achieved: land reform? – Policies to disperse ownership of capital must be concentrated on land. In the world history, land reforms (and there have been many in many countries, especially in the nineteenth and twentieth centuries), while sometimes imposed harshly, but usually represent the real social progress, and helped many economies in democratization of finance and growth. So, whether in Brazil, Canada, Ethiopia, Namibia, Syria, Taiwan, Zimbabwe, Russia, South Korea, or China, you mention them, even the US – a good part of the sense of equality and a common good existing in large part of America today owes its origin, at least in part, to their democratization of wealth via land reforms.

These land reforms, while sometimes imposed harshly for some countries, represent social and economic progress in a society, helping economic growth – especially the aspect of land titling and its impact on easy access to finance and financial services, financing of business enterprises, lessening of income inequality, the approach to agriculture and agricultural enterprises, in the creation and generation of wealth within a society, in the increase in the proportion of home ownership, etc. To achieve these–land policy should have aspects of equitable allocation.

Home ownership – this is yet another important aspect of democratization of finance, or rather using finance for economic empowerment and creating a good society. Again, going by world history -- as societies and economies become more urbanized, governments have embarked on policies that enable large home-owning population as opposed to the development of huge corporations that operate rental properties for the public. This has been the case in the UK with their concept of “property-owning democracy” in the 1930s, the “home building programs” of 1950s and the “program of selling council houses to renter inhabitants” in 1980s. Similar examples have been in the US especially under President F. D. Roosevelt’s New Deal where the Federal Housing Administration was created in order to provide for government insurance of new mortgages and creating the “Fannie Mae” to buy mortgages from their originators to support the housing market. So, has been the case with China, with its communist ideology, that later came into the ownership society concept, and in the late 1990s China created a Housing Provident Fund aiming at making home ownership and affordable housing a priority and a compulsory saving plan.

The idea of home ownership pops up almost everywhere now. Why? Because it promotes the ideals of independence and personal responsibility where families are encouraged to make sacrifices to have a home in which they are responsible and accountable for, including the use of house for accessibility to finance and financial services and for supporting other aspects of human wellbeing such as entrepreneurship, business management, etc.