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Some Conclusions From The Long Finance Scenarios

September 13, 2011

The Long Finance Futurists Forum has recently completed the first stage of its work [i].  This has resulted in possible scenarios for the world and financial services in 2050.  The full report can be found on the Long Finance web site and the SAMI web site www.samiconsulting.co.uk.

The conclusions that the team have reached, based on the scenarios, include forecasts for 2050:

  • Global population will grow to nine billion and get older, with most of the addition in Africa and Asia,
  • There will be major shifts of centres of economic power, causing turbulence as political shifts follow,
  • Technology (info, cogno, bio, nano) will continue to introduce changes into lifestyles,
  • ICT will underpin much of society and has moved on from automated trading to full exploitation of intelligent assistance and data mining,
  • Ecological, energy and environmental limits will be tested or breached and managing this is one of the major tasks for financial services.

The scenarios add to this, possible answers to the scenario questions:

 “will the Washington consensus [ii] http://en.wikipedia.org/wiki/Washington_Consensusbreak down under the major shifts of the centres of economic power and if so how?”

as this will set the context for financial services in a number of ways.

If the Washington consensus breaks down, the world is likely – in our timeframe – to be more fragmented.  The fragments or clusters could be organised in a number of ways.  We have proposed two possible ways – as a network of global cities, with city states to replace many functions of the nation state; or will connections and therefore markets be global and so largely virtual, replacing geography with other organising structures such as affinity groups.

The world will not be homogeneous and we have taken three societal narratives from “Scenarios 2040”, (Sparrow, 2010: Consumer-lite, Post-Globalisation and Poor-Populist).  Consumer-lite is a rigidly controlled society focused on efficiency gains in a world of declining resources.  Post-Globalisation is perhaps the “official future” for the post industrial society.  Poor-Populist societies reject change, but seek material well being.

In Second Hand, the world and financial services are recognisable from today, though most will be largely automated, the current players will have largely disappeared, and many of the new players will be based outside the OECD countries.  Land based assets and permits for citizenship or reproduction are highly valued.

Visible Hand sees the world trying to tackle the global financial systemic risks through Washington consensus methods and facing increased volatility.  The homogeneous global culture is short-term, Consumer-Lite, and carrying the seeds of its destruction.  Gold is thought to protect best against volatility.

In Long Hand, financial services are mostly organised around communities of affinity, many spanning countries and regions.  Assets are allocated by the market within a community and intermediated by technology.  The most highly valued asset classes vary with the community: in Post-Globalisation communities, they are intellectual property and permits to reduce the effect of population pressure; in Poor-Populist communities it is land-based assets, and in Consumer-Lite communities it is gold.

In Many Hands, financial services are mostly organised around about city states which are predominantly Consumer-Lite.  Permits to live or operate in desirable city states are highly valuable assets.  This could of course be implemented through high property prices rather than a state system.  In either case they would be traded directly between individuals or corporates.

Some of the conclusions about 2050 which surprised us included:

  •  Managing scarce resources will be one of the main tasks of financial services in 2050: the expectations of a large middle class will ensure that capital is less valued than the ingredients of a Consumer-Lite society.
  • What could break the Washington consensus?  We introduced food crises in the 2030’s into the scenarios where the consensus is broken: but the current “second wave” financial crisis (writing in 2011) could accelerate this.  Imagining the world beyond the Washington consensus was challenging as so much of our infrastructure – physical and governance – is based on western values and management.  Clearly not all of this infrastructure will break at the same time, but financial pressures in the US may hasten the demise of many international and multi-national institutions.
  • Thinking about the problems of volatility and the role of diversity in reducing this took us into building a scenario – Visible Hand – in which the Washington consensus succeeds too well.  By creating a homogeneous global culture, with a short-term focus, the seeds of its destruction are sown.
  • Evidence for short termism in investment thinking in the US and UK: we suggest that this is likely to persist; in particular, in the homogeneous world of Visible Hand, this short termism dominates and contributes to the downfall of the Washington consensus.
  • Financial services may well be a bubble to match the dot.com bubble, as many of the current players in the west have cost structures unable to cope with the new world order and may be replaced by firms designed to operate through IT from the beginning, as is happening with exchanges now.
  • When we thought about the strength of financial services  centres in each scenario, it became clear that London would prosper best in a Long Hand scenario, in which multiple virtual communities inhabited the same space – as the 270 nationalities living in London today.
  • The positive aspects of Long Hand are aligned to a Post-Globalisation society. A negative view could encompass the hold of religious fundamentalism on a Poor-Populist society.
  • The strength of the evidence from genetics and weather forecasting among other applications of information technology suggests that the mainstays of insurance are under threat over and above the threats to all financial services.
  • The asset classes which prosper are very scenario dependent, and within that dependent on the socio-economic narrative: but property is valued in most scenarios and narratives.
  • The future of money is a frequent discussion point: the answer is different in each scenario. Trust is within the city state (Many Hands) or community (Long Hand) and money could be replaced by tokens here there is trust.  But between cities or communities, the formality of money would seem likely to continue.

For more information or to explore how to use these scenarios to develop strategy, contact us on l3f@samiconsulting.co.uk.

Written by Gill Ringland, CEO at SAMI Consulting

______________________________________

[i]  Long Finance was established in 2007 by a group of motivated individuals including Professor Michael Mainelli, and is supported by Z/Yen Group and Gresham College.  The initiative aims to improve society’s understanding and use of finance over the long term.  Long Finance runs four programmes (London Accord, Financial Centre Futures, Meta-Commerce and Eternal Coin) as well as hosting and promoting a series of lectures, discussion events and research publications.  The initiative began with a question –­ “when would we know our financial system is working?” – and seeks to challenge a financial system that revolves around short-term thinking and practices. Issues tackled so far include the future of mortgages, the history and future of coinage, a systems view of the credit crunch, and the nature of financial services clusters. Long Finance is online at www.longfinance.net

[ii] Washington consenus is used here in its broader sense, see  http://en.wikipedia.org/wiki/Washington_Consensus

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