Volume 2

Letter from the CEO

There is undeniably an existential question that plagues the financial markets, the banking system, and the western world in general. It goes like this: is capitalism, and its political enabler, liberal democracy, ultimately good? To be clear, by good I do not mean to invoke the idea of being fundamentally good in a moral sense. I mean is capitalism good at all, for anyone other than a very select few?

There is fair reason to ask this question. The world’s largest economy by far is now led by a man whose primary capability is to manipulate a television audience. The world’s second largest economy is not a democracy. There is a break-up taking place in Europe that threatens trade and enhances isolation. And there is a force of evil that feeds on terror, that now occupies large swathes of the Middle East and that only began its existence in the last decade. The financial markets, their organs, and the intermediaries that are meant to drive the body economic – the banks – have been vilified to a point they last experienced in the lean years immediately following the Great Depression. In fact, in many ways the situation is worse than in 1933 when the Glass- Steagall Act was first promulgated. At that time, there was at least clarity in thinking and the solution was relatively simple: split deposit-taking from investment banking. In today’s world, there is no clarity: there are a plethora of rules, there are extreme fines, there is political kow- towing and there continues to be manipulation of sectors of the market by institutional participants that amazes even the most battle-wearied of liberal democrats. It has become increasingly difficult to continue to defend the notion of Adam Smith’s invisible hand when the system continues to employ and incentivise the most cunning and dishonest of traders. There are a few bad apples among many good that continue to destabilise the very fabric of liberal democracy.

As this issue of Monocle Quarterly Journal will cover, there has been continued erosion of general confidence and trust in the financial sector through manipulation of just about every aspect of the markets: from the LIBOR rate, to the price of aluminium, to the oil price, and even to the number of applicants for loans, as was witnessed last year in the Wells Fargo case. As articles in the Economics and Politics sections of this quarter’s issue elucidate, this erosion of any sense of a moral – or even fair – basis upon which capitalism can rest, is eroded also by industrial as well as new tech companies, from tax avoidance by Apple, to just plain nasty behaviour on the part of Uber’s CEO.

There is also compelling evidence that the gate-keepers of economic data and its dissemination are party to front-running in the markets, as is explored in an article on the UK’s inflation data. In the Politics section of this quarter’s issue, our contributor unearths the manipulation of the Financial Intelligence Centre Amendment Act in South Africa and the political motives behind it. Despite enormous efforts being made by regulators, academics and bank executives to help defend the rights of firms to operate within the framework of a free market, these seemingly unending knocks to the confidence within the capitalist system have led to a right-wing political response that may gain permanent traction. As a review of polemical literature in this issue examines, even the liberal left has lost patience and is calling for an end to capitalism. It is within the context of this battle – a battle to preserve the best ideas that have led undeniably to the substantial economic and social gains of the 20th century – that we have decided in this issue to reflect on something positive. We see the system that we call the international financial system to be a system of rules, whose players have certain freedoms within the boundaries of these rules, and who compete within the framework of a governed set of principles.

We liken this ‘governed freedom’ to the world of sport, particularly to MotoGP – the pinnacle of motorcycle racing. Like the markets, players take enormous risk to achieve success. They are flooded with information, with strategic decisions, and with many infinitely small tactical decisions. They participate within the boundaries of the rules of motor sport, both globally across many races throughout the year, as well as locally, within particular races themselves. They face different climates, conditions, track temperatures, tyre choices, and they then need to execute to the best of their ability. No-one questions their right to compete, nor their right to win, so long as they follow the rules. And it is a joy to watch. Their greatest protagonist is Valentino Rossi. We have an article on him in the Opinion section. He is meant to represent in this issue the very best of the free market – of racing to win – whilst respecting the rules of engagement. He does so with an attitude and aplomb that few possess and many envy.

This issue is therefore not only an examination of the state of the markets, but is also an ode to motorcycle racing, its history and its heroes. In the text, we attempt to remain squarely focused on the problems of continued market misconduct and market manipulation, whilst the photos and illustrations hopefully provide counterpoint, reminding us of the very essence of the ideas underlying capitalism: that competition is good and that it is fair, and that it brings out the very best in us. 

David Buckham
Chief Executive Officer