The RSA is renewing its long history of reforming finance for social good
by Asheem Singh
During the Napoleonic Wars, after the Bank of England started issuing the first low denomination notes — of one or two pounds (around £100–200 in today’s money) — forgery was rife. This was the time before police, and so the bank formed a shady intelligence network to root out those who forged British currency. Members of the Society of Arts (which would become the RSA in 1847) argued, quite correctly, that this brutality — the penalty for transgression was hanging — was of the government’s own making and that financial policy should not result in social harm. So it was that artists, engravers, designers, materials scientists and bankers from across the Fellowship were enjoined to create the modern ‘unforgeable’ banknote.
Change did not come straightaway. By the time the Society’s working group issued its recommendations, the wars were over and the currency returned to being pegged to gold. Meanwhile, the Bank of England’s network of informants was disbanded. Yet decades later, as paper money increasingly became the norm, those old Society of Arts reports were dusted off. Almost all of their recommendations can be seen to this day in the modern banknote.
Round the mulberry bush
The more things change, the more they stay the same; every so often a seductive but all-too-elusive idea re-emerges: that the mechanisms of finance exist not just to help people do well, but to do good. “The winners take all,” American firebrand Anand Giridharadas told me last year at the RSA, referencing his bestselling book of the same name. He insists that virtueless financiers must be ostracised from the discourse around social good, having shown us time and again that they do not act in our best interests.
This frustration is understandable. To many, the culture of financial services has long been viewed as hopelessly irredeemable. Writing about the very first stock-jobbers who plied their trade in Sweetings Alley, Daniel Defoe, in his The Anatomy of Exchange-Alley, described their trade as “knavish in its private practice, and treason in its public”.
Yet the RSA has always tended to take a more constructive view. Like the Society’s engravers and artists of yore, it has generally seen finance as imperfect but improvable and, at its best, even capable of bettering society. The Society of Arts’ members, working with Robert Aglionby Slaney MP, sought to counter the class struggles of the 1840s and 1850s by enabling more workers to hold stocks in their companies. Reform of limited liability laws were key to this; these reforms fire-walled the fortunes of shareholders against company debt so that even ordinary people might own.
In a similar vein, Sir George Bartley, son-in-law of Henry Cole (Chairman of the Society of Arts and inventor of the Christmas card), was founder of the National Penny Bank; unlike other banks, this required only a small amount to set up an account, with the result that almost anyone could save and build assets.
Fast forward a hundred years and financiers of the 1980s, filled with the pluck of Chicago School hardliners like Milton Friedman, left all this behind, acquiescing to the idea that ‘greed is good’ and disavowing all social responsibilities, except to their shareholders. Transactionalism, neoliberalism, yuppie-ism: all made a mockery of the optimistic view that something better was possible.
Still the RSA ploughed its furrow, championing the idea that financial services and corporate culture are at their best when they align good with money. Tomorrow’s Company, a positive money thinktank, was created in the 1990s as a spin-off of an RSA inquiry about the role of business. Driven by Fellows, a further follow-up programme, Tomorrow’s Investor, had a huge win in December 2019, when it helped to get pension laws into the Queen’s Speech, inaugurating a sea change in the largest of all our household assets.
Today, culture, practice and business are increasingly moving onto the RSA’s turf. A recent memo from the CEO of BlackRock highlighted the extent to which climate change is imperilling assets that were once thought of as safe. Financial radicals demand faster, more transformative alternatives to support the fight against the climate crisis.
In the past year, I have seen this first-hand. In my conversations with Extinction Rebellion activists in London, the demand was for financiers to not only divest of harmful fossil fuels, but also to invest elsewhere by way of reparation. The RSA elected to go fossil fuel free in 2019. This is a start. But if 2020 is to be the year we take on the climate emergency, we need to lean on our history and do even more.
To be good with money, one must ally good with money
On the ground, a ‘good with money’ revolution bubbles. One of the break-out movements of 2019 was community wealth-building, and its godfather, Ted Howard, launched his book, The Making of a Democratic Economy, at RSA House. This work brings together several ideas under the banner of community wealth-building: native American, tribal conservation economies; rural microfinance; locally focused procurement in places such as Preston; and countless other movements. And it offers something we are much in need of: hope. When we talked to social financiers, investors and politicians involved in some of these initiatives in the north, we were told again and again that scale and serious investment in this work were badly needed.
Optimism among practitioners and activists often jars with the cynicism of journalists and commentators. I mentioned BlackRock; The Economist recently published an editorial where they grudgingly acknowledged that shareholder value, the totem of the Friedmanites, might not be the sole material consideration for a company or investment community after all. The Collective, a meeting of the world’s top CEOs, placed the enlargement of the concept of value at the top of their most recent agenda. It is no longer just teen activists who are heralding change; the big city bosses, who satirist Tom Wolfe referred to as the “Masters of the Universe”, are changing tack, albeit sheepishly, as well. Dare we dream that this time the revolution might last?
Like the engravers, artists and civil-servant-banker-Tory-politicians of yore (as Bartley was), a clear, connected movement comprising RSA Fellows and friends is today influencing financial services architecture. Tomorrow’s Investor alumni David Pitt-Watson and Hari Mann — who are featured elsewhere in this journal — are conducting an important stream of work on bringing purpose to financial services education, which promises to inject the prospect of public ethos into our often insular business schools. Andy Agathangelou FRSA, through his Transparency Task Force initiative, is bringing practitioners together to foreground transparency and financial reform in practice; to coalesce the industry around a shared purpose and drive change in forums all over the world.
The idea that binds these initiatives is the financial reform mission of the RSA through the ages: to be good with money, one must ally good with money. Finance must support social good rather than social ill. And value must be defined in such a way that does not just account for finance’s social externalities (for example, fossil fuel’s impact on climate change) but also contributes positively to the common good.
Environmental degradation, rampant inequalities — especially of place — asset price inflation and concentration have, for decades, been horribly exacerbated by the actions of our financial institutions and what they invest in and support.
And it gets worse still, for by most metrics the current financial services industry is sclerotic. We are conditioned to think about the financial services sector as some sort of adventure playground of innovation and creativity, staffed by super-human doctorates on the cusp of either their first billion or a Nobel. Yet the sector’s productivity has remained static and, by some estimates, has in fact reduced over the past 40 years. Forget unclothed; the emperor is hopping on one leg, backwards, absolutely starkers.
Many movements have emerged that seek to shift the value equation. There have been movements for triple bottom lines (accounting frameworks with three parts: social, environmental and financial) and corporate social responsibility. There have been profits with purpose, B Corps, and all sorts of form and functional realignments. These movements come and go. None has proven to have any sort of system-wide or system-shifting impact; to have the simple practical impact we seek. Microfinance promised an ethical alternative to loan sharks but ended up in the gutter alongside them. B Corps, some notable exceptions aside, are often little more than greenwashed businesses of limited social impact. Impact investing, despite intermittent rays of promise, continues to be not much more than a housing-backed mortgage racket.
These are problems of practice and of politics; of lawmaking and of virtuous counsel. But just as those early RSA radicals realised, they are also problems of design. Finance is one of our oldest and most complex systems, and it is run by some of our most fallible humans. Therein we find the seeds of change.
Money and the lifeworld
In the most recent edition of RSA Journal, Anthony Painter referred to German philosopher Jürgen Habermas’s idea of the “lifeworld”: the sigma of experience and activity of the individual. Habermas noted the ubiquity and universality of money in all of our lifeworlds. This ubiquity makes financial services reform not only a complex task, but also renders any reform notoriously ‘unstickable’.
Top-down injunctions to change (for example, triple bottom line) simply do not take. The system tends to respond to any attempt to constrain it by expanding elsewhere.
When done well, a design-led approach puts people and society at the heart of problem solving
And so, when we think about reform, we need to think diversely and entrepreneurially: bottom-up, top-down and everything in between.
One way of taking on this challenge is through applying a design lens. Consider the Radio 4 series The Fix, hosted by my colleagues here at the RSA. The programme brings people from different backgrounds together to address complex social issues using a design-led process. The latest season goes deeper into this process to explore problem debt in Barking and Dagenham. The first episode focuses on the ‘discovery’ phase, combining people’s lived experience with data to better understand the root causes of debt and the local context. The next episode features a co-design day, where people from diverse backgrounds — teachers, community organisers, entrepreneurs, data scientists and more — worked with designers, residents and the council to reframe the problem and design possible interventions. The final episode follows a period of real-world prototyping, where my colleague Rebecca Ford worked with residents and frontline council workers to test, adapt and evolve the interventions.
As this example demonstrates, through a process of learning and experimentation, a design-led approach can help us to better understand and deconstruct seemingly intractable challenges and reframe them in a new light. In doing so, it helps us to see the problem from different perspectives, recognise our own bias and identify how we might intervene, or develop interventions, and get closer to a solution. By its nature, design is collaborative and relational. It is not only focused on the process of developing solutions, but on forming the relationships required to sustain lasting change, inviting diverse perspectives into the conversation and process. When done well, a design-led approach puts people and society at the heart of problem solving, bringing lived and learned experience to the fore, and ensuring that we are addressing actual individual and social needs.
The RSA is not the first organisation to apply design thinking to financial services reform. Project Innovate, set up by the Financial Conduct Authority (FCA), is aimed at supporting businesses in developing products and services to improve customer experience and increase competition. In 2015, a sandbox unit was added. Taking participants through a process of iterative design, the sandbox has enabled early-stage start-ups, challengers and incumbent firms to test innovative propositions in the market with real consumers. The UK’s Finance Innovation Lab encourages new, pro-social financial innovation from the ground up and thinks in terms of the whole system.
With the banking sector going through a period of significant disruption, design thinking is increasingly being deployed by both challenger banks and existing players to gain competitive advantage. Capital One Labs helped to change the way customers and the industry think about banking by encouraging start-ups to engage with the Capital One infrastructure and approach discrete financial challenges from diverse perspectives. New products emerge from such collaborations, such as QuickBiz Loans in Australia, which enables fuss-free, unsecured cash for small businesses, or the Bank of America’s Keep the Change programme, which rounds up debits to the nearest dollar and ports them to a savings account.
At a recent RSA roundtable focusing on economic security, I spoke with the head of design at Lloyds and asked him, somewhat mischievously, why a bank needs a design team. He explained their theory of life moments, which is the idea that financial services exist to ensure prosperity around key life events. Getting a house, having a baby, changing jobs: financial services need to be designed around these things. As people’s lives evolve, design can help us understand their changing needs over time and develop solutions that adapt to meet these needs. Good design can also balance these changes with the needs of wider society and even the planet. That’s the vision, anyway.
Experimenting with ways forward
We know that swathes of people and their localities are being left behind by the banking oligopoly. Member-owned, local banks could be the new Penny Banks of their time. And, as with the Penny Banks, these are not banks in theory or on paper, but actual organisations with boards and branches that will take deposits and provide loans and mortgages, once approved by the FCA.
System-based design thinking has got us here. Where else might an experimental and iterative approach to problem solving take us? Consider the following three areas for starters: economic security, short-termism and environmental renewal.
Financial bubbles and shocks affect the poorest most in the absence of economic resilience. Financial services were originally designed to allow money to be transferred and stored; to promote economic security. Now they engender the opposite effect. Enabling asset-building for all — through savings, pensions, building businesses and developing skills — is part of the answer. But the generational challenge outlined by the RSA’s Matthew Taylor in his Chief Executive’s lecture last year — of endemic volatility and economic insecurity across the income scale — requires new ideas and products as well as a whole new approach to conceptualising disadvantage. Should we measure economic insecurity like we do poverty and inequality? Should we support and incubate new employment insurance and income-smoothing applications for platform economy works?
The UK economy is increasingly unbalanced and skewed towards asset price inflation. Banks pour money into bidding up the value of pre-existing assets, with only £1 in every £10 they lend supporting non-financial firms. This short-termism needs to be tackled. Introducing measures to guide credit and venture capital investment away from speculation and towards more productive activities is an epochal challenge.
And when it comes to environmental renewal, financial services — especially venture capital and private equity — should seek to accelerate the transition away from harmful fossil fuels and take an active role in positive investment in transition economy ventures. But is that enough? In an age when green economy initiatives are not emerging at anything like a fast enough rate to meet our 2050 carbon targets, what innovations and movements should the RSA seek to build, incubate, support and platform?
The moral marketplace
In its early days, the Society of Arts was something of a direct democracy. Its ‘premiums’ often helped incentivise innovation at a time when patents were too expensive for cottage industry inventors. The premium, which consisted of a sort of challenge prize and the Society medal or cash (or both) that recognised a successful response, were tools used to galvanise the public around particular issues. We continue to recognise the need to create these more open and democratic spaces in which people can come together, imagine new ideas and receive the support needed to turn them into action.
That could be through setting up new challenge prizes, open innovation platforms or our Fellowship network. It is certainly through championing system-led design. It is almost certainly a global and local endeavour: a programme of institutional shift that takes us from the dispossessed and unbanked in our localities to the boardrooms of buccaneering, often feckless, global venture hubs like Silicon Valley.
Call this programme the future of finance, or radical finance, or even ‘good with money.’ The need for the RSA to resume its work in this area is clear. The stakes? Just as the Society of Arts’ banknote designers sought to use the quality of art to make our national currency unbreakable, so might a more sustainable and virtuous financial services industry funnel its currency into a more sustainable and beautiful world, and thus might make our society unbreakable. Such is the promise of a truly moral marketplace. Our forebears through the centuries would have loved the grandeur and polymath ideas. In our more cynical, practical times, let us say that without financial services reform, it will be impossible to make meaningful headway or have impact in any other area of human inquiry. Indeed, we will almost certainly miss our carbon targets, dispossess communities and lay the ground for a new era of feudal inequalities that spans centuries.
All that being so: shall we begin?
This article first appeared in the RSA Journal Issue 4 2020