Posted on October 19, 2023
Japan NPO Center (JNPOC) has a news & commentary site called NPO CROSS that discusses the role of NPOs/NGOs and civil society as well as social issues in Japan and abroad. We post articles contributed by various stakeholders, including NPOs, foundations, corporations, and volunteer writers.
For this JNPOC’s English site, we select some translated articles from NPO CROSS to introduce to our English-speaking readers.
If there were such a thing as reincarnation, I would like to be reincarnated as the bond market. The comment, made some 30 years ago, is attributed to an advisor to then US President Bill Clinton. Apparently, the advisor’s reason was that the bond market can control politicians as it wishes through price fluctuations. I am not sure whether she did not know or forgot this episode, but the British Prime Minister Liz Truss, who will be remembered by her announcement in the fall of 2022 that Queen Elizabeth II had passed away, was forced to step down soon after the queen’s state funeral. The Prime Minister was in office for only 49 days, the shortest in British history. It is reported that this was due to her administration’s announcement of the introduction of policies, featuring tax cuts as the centerpiece, to break the economic and fiscal orthodoxies in which the Treasury is trapped. The announcement caused the collapse of the gilts market. I suspect there are many opinions about the policies of the Truss administration and the manner in which they were announced. However, there are probably few who would disagree that this event – which demonstrated the power of the market that it can blow away, in an instant, a newly formed cabinet led by the leader of a ruling party that enjoys a large majority in the parliament – will remain in the minds of politicians around the world like a cold dagger against their necks for a long time to come.
Those optimistic with the utility of markets perhaps consider the exit of the Truss administration as something to be celebrated, as market mechanisms prevented the introduction of reckless policies. However, I think we need to discuss more about the potential for market forces in preventing the introduction of democratically decided policies, an eventuality which this event demonstrated. One of the traditional arguments in defense of the bicameralism was that the masses are quite excitable and can be swayed in one direction or another, and a chamber elected by them could introduce extreme policies; to prevent this from happening, there should be a second chamber for calmer debate. I believe that we, as a civil society, should be more conscious of the possibility that the huge faceless financial and capital markets of modern society could be playing a role in suppressing the will of the people, the role which was traditionally expected of the second chamber, and that this could hollow out democracy.
Historically, it is said that one of the reasons for the victories in the Napoleonic Wars and World War II was that the British and Americans were able to communicate with and control the markets in raising funds for the war effort. The fact that the markets have now demonstrated the power to change prime ministers in an instant raises several questions. For example, if a nation faces an existential crisis in the near future, is it possible to reach some kind of agreement with the markets? The opinion that global warming is already such a crisis in our existence seems more convincing by the day, but will the markets continue to tolerate the speed and scale needed for a solution in the future? Isn’t there any concern that the markets’ existence has become so large and their participants so diverse that their fluctuations will affect a wide range of stakeholders, creating an obstacle for society as a whole to implement necessary reforms?
The British Academy has published a report entitled Principles for Purposeful Business in 2019. The report points out that the idea that the purpose of a corporation is to maximize profits for its shareholders began only 60 years ago, and recommends that corporations of the future should return to their historical position of considering society as a whole, and make it their purpose to solve social and environmental issues profitably. To this end, the report recommends changes in laws, regulations, and governance structures. I believe that these recommendations made by the leading British academics are very important in light of the various social and environmental issues we are facing. However, when I think about how the markets will react when we try to implement all of these recommendations, I do not feel so optimistic that they will be realized. Unilever, known for its pioneering purposeful management style, has also set a purpose for its products, but a major shareholder of theirs, unhappy with the company’s performance and stock price, openly criticized them, saying, “The Purpose of mayonnaise is for salads and sandwiches.” I suspect this farce-like incident could be endorsing my intuition.
It is not as simple as saying that we should confront greedy investors. For example, in Japan, our pension funds are invested in domestic and foreign bonds and stocks by the Government Pension Investment Fund, which is considered as the world’s largest institutional investor. Furthermore, the government has introduced policies to encourage people to invest in the stock market themselves, and more and more people are beginning to participate in the stock market. These investment activities are generally considered desirable from the perspective that the public can take advantage of the fruits of economic growth to build assets, and that funds from their assets can be supplied to growing companies. However, if, for example, we actually shift the raison d’être of corporations from maximizing profits to their shareholders to fulfillment of what the British Academy recommends, and in the process, the shift causes major fluctuations in the stock market that adversely affect our pension assets and personal holdings, then resistance to such a change, albeit considered as essential for society as a whole, could become a strong public sentiment. In this sense, we may be in a position where we could be personally threatened at any time by the large market with hidden knives.
A Japanese TV drama, very popular in the first half of 2023, portrays a protagonist who does not choose to be reincarnated as an anteater or a sea urchin after death, but instead starts over her own life again and again, brushing it up each time. If we could also revisit these past decades, perhaps we should speak out on the implications of the markets exercising too much influence. Unfortunately, we do not enjoy such an opportunity, thus it seems to be a good idea to start with seriously reflecting on what is happening now.
Please note that the opinions expressed in this contribution are not those of the Japan NPO Center, to which the author belongs, but rather the author’s personal opinions. The author’s interpretation of the report by the British Academy is his own, independent of the Academy. Please also note that the author has selected specific sections of the report for discussion at his own discretion, and that the entire report should be read in its entirety for an accurate understanding.
Original text by Masahiro Yokoyama (JNPOC staff) originally posted on September 11, 2023; translated by JNPOC.