The Influence of the Financial Crisis
The financial crisis was a watershed event that invited a rethinking of modern finance. The growth trend from previous decades was broken, the sector’s image deteriorated, and a host of new regulation was introduced at the European Union and at national state level. Continuing low growth, debt overhang, and low interest rates pose serious problems for existing business models parralel with technological change and globalization causing major challenges.
The above makes questions abound; Is the financial sector effectively becoming a sector where shareholders and board members have no real commercial impact, and where it is indirectly quasi nationalized? Will Apple, Google or other hi-tech players take over? Will crowd finance undermine it? What role will boards play in a new regulatory environment? Must Nordic institutions eventually end up as subsidiaries of major multinationals? Is the sector responsible for low investment, job creation, and growth even in a zero-interest rate regime? And is a decline in the financial sector employment inevitable?
About the Research Project
The Nordic Finance and the Good Society project will take an open and multi-disciplinary approach. The goal is to give the general public access to leading research on the Danish and Nordic financial sector. The aim is to publish 12-14 papers in relevant disciplines and to prepare a comprehensive research report outlining strategic positions throughout the sector, including the competitive environment, employment potential, and future business opportunities.
Ultimately, Nordic finance needs to establish a new competitive platform or risk marginalization in the EU. The goal is to contribute to future strategy and business policy discussions, in both the Danish and the Nordic context, but also to provide new knowledge on corporate governance and financial strategy that can create opportunities for developing new courses, containing both fields.
Robert Shiller’s 2012 book, Finance and the Good Society, provided inspiration and intellectual background for the project and contains a comprehensive overview of many aspects of modern finance. Equally important, the project is a reminder for firms of their economic and social impact.
The Nordic Financial Sector
The financial sector is an essential part of a modern society, but its traditional position is jeopardized due to a combination of internal and external factors. Should this be a concern for key decision makers at either a National or European level? Or should current policies be maintained?
Currently, the financial sector accounts for 4.5 – 5.0% of GDP in Denmark (Statistics Denmark) and ultimately, it has a major indirect impact on growth, job creation, and destruction in other sectors (e.g. manufacturing, services, agro).
Current domestic framework conditions are challenging and may even deteriorate further in the years to come. New technology, dramatically increasing international competition, swelling regulation, and a low interest environment are blowing a Schumpeterian gale of changes. Furthermore, traditional Nordic financial institutions have only to a limited degree been export driven compared to other sectors and include no genuine European or global leaders. All of this are striking compared to other sectors, especially considering a rapidly growing global middle class demanding stable financial products delivered by reliable financial institutions. Nordic financial players have generally been late to adopt to globalization compared to US, Japanese, UK, and German players. If Nordic financial companies are unable to find at least the right business model in an ever-changing European market environment, it will unquestionably have a negative impact from a shareholder perspective.
What else is at risk and why should we be concerned? Overall, there are 150,000 financial employees in the Nordic countries – 65,000 in Denmark, all playing an important and significant role in the Nordic countries’ economies. However, since 2008 major job losses have occurred in this sector, especially among traditional bank employees.
A particular concern is what general framework conditions will be like in the future. There is a risk, that within the area of corporate governance and regulation, the Nordic countries will be driven into an Anglo Saxon corporate governance model without understanding the medium-term business and economic consequences.
Furthermore, new growth sectors such as fintech, asset managers, pension funds, and financial IT solution providers are questioning if they have the right framework conditions compared to other EU and global competitors.
Given the nearly total collapse of the financial system, what role should it play in our future society? Or as expressed by Shiller (2012) “How can finance, as a science, a practice and a source of economic innovation, be used to advance the goals of the good society? How can finance promote freedom, prosperity, equality and economic security?”