Movement Profile
The 2008 financial crisis was a gift to the financial-lobbying industry, generating a torrent of new regulations that poured out of Brussels, each one a battle to fight on behalf of a generous client. Financial policymakers also found themselves popular. Some felt they could no longer do their jobs properly because of the queue of lobbyists outside their door. By 2011, nearly 200 elected representatives from across the political spectrum around Europe had had enough and signed a petition for a counter lobby to represent the public interest. The result was Finance Watch.
Finance Watch is a Brussels-based non-profit organization that operates under the motto “making finance serve society”. Its 12-member team has former bankers, lobbyists and financial journalists, and it answers to a growing membership of around 70 organisations, including consumer groups, trade unions, housing associations and other NGOs.
Finance Watch has a yearly budget of around €2m, which is funded by public donations, membership fees and grants, including from the EU, all independent from political parties and the financial industry. By contrast, the financial industry has as many as 700 lobbyists and a budget of €350m in Brussels alone, according to Finance Watch estimates.
Those involved with Finance Watch aim to restore finance as a force for good. This means influencing legislative and policy processes so that public-interest concerns are properly considered. Its actions mainly target the European level but sometimes include national initiatives when policy is made at both levels.
People have different ideas about what public interest is and who should define it. For Finance Watch’s secretary general, Thierry Philipponnat, public interest is not simply the opposite of private interest, as the two can overlap. Rather, something is in the public interest when it moves the whole of society forward rather than advancing one group at the expense of another.
Finance is neither good nor bad; what counts is how it is used. Like gunpowder, finance has both power and potential. This view informs Finance Watch’s founding principles, which hold that finance is essential for society in bringing capital to productive use, and that the financial industry should not conduct its business to the detriment of society.
The day-to-day work of Finance Watch includes analysing legislative amendments, running workshops for members on new legislative proposals, communicating to the public the thinking behind our technical recommendations and explaining to students how Brussels’ legislative and lobbying machines work. The core work of public-interest advocacy is a mirror image of the financial lobby’s activities – meeting with politicians, building alliances to support legislative proposals, writing position papers and communicating via the press. This is done in a constructive way, working to improve the system and not giving in to populism or bank-bashing.
More important than our direct advocacy is the support that Finance Watch gives its members so they can participate at a technical level in the big financial-reform debates. The goal is to build informed civil society opinion that can articulate public-interest goals as clearly as the financial industry articulates its messages.
Long-term, we aim to help shift the focus of the financial industry away from playing games with risk and towards promoting the type of productive investment that will sustain a strong economy. The message is both pro-finance and pro-society.
On the list for this year are legislative proposals on bank structure, financial markets, shadow banking, consumer protection and long-term investing. Topics include arguing for structural reform of too-big-to-fail banks, better controls on leverage, and measures to curb predatory high-frequency trading and excessive commodity-derivative speculation. They also include incentives to direct savings away from speculative uses and towards productive, long-term investments.
There are several challenges to this work. One is to highlight conceptual problems that lead to ineffective regulation, such as the idea that sovereign debt could be risk-free, or that self-regulation makes financial markets more effective. These ideas are surprisingly difficult to shift despite events of the last decade.
Another challenge is to refocus attention on the basics of finance. What is it for? Who benefits from a particular financial arrangement? If regulators are concerned only that a market is liquid, they are unlikely to notice whether it is allocating money to productive uses (although the rest of the economy will eventually notice).
Unlike local vegetable markets, financial markets are subject to difficulties that stop them from clearing and producing the social benefits that economists predict. These difficulties include agency problems worsened by complexity and long chains of intermediation, the time gap between when a decision is taken and when its consequences are felt, and the very-human challenge of governing an industry that literally can create money. Finance Watch highlights the implications of all these factors on regulatory policy.
Another challenge is that finance has grown so complex that it needs an army of specialists to understand it, as the proliferation of academic research shows. This excludes normal people from the debate and weakens the democratic case for reform. Finance Watch exists partly to address this problem, bridging the gap between a non-technical public and policymakers who deal mainly in technicalities. It also tries to make finance and regulation more accessible to the public by producing non-technical summaries, cartoons, videos and postcards.
The complexity can give rise to serious problems of bias when research is sponsored by the financial industry. Since regulatory reform is a political process that often involves compromise, this type of bias is especially dangerous. For regulators, it may feel safer to base policy on a mid-point between two academic views than to adopt a clear position of principle based on public interest. For the financial industry, sponsoring academic research therefore can be a good investment.
To borrow a financial term, Finance Watch’s message is leveraged by its organisational members and friends, who together represent millions of European citizens. These organisations – which include Oxfam, Friends of the Earth, large trade-union groups, housing associations and research centres –already are effective at speaking on behalf of civil society in their own areas, such as consumer law, employment and the environment. Now Finance Watch also helps them to speak on financial matters, by sharing expertise and organising workshops and lobby campaigns together. The fact that our message resonates with the public also encourages politicians to listen.
Nonetheless, the financial industry is good at promoting its interests and capturing the views of opinion leaders in the press, academia and policy. Finance Watch and its members are few compared to the army of lobbyists acting for the financial industry, but the imbalance makes this contribution all the more important.
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