Vincent Nderitu
Senior Investment Manager Re & Infrastructure , Fusion Capital

Amber Mahood asks us to consider just how fair the “discipline of the market” is. And why it is that Western Banks benefit from the system as it stands.

Mary Mankone
Legal & Compliance Officer, Fusion Investment Management

Amber Mahood asks us to consider just how fair the “discipline of the market” is. And why it is that Western Banks benefit from the system as it stands.

Ruth Muli
Operations Manager, Fusion Capital

Amber Mahood asks us to consider just how fair the “discipline of the market” is. And why it is that Western Banks benefit from the system as it stands.

Cynthia Kenyanya
Chief Accountant, Fusion Group

Amber Mahood asks us to consider just how fair the “discipline of the market” is. And why it is that Western Banks benefit from the system as it stands.

John G Msafari
Fusion Advisory Board Member , Fusion Group

Amber Mahood asks us to consider just how fair the “discipline of the market” is. And why it is that Western Banks benefit from the system as it stands.

Was Dr. Pangloss really right? If you remember Voltaire’s Candide, Dr. Pangloss was the character who was sure that “all is for the best in this, the best of all possible worlds”.

Voltaire held this idea up for theological ridicule. But there is an economic version as well, often propounded by Market Fundamentalists, sometimes referred to as Pareto Optimality. The argument goes: “The market is the best of all possible resource allocation systems, and providing we allow it to do its work, it will deliver the best of all possible economic worlds. Therefore (in the West) this is the best of all possible worlds”.

When this argument is advanced, it is usually accompanied by expressions of regret. Unfortunately, the argument goes, “there are winners and losers in markets, and some people are hurt in the process. But the good thing about a market economy is that the losers can pick themselves up, dust themselves off, and start all over again. “The harsh discipline of the market” is something we can all learn, and from which we can all benefit.

When used as an argument against central planning, this thinking has some force. Markets certainly are better at handling the very large amounts of information required to make a modern economy work. However, this argument can also lead to a kind of moral complacency amongst The Haves and to moral fatalism amongst The Have-Nots. For The Haves, it can easily lead to the statement: “We have got all the money because we deserve to have all the money”. By the same token, The Have-Nots might be led to think “we can’t have any money because we’re not as good as them”.

Those of us who have gone around the block a few times also know that this is not the truth. (As King Solomon has it: “The race is not to the swift nor the battle to the strong, but time and chance happeneth to all”). A good illustration is provided by the banks. Western banks’ cost of capital is a fraction of that of East African banks. Why? Is it because they are better run? (Their management teams recently nearly caused a financial apocalypse). Is it because they are lower geared? (They have leverage at twice the level, and untold toxic contracts off balance sheet). Is it because of their excellent track record of stable earnings? (They have amongst the most volatile earnings of any large companies).

The answer is: none of the above. It is because of the implicit guarantee of their host governments – which they absolutely, richly, 100% do not deserve at all!