This is the last of the 5-part essay that attempts to answer the question: Is it good for society if the financial services sector is motivated by greed?. (READ: Greed is Good, Greed and Society, Greed is Good, Or is it?, Special Role of Financial Services Industry). The paper concludes that certain constraints need to be in place so that negative externalities of greed can be avoided.
Greed as an incentive provides a very persuasive argument to conclude that greed is good for society. I cannot discredit this powerful thought and I certainly do not challenge the idea that we need incentives to promote financial market efficiency and economic progress. However, experience has shown that some incentives are better than others. Excessive desire for wealth, a.k.a. greed, can motivate market participants to act to the detriment of others. Because of the special nature of financial transactions, i.e. the fiduciary/agency responsibilities and the systemic nature of certain financial institutions, acting purely on self-interests can result in conflicts of interests and lead to harmful effects on society. Being motivated by greed in this industry, then, can be harmful to society, if not properly controlled.
In conclusion, to the extent that market participants are acting on proprietary capacity, greed is good since it promotes efficiency. However, certain constraints need to be in place so that negative externalities can be avoided. Specifically, the following safeguards should be in place:
- Open competition free from fraud and deception
- Appropriate laws and financial regulations
- Promotion of a culture of ethics within financial institution guided by personal integrity, support, ethical leadership and understanding of ethical issues inherent in the financial services industry.