The global economic downturn has shaken capitalism to its foundations, according to a global executive survey by the Economist Intelligence Unit (EIU).
“Capitalism has changed fundamentally,” says Jason Sumner, the senior editor of the report, in his summary of the results. Executives now want more regulation in the banking sector and beyond, the survey found. The 418 global senior executives interviewed also said that regulators and customers will have more impact on business decision making as a result of the crisis.
Sumner says that the broad level of support for government measures came as a surprise. “Normally executives are more conservative in their view. Their responses show how alarmed they are.”
“They are very much in favour of tighter banking regulation, even when that means lower growth.” However, he says that the support for private sector reforms “is less enthusiastic than for banking intervention”.
The general trends can best be described as “back to basics”: 73% said they were in favour of further regulation of the banking sector. They named stricter limits on the use of financial instruments such as securitised assets and derivatives (61%), tighter accounting rules to limit or prohibit the use of off-balance sheet vehicles (52%) and more frequent government reviews of banks’ risk management policies and practices (50%) as their top priorities.
More than half of those surveyed said they supported the degree and scope of government intervention in the global banking sectors.
The global senior executives said, in a response to the global economic downturn, they will pay more attention to cash management (61%), improve their risk management capabilities (53%) and will improve their forecasting and planning capabilities (41%).
In their opinion, the best strategy for boosting the liquidity of business and consumers was to reduce income tax (42%), sales or other indirect taxes (35%). They also said discretionary government spending should be increased and were in favour of creating bad banks to take over the toxic assets of the banking sector (30%).
Less than half of the respondents said that their fundamental business model will remain the same. As a result of the downturn, 64% of managers said that regulators will gain more influence on their company’s decision making. They also said that customers, shareholders and creditors will gain influence.
The executives were interviewed between February and March. Respondents represented a broad range of company sizes and industries, and came from a wide range of jobs.