Monday 29 September 2014

The sustainability of the financial system

Robert Slatcher - Principal Consultant


Everyone is very familiar with the three pillar concept of sustainability (environmental, social and economic). Given that the three pillars are intrinsically inter-connected it does raise the question as to why the economy is the often overlooked pillar.

Despite the recent financial crisis and subsequent global recession, there has been very little focus on the world economic system in the context of sustainability. Perhaps this is a consequence of the complexity of finance, and the fact that although we play an integral role within it, we very rarely see the inner workings or wish to understand how it all happens. It is much simpler to comprehend the process of exhausting non-renewable fuels or the concept of global temperatures increasing and affecting the climate we experience, than abstract concepts relating to the movement of money and wealth generation.

However, when the very basic principles of our economic systems are interrogated, it is possible to see a system that is at odds with the fundamental concept of sustainability.

How is money created?

To explain this requires a quick crash course in finance (a detailed description is provided by the Bank of England). Money is created by banks, initially by central banks (e.g. the Federal Reserve in the US or the European Central Bank) through various mechanisms. Once created, this money can be loaned out, and when loaned out it is done so with an attached rate of interest. This money usually goes to commercial banks to be loaned out again to individuals and business with an attached rate of interest. Commercial banks can also create money as they can issue loans to a greater value than the monetary reserves they hold. As such, a bank could loan out ten times the value of money they actually hold in reserve. The issues this can cause were covered in a 2013 comment piece in The Telegraph.  Once created, a loan counts as money, therefore banks can generate money from the reserve they hold - this is known as fractional reserve banking.

Now, if there is a finite pot of money in the world and the money originally generated by the central banks had a rate of interest attached to it - where does the money come from to pay that interest? The answer is nowhere, only banks can create money. So, to pay the interest, more money needs to be created. The amount of additional money required is made greater by the fact that commercial banks can create more money and more interest debt from the original pot of money. This reduces the value of money already in circulation and doesn’t solve the problem, as the newly created money also comes with interest. Fractional reserve banking is a very efficient method of creating additional money and therefore interest debt from an initial smaller pot of money.

So the basic principle of our global financial systems is a system that is always in debt and, as there is never enough money to pay the interest on debts, there will always be financial inequality. Somewhere someone is bearing the brunt of that shortfall.

Sustainable Growth

It is generally acknowledged that growth is essential but it should be sustainable. In other words, growth needs to happen at a rate that our global resources can maintain. However, in order to service an unrecoverable debt associated with interest on money generation, our rate of growth is focussed on servicing that debt. As such, our concept of growth is driven by the measure of financial sustainability rather than environmental and social sustainability.

Given this conflict between the three pillars, shouldn’t a greater focus be given towards economic sustainability? After all,  the inherent flaw in the economic  system is arguably a major barrier to achieving social and environmental sustainability?

Thursday 25 September 2014

River views from Temple


Erica Ward - Senior Consultant
Imagine a river full of life. A stream of barges, skiffs, punts, rowing boats and even the odd steamboat. This might have been the scene confronted by an onlooker to the Thames 200 years ago when this river was at the heart of our city economy. It is a far cry from today’s Thames riverscape.
I am lucky enough to have a prime riverside view from Temple's offices. When I am able to tear myself away from the computer screen, I like to contemplate the Thames's comings and goings. Apart from the tourist river cruises, the odd sailing boat in the summer and a few waste barges, however, the Thames often seems pretty empty. Any activity that is happening goes largely unnoticed, except during the occasional delay to traffic when Tower Bridge is raised, a brief reminder of London's momentous maritime past.

Even as a landlubber myself, I am frequently left wondering where all the boats and river life have gone. Why cannot this remarkable river, central to both the geography and our imaginings of London, be better used, for transport, industry and recreation? The potential for increasing transport by river seems particularly compelling, reducing congestion and improving the customer experience with travellers switching to the clipper rather than squeezing into a tube carriage. This is especially pertinant given population growth projections in London’s draft Infrastructure Plan 2050 of 37% from 2011 to 2050.
 
The low usage is partly due to the phenomenal success of roads and railways for transport and the rise of container shipping from the 1960s, which pushed the port of London downstream from the city. Remember also that the Thames, in comparison to many busier rivers, is a tidal river from Teddington Lock, so it is not always easily navigable.
Things are looking up, however. Last year TfL introduced its first River Action Plan. It sets out how we can double the number of passengers on the Thames to 12 million travellers a year by 2020.  Concrete actions include improvements to piers and their facilities, provision of new and more frequent routes and increasing the visibility, information and integration of river services. One could imagine an extension of this where the River Thames is seen as a fully integrated part of the transport system, where all piers have good transport connections with the network as a whole. The plan is not as ambitious as it could be – cost is one of the main barriers to increased commuting via the Thames, which is not subsidised to the same extent as other public transport. But it means that finally, after years of neglect, the Thames is receiving some attention as a transport resource to help keep London moving.
The Thames Tideway Tunnel, which was approved earlier this month, will also open up opportunities for new and revived uses as the water quality continues to improve. These could include fishing or even swimming, as suggested by the Thames Baths Project. This idea and more are enthusing Londoners and visitors at this year’s Thames Festival, Totally Thames, taking place throughout September 2014 on and around the Thames.

Thursday 4 September 2014

A Student's Temple

James Seddon - Intern



My contract with Temple began almost immediately after my summer exams at Southampton University. The previous year I’d spent 3 months in Germany working on turbo machines with Siemens and I was keen to try consulting work to broaden my horizons as to how my degree could be used professionally. Having studied Acoustical Engineering for three years, I hoped I’d be able to contribute to the noise team and learn new things and new ways of working.

I was reasonably sure that offices, for the most part, were the same worldwide: closed off boxes where different teams worked, each person with their own project, with a single leader interacting with the other teams. My first day proved that notion to be false. Having been shown around by Rachel, I could see that there was a strong sense of integration across all the teams and departments. Though the teams each had their own areas, they were working side-by side, rather than as separate modules and there were even instances where members of one team would help with work for another.


Right from the off I was given work to do, analysing data and reviewing Key Account data, allaying my original concern that I’d be given nothing to do, or making the proverbial coffee. Instead, over my three months I've been able to contribute to work for a number of the Noise team’s projects.

It has been an especially interesting challenge to learn VBA, the programming language behind Microsoft Office, in order to write a Macro to sort time sheet data into useable statistics. This was especially interesting in no small part because of my love for computers and programming.

Having had minimal experience in official report writing, I found that I was provided with some invaluable advice at Temple. This not helped with my work throughout my internship, but it will also help for my return to Southampton with regards to writing up my dissertation and Group Design Project. In addition, going over grammatical principles and good use of data was incredibly useful, as these were things that would be taken as read, even though they’re frequently misused in everyday speech and even in reports.


One of the things that surprised me was the way in which people interacted with regards to projects. Having worked in an office where people had made turbomachinery their livelihood and therefore didn't ever seem to need consultations. The people at Temple seem much more willing to make use of others to check work, generate ideas and otherwise make progress with work. Thinking on it, this type of discourse seems inevitable given the wide range and fluid workload consultants face on a regular basis.


I’ve also thoroughly enjoyed being able to understand how a company works. Having only seen snapshots form parents and lecturers, it’s been fascinating to look at the internal structure of Temple on its own and at the Temple Group structure, being a series of partnerships.


Overall, my time at Temple’s shown me the benefits of having larger teams with diverse backgrounds, as well as individually practical things such as report writing skills, analytical skills, as well as the ability to think more practically about noise and issues involving noise.