On risk and safety

At the Keynes vs Hayek debate at the LSE on 26th July, Shiv Malik (from the audience) asked a question which stopped the panel in their tracks.  He commented that Hayek could be regarded as representing the desire of people in the 1930s for freedom, and Keynes as representing their need for security. And he asked whether people of today are looking for both freedom and security.

Needless to say, the panel did not answer his question - though many economic writers of today are indeed attempting to bridge this divide. But it reminded me of a song that some of my students sing, and the conversation I always have with them about the meaning of the song.

The song is "Dona, dona" by Sholom Secunda and was originally written in Yiddish. Only the verses are relevant and I reproduce them here in the translation recorded by Donovan in 1968.

On a wagon, bound for market, there's a calf with a mournful eye.
High above him there's a swallow, winging swiftly through the sky.

"Stop complaining", said the farmer, "who told you a calf to be?
Why don't you have wings to fly with, like the swallow, proud and free?"


I learned this song when I was eight, and at the time thought it was about a calf called Donna - and was very puzzled by the calf's gender.  I know better now.

This song exemplifies the very tension between desire for freedom and need for security that Shiv Malik identified, that different schools of economics portray and opposing political parties espouse.  And I believe his point was really that human beings need both freedom and security, so our economic and political structures need to accommodate both of these - degrees of freedom so that calves can grow wings and fly if they wish, and degrees of support and protection for those who, for whatever reason, are not able to fend for themselves as swallows must.  We are both calves and swallows. And the degree to which we are "calf" or "swallow" varies at different times in our lives and in different circumstances.  In my own life I have been, generally, much more swallow than calf: the choices I have made have forced me in that direction, even when I would much rather have been a calf for a while. Equally I am sure that there are many people who have ended up as calves when they had hoped to be swallows.

In our society we generally aspire to "freedom", but we don't like the risks that attend it. In other societies, people like the protection that comes from conforming, except when that becomes oppressive - then they start clamouring for "freedom". And when times are good we resent government interference in our lives, but when times are difficult we call on government to rescue us.  Being a swallow means accepting responsibility for our own lives, including the difficult bits. Being a calf means giving up some of our freedom in order to be cared for by our society.

So it is with business, with government, and with finance. When times are hard, and especially after high-profile fraud cases and financial crashes, we call for increased state control and intervention - "there should be a law against it". But when times are good we want the state to back off and let free enterprise rule.  At the moment there are proposals for vastly increased regulation of banks, coupled with varying degrees of structural reform. There are even calls for a complete state takeover of banking.  Yet only ten years ago the fashion was for deregulation, a hands-off approach by the state and freedom for financial enterprises to do whatever they wish.

We pay a heavy price for this pendulum swing from too much control to too little, and back again. How do we find, and stay with, the centre point, where free enterprise can operate freely within reasonable constraints set and enforced by the state?  What constraints will we accept on our freedom to do whatever we want in the interests of financial stability?

I don't have a simple answer to this conundrum. But it seems to me that part of the issue is people's unwillingness to accept risk. We want to be swallows when we invest our money - after all, we like high returns, and those only come by taking risks, so we want to be able to choose where to put our money in order to achieve the best return. No-one wants to be forced to put their money into a state savings scheme when private schemes offer better returns, do they? But when the risks we have taken turn out to be bad ones and we face the prospect of losing our money, we suddenly become calves, scurrying to the safety of the government cowshed and crying "it's not fair!". 

Is it time for us to understand the real risks we take with our money and take rational decisions as to whether safety or risk are more important to us at different times in our lives? Is it time we started to care about whether the companies we invest in are financially sound, economically useful and ethically acceptable? Some people already do. Maybe the rest of us should as well. And perhaps, if enough of us care about these things, the financial sector will start to provide the range of investment options from very risky to very safe that we really need, instead of pretending that investments are safe when they are not and conning us into accepting rubbish returns as a price for the illusion of safety.

Much of the problem in the last financial crisis arose from the fact that investments that had been regarded as "safe" turned out to be anything but. There is in my view an important role for government to ensure that real safety is available for those who need it, and real risk is available for those who want it, and both are clearly identifiable. Tinkering with organisational structures, pretending that some forms of banking are safer than others, fragmenting financial functions - none of these deliver the clarity and openness that we require in order to manage our money.  What is needed is clear and accurate reporting and management of risk from end-to-end of the entire financial services industry.  Only if there is complete transparency of reporting and accurate understanding of risk in financial services do people stand any real chance of being able to manage their need to be, at different times, both calves and swallows.


  1. APR 1.04%, ROD 80%?

  2. I think you are implicitly assuming freedom exists only as as negative freedom i.e. 'freedom from'. In Hayek's society few would have much 'freedom to'. Personally I think positive rights are incredibly important - a man alone in the Sahara Desert has maximum freedom from but no freedom to.

  3. I intended it as both freedom from (control) and freedom to (do as you please). The point was that both freedom "from" and freedom "to" carry risk: the swallow is free to fly where it pleases, but it must find its own food and shelter. Conversely, the calf is not free to do as it pleases, but it does not have to worry about finding food and shelter, since those are provided. Unsurprisingly the song itself assumes that freedom is better, but that is a value judgement, and in the blog I question this. Freedom carries risk. When you refuse risk you also refuse freedom. And that may be exactly the right decision for you at the time. As a society we need to accommodate both those who want freedom and accept the associated risks, and those who are prepared to sacrifice freedom in order to avoid risk. What we shouldn't be accommodating are those who want freedom but expect others to take the risks for them. The trouble is that seems to be most of us.

  4. I love "Dona, dona" - here in Finland, it was a big hit for the local rock band The Roosters in 1965.

    But I've never really thought of the lyrics until you quoted them. And what struck me as inadvertently interesting for the discussion at hand was that the calf is "bound for market". We speak of "the free market", but the market too has its calves. And on the other hand, the swallow's freedom is supposed to be shown precisely by the fact that it is not bound for market - and yet it can go there too if it wants.

  5. Frances Coppola: But how can the government ensure real safety is available for those who need it? Is that possible at all? What abilities does the government have? The ability to set tax rates, the legal right to borrow money, and the ability to regulate. But that's not sufficient to ensure real safety, the ability to set tax rates is not the same as the ability to set taxable income, the legal right to borrow money is not the same as the ability to ensure that it is lent, and the ability to regulate is not the same as the ability to ensure that regulation is always followed (for example, laws against murder have been around for thousands of years and yet murders keep happening), and that regulation doesn't have unexpected negative consequences. (Or entirely expected negative consequences).

    You also say that "Only if there is complete transparency of reporting and accurate understanding of risk in financial services do people stand any real chance of being able to manage their need to be, at different times, both calves and swallows", which implies to me that we will never be able to manage our need to be, at different times, both calves and swallows. I can think of no way that we could ever have accurate understanding of risk or complete transparency of reporting. (And if we did have the latter, no one would be able to read and comprehend all the material reported.)


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