Can you imagine a world without finance?
Kevin F. Clune, CLFP
The current Dean of the Harvard Business School poses this intriguing question in a recent article he wrote for the Wall Street Journal, titled “Imagine an Economy Without Wall Street”. Mr. Nitin Nohria, who was born in India, tells us to just look at his family’s experience. As we celebrate Independence Day, his comments are very timely and relevant.
In India, according to Nohria, “the financial system lacked a mechanism to lend money to someone without collateral”. “Absent finance", he states, "most people can’t buy a home or start a business.” His own Father was denied the opportunity to start his own business and wasn’t able to purchase a home until he was nearly 60 years old, due to the lack of a “robust mortgage-finance industry”.
Despite the demonization of Wall Street and the financial system by some economists, columnists, and current presidential candidates, Mr. Nohria concludes that “solutions to problems like inequality and the lack of employment opportunities or wage growth aren’t going to come from government alone. They’re also going to require imaginative businesses that find new ways to employ people and create real value. These businesses won’t exist without financing.”
As part of the lease finance industry, this was a positive message and a morale booster for myself and others who are in the business of extending credit to other businesses. While technology has streamlined the actual lease finance process, the fundamental purpose and reason for the existence of our industry has remained the same.
According to the nationally based Equipment Lease & Finance Association, “Equipment finance not only contributes to businesses’ success, but to U.S. economic growth, manufacturing and jobs. Seventy-two percent of U.S. companies use some form of financing when acquiring equipment, including loans, leases and lines of credit (excluding credit cards). In 2015, $1.584 trillion was invested by U.S. businesses, nonprofits and government agencies in plant, equipment and software. Approximately 67%, or $1.046 trillion of that investment, was financed through loans, leases and lines of credit. America's equipment finance companies are the source of such financing, providing access to capital. Equipment finance companies also finance the export of U.S. manufactured products abroad.”
Mr. Nohria does acknowledge “excesses in the past decade, and without a doubt some players have behaved irresponsibly”. In the end, however, this Harvard Dean defends Wall Street as a value creating enterprise and claims that the finance industry is an integral part of what makes the U.S. economy the envy of the world.
On this 4th of July of 2016, we may be tempted to decry our sluggish economy, but Mr. Nohria has put these complaints into perspective. Business owners are still free to access many options to access capital for investment and growth and for this we should be grateful.
How may we serve you?
Kevin F. Clune, CLFP
Clune & Company
