Ian Goldin: How should credit unions respond to future global trends?

In a world of disruptive change, credit unions must prepare for uncertainty. But predicting future trends can be a great challenge. One of the keynote speakers at the World Credit Union Conference in Belfast, Professor Ian Goldin, looked at the main global tendencies and the implications for the credit union sector.

Professor Goldin leads the Oxford Martin School, a department at Oxford University of over 300 researchers in 20 academic disciplines. Prior to becoming the founding director of the school, Prof Goldin was Nelson Mandela’s economic adviser. The two met in Paris in 1990 after Mandela had been freed after 27 years in prison. Born in Pretoria, South Africa, Prof Goldin had to leave the country or face being arrested for opposing apartheid. After working for Mandela he became vice president of the World Bank Group – and now at Oxford Martin, he focuses on identifying change and understanding the implications of new technology.

He first joined a credit union 40 years ago as an undergraduate, and the movement became the topic of his undergraduate thesis. “When you think about the future, think global, about things that are going to change your life,” he told credit union delegates.

He explained how one of the main trends across the world was people living longer and healthier lives. Another great change is an increase in virtual connectivity, with five billion people connected digitally. As populations move from rural areas to big cities, incomes are also going up.

Since the 1980s, life expectancy has increased by 20 years, while illiteracy has decreased from 60% of the global population (2.4 billion) to 20% or 770 million today.

“I think about this period as a renaissance period,” said prof Goldin. But while the Renaissance between the 14th and 17th centuries led to great transformations, the time ended in wars, some of them religiously motivated, he added.

“There is rising inequality in all countries in the world. Because when things change more rapidly we get left behind more rapidly,” he explained, adding that globalisation also had unintended consequences.

There is rising inequality in all countries in the world. Because when things change more rapidly we get left behind more rapidly

He thinks that such changes will bring extraordinary uncertainty for credit unions. “When you compare numbers you get an ageing population, your membership will be both young and increasingly old – each European generation is 30% smaller than the previous one.” He believes the implications are enormous for young people, who will have to save more before retiring.

Migration can help address the ageing population problem faced by Western states, but even if the levels increased, the demographic trends would not change, added Prof Goldin.

Another global trend that credit unions must take into account is the increasing importance of emerging markets. “On the whole, emerging markets are much better macro-managed than advanced economies,” he said.

“The future will be characterised by shocks – having political will to act is also important. When in austerity, your politics gets gridlocked because there’s no room for giving other than by taking. Emerging markets can give without take and throw resources.”

He gave the example of China, which doubles its income per person every 12 years. “Emerging markets become a much bigger part of global economy and show much stronger growth.” According to Prof Goldin, credit unions would have a great potential to grow particularly in these emerging markets.

Read more from the 2016 World Credit Union Conference

In terms of new technologies, he thinks that these could help to address inequality. Small groups are also more likely to cause disruption and strangle systems such as via cyber attacks.

“Trust and integrity becomes more and more important,” he added. “Around 47% of US jobs might be lost to machine intelligence over the next 20 years. It will happen in the credit union movement as well. What the new jobs are will have a great impact. Being on top of this is absolutely vital,” he told delegates in Belfast.

Countries are also likely to be affected by climate change, which he described as the “greatest collective threat” faced. “It will particularly impact poor people because they are always more vulnerable to risk. We need to radically reduce our emissions,” said Prof Goldin.

He thinks that in spite of more connectivity, politics is becoming increasingly “insular, national, protectionist and xenophobic”. He added: “We become more insular at a time we need to become more open. We need to understand the forces behind it. Renaissance the most dangerous of times.”

Are there lessons to learn from the past, particularly the 2008 crisis? Prof Goldin thinks that the response from regulators is not fit for purpose because the next crisis is likely to come from different risks. “A lot of the regulatory reforms in the USA and Europe are dealing with the previous crisis.” He explained how those reforms undertaken were mainly capital adequacy reforms and partial solutions, “backward rather than forward looking”.

Prof Goldin warned about the risk of concentration such as the group of banks in Canary Wharf or Wall Street which, he argued, could pose a systemic risk if they were to be collectively affected by a major

event.

What the credit union has is integrity and trust. Big banks don’t have that anymore

He also talked about the role of international institutions. “We believe international institutions are for us, but we don’t want them to enter our sovereignty and that’s a contradiction we cannot sustain. The IMF [International Monetary Fund] called the US crisis, and the US ignored it when it warned them of the credit crunch.”

He added: “What the credit union has is integrity and trust. Big banks don’t have that anymore.” The former World Bank official also encouraged credit unions to use technology to better serve their members and ensure they can change to respond to their customers’ needs.