While east coast Ivy League schools remain a breeding ground for future finance recruits, the Stanford community continuously condemns and belittles the finance industry. A majority of Stanford students have decided that Wall Street is the heart of the old money elite, who prioritize money over morals, prevent social mobility, and benefit themselves while they harm the rest of society. What these students fail to recognize is that finance forms the underlying foundation for society, paving the way for innovation trans-market barriers.
The stigma against finance has only continued to encapsulate society after the recent recession, but this mistrust has overlooked the potential value finance can add. The structure and regulation afforded by finance set the basis for merit-based success: before the growth of developed financial markets, only the richest had the power to fund new initiatives. Novel frameworks for investment have democratized entrepreneurship, spurring the growth of capitalist free markets across the world. Without financial investments, only super-rich Americans would be able to found businesses. Other financial tools, such as insurance, mortgages, and pensions, are central to mitigating systemic socioeconomic disparity embedded in society. Considering that finance can be leveraged as a defense against inequality, the stigma held so deeply by Stanford students against finance is actually rather ironic.
Many tout that unlike Silicon Valley’s egalitarian technology industry, which is determined to solve the world’s problems through innovation and lays the foundations for the social advance of minorities and women through its meritocratic framework, finance is a white, male-dominated industry that perpetuates many of the problems the tech industry aims to solve. A common view amongst Stanford students is that finance jobs require a lower level of intellectual rigor than tech positions. They blindly accept that securing a job in finance has more to do with the suit you might wear to a networking event, than any skills you can contribute to the company. While it would be insincere to assert that no students who enter the field consider the six-figure starting salaries, finance in itself is not a tool designed to make the rich richer and perpetuate social inequality. In fact, historically, finance has proven a source of social good. Industrialization, mass production, trade, and banking would all have been nearly impossible without the structure finance affords, and finance has grown to be a pivotal trait of capitalism. Students who disparage finance often conveniently ignore, too, tech’s looming automation of everyday Americans’ jobs.
How do the different sectors of finance contribute to American prosperity? Sectors of finance, such as internet banking, sales, and trading, are in large part responsible for America having one of the most robust and efficient economies in the world. Banking allows for capital infusion to the economy and creates opportunities for large companies and startups to grow through added capital. Specifically, internet banking, which allows customers of banks to conduct financial transactions online and supports everyday transactions such as the withdrawing and depositing of money, allows for additional services such as the facilitation and valuation of companies for mergers and acquisitions and also facilities the process of initial public offerings. Sales and trading, the buying and selling of securities, adds liquidity to the market and bolsters well-operated, efficient firms. As such, the goods we enjoy daily are able to retain a high level of quality because of pressure from financial market.
Investment banking is also integral to the very small businesses and tech companies the masses of Stanford students send resumés to in the name of innovation. Bankers shuffle money from savers to companies that need capital to grow. Historically, lack of flow of capital has stifled innovation, yet recent growth in investment banking has allowed for electricity, railroads, and canals to be built worldwide.
Finally, this stigma fails to consider that entire sectors of the financial industry are dedicated to innovation and optimization. For instance, venture capitalism, a form of financing for early-stage startups, paves the way for startups to succeed and is a classic example of how finance is a direct source of innovation. Selective funding of the most inventive and robust startups allows for new and improved technologies to successfully enter saturated and often outdated markets. Venture capitalists are not “silent partners” but actively shape decisions in the startups they invest in. According to one report, venture-backed startups are able to file more patents and have greater rates of product commercialization. More generally, private equity, which encompasses investment in private companies of all sizes, reduces inefficiency and increases innovation and companies’ success rates. This form of investment often targets relatively successful companies that are created by entrepreneurs but have some level of inefficiency. Seasoned business experts are brought in to streamline daily operations, promoting mass adoption of innovative products and decreasing organizational inefficiency.
Contrary to most Stanford students’ perceptions, finance can sometimes lead to more innovation than technology. While many smart students decide to work for the Googles and Facebooks of the world to contribute to the “leaders in innovation”, they are often relegated to replaceable positions. However, financial markets are currently undergoing rapid reorganization and formation with recent innovations including hedge funds, private equity, weather derivatives, retail structured products, exchange traded funds, multi-family offices and Islamic bonds. Students face a prime opportunity to become pioneers in the field and to use their position to use finance for social good. By using investment to help poor countries develop and by making financial tools more accessible to low-income Americans pursuing their dreams, Stanford students can leverage finance to promote prosperity, freedom, and economic security on a global scale. This is certainly preferable to arbitrarily casting aside finance as a “broken” system that cannot be fixed.