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SECTION 1 2 3 EXTREME INEQUALITY 1.3 Luxury yachts moored in Puerto Adriano, Spain (2013). Photo: Panos/Samuel Aranda WHAT HAS CAUSED THE INEQUALITY EXPLOSION It is clear that economic inequality is extreme and rising, and that this has huge implications in many areas of life. But what has caused today’s levels of inequality Many believe that inequality is an unfortunate but necessary by-product of globalization and technological progress. However, the different paths taken by individual nations belie this view. Brazil has reduced inequality despite being part of a globalized world, while, over the same period, India has seen a rapid increase. Rising economic inequality is not the unavoidable impact of supposedly elemental economic forces – it is the product of deliberate economic and political policies. 54
SECTION 1 2 3 EXTREME INEQUALITY This chapter looks at two economic and political drivers of inequality, which go a long way towards explaining the extremes we see today. The first is the rise of an extreme variant of capitalism, known as ‘market fundamentalism’. The second is the capture of power and influence by economic elites, including companies, which in turn drives further inequality, as political policies and public debate are shaped to suit the richest in society instead of benefiting the majority. Together these two drivers form a dangerous mix that greatly increases economic inequality. MARKET FUNDAMENTALISM: A RECIPE FOR TODAY’S INEQUALITY ‘Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith. Market fundamentalism – in the form of light-touch regulation, the belief that bubbles cannot be identified and that markets always clear – contributed directly to the financial crisis and the associated erosion of social capital.’ Mark Carney, Governor of the Bank of England 260 With regulation, capitalism can be a very successful force for equality and prosperity. Over the last three hundred years, governments have used the market economy to help bring a dignified life to hundreds of millions of people, first in Europe and North America, then in Japan, South Korea and other East Asian countries. However, left to its own devices, capitalism can be the cause of high levels of economic inequality. As Thomas Piketty demonstrated in his recent influential book, Capital in the Twenty-First Century, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise. But governments can act to correct this flaw, by placing boundaries on markets through regulation and taxation. 261 In wealthy societies, for much of the 20 th century, effective mobilization by working people convinced elites to act on this evident truth, conceding the need for taxation, regulation and government social spending to keep inequality within acceptable bounds. In recent decades however, economic thinking has been dominated by, what George Soros was the first to call, a ‘market fundamentalist’ approach, which insists on the opposite: that sustained economic growth comes from leaving markets to their own devices. A belief in this approach has significantly driven the rapid rise in income and wealth inequality since 1980. “ One of the flaws of market fundamentalism is that it paid no attention to distribution of incomes or the notion of a good or fair society. JOSEPH STIGLITZ 262 “ When good markets go bad: Liberalization and deregulation Market fundamentalism increases inequality in two ways: it changes existing markets to make them more unregulated, driving wealth concentration; and it extends market mechanisms to ever more areas of human activity, meaning that disparities of wealth are reflected in increasing areas of human life. 55
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JEFFREY SACHS Director of the Earth
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ACKNOWLEDGEMENTS The paper was writ
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