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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.
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