When central bankers start talking about capitalism’s inherent tendency towards serious inequality, and a 700-page book by a French Economist on the same topic reaches number one on the New York Times bestselling list it might be time to pause from business as usual and start paying attention.
Thomas Piketty’s Capital in the Twenty-First Century created a huge reaction around the world among commentators and pundits when it was released earlier this year. Then in May, Mark Carney, Governor of the Bank of England no less, gave a speech on inclusive capitalism, outlining systemic problems of advanced economies that must be addressed if the trend towards crippling inequality both within and across generations is to be reined in.
Inequality is on the rise. Piketty found that in the US the income share of the top 1% has doubled since 1980. The top 10% receive 50% of income while the bottom half of the population get 20%. There are similar patterns in other Western nations. In Australia, after the post-war boom, inequality was lowest in the 1970s, but has risen ever since, with real earnings of the top tenth having risen 59% at the same time the bottom tenth rose only 10%. Today the richest three Australians have more wealth than the million poorest.
Magnified market distributions in a globalised economy reward the superstar and the lucky. “Now is the time to be famous or fortunate,” says Carney. John Milbank, Research professor of Politics, Religion and Ethics at the University of Nottingham, adds that the result of this skewed system of rewards is the creation of a new aristocracy, “shorn of all vestiges of chivalry and honour”.
But it’s more than just a problem of fairness. Carney says the current state of play places the whole system in peril. He believes that unchecked market fundamentalism has the effect of devouring the very thing required for the long-term viability of capitalism itself—social capital—the links, shared values and beliefs in a society that encourage a sense of trust, collaboration and obligation across the community.
A capitalism that is inclusive, says Carney, is one that delivers a basic social contract of relative equality of outcomes, equality of opportunity and fairness across generations. Serious inequality is not only unjust, it is bad for growth and is also one of the most important factors in determining happiness, and a sense of wellbeing across the community. For markets to sustain their legitimacy they need to be not only effective but fair.
It is extraordinary to hear a banker talking in these terms. His faith in market economies to provide the essential conditions for economic progress comes with an equal commitment to the idea that, for progress to be consistently delivered, social capital must be maintained.
When it comes to wellbeing, community and relationships, many of us would want to add a spiritual dimension to the equation. But economists thinking in terms that stretch beyond merely the numbers involved is a welcome development.
