Inclusive Capitalism and Social Inequality

Its official: the rich are getting richer and the poor are getting poorer. The number of UK millionaires has doubled in just the last two years. According to Christine Lagarde (Managing Director of the IMF, so she should know) the 85 richest people in the world, who could fit into a single London double-decker bus, control as much wealth as the poorest half of the global population, that is 3.5 billion people. 

Christine Lagarde

The so-called Wealth Gap is hardly ever out of the news these days, since the Credit Crunch, the Occupy Wall Street movement and Barack Obama’s re-election campaign. So I was interested to read about the conference on ‘Inclusive Capitalism’ which took place recently at the London Guildhall and Mansion House. It was a glittering occasion attended by some of the richest people in the world, hosted by the Lord Mayor of London, and with keynote speakers including HRH Prince Charles, Bank of England Governor Mark Carney, President Bill Clinton and IMF leader Christine Lagarde.

The conference was part of the Henry Jackson Initiative for Inclusive Capitalism, a ‘non-profit initiative working towards a more Inclusive Capitalism’, according to its own blurb. The concept was largely dreamed up by Lady Lynn de Rothschild: a bit ironic, you may think, since the Rothschild family is a leading light in the world of international finance and banking, and virtually a by word for huge wealth.

Since the financial downturn, 'capitalism' has become a bit of a dirty word, with financial fat-cats and bankers in the City and on Wall Street taking the blame for causing the Credit Crunch with their dubious financial dealings.  The very system that brought security and success to many in the West has brought financial ruin and social exclusion to millions, and is now associated with greed and corruption.

Speaking at the conference, Christine Lagarde said

Most recently, however, capitalism has been characterized by “excess”—in risk-taking, leverage, opacity, complexity, and compensation. It led to massive destruction of value. It has also been associated with high unemployment, rising social tensions, and growing political disillusion – all of this happening in the wake of the Great Recession.

One of the main casualties has been trust—in leaders, in institutions, in the free-market system itself. The most recent poll conducted by the Edelman Trust Barometer, for example, showed that less than a fifth of those surveyed believed that governments or business leaders would tell the truth on an important issue.

This is a wakeup call. Trust is the lifeblood of the modern business economy. Yet, in a world that is more networked than ever, trust is harder to earn and easier to lose.

Lady Rothschild also addressed the conference, and proved that she does not lack a sense humour, as she admitted that the very concept of Inclusive Capitalism sounds like an oxymoron. She also has a highly developed social conscience and worries that the Great American Dream of making good by enterprise, civic responsibility and sheer hard work regardless of social background, may now be unattainable.  Growing up in a modest New Jersey home back in the 1970s, she managed to make the dream a reality for herself. After gaining a degree from the Columbia Law School she went on to study international law at the Graduate Institute of International Studies in Geneva and became one of the most powerful and successful businesswomen in the world. She expressed regret that many now distrust capitalism and business, and said that economic inclusivity is the only way to restore that shattered trust.

I don’t want to destroy the system. I want to balance the freedom that has brought me a wonderful life with personal responsibility. That is the only way to save capitalism for the sake of a future generation of girls who have dreams.

Prince Charles, in the news recently after his controversial remarks likening President Putin to Adolf Hitler, was another keynote speaker.  Apart from that political hot potato, and for being first in line to the English throne, he is probably best known as a campaigner for environmental issues and as a generous sponsor of youth opportunity through his Prince’s Trust organisation. He drew on both of these obsessions in his address, calling for a ‘fundamental transformation of global capitalism’ to halt ‘dangerously accelerating climate change’ and also calling on businesses to invest in young people and give to charity. 

Amen to all of those fine sentiments. I have no objection to people enjoying great wealth if they have earned it for themselves in an ethical manner (OK, I realise that criterion may exclude Prince Charles, however well-meaning as he is)  especially if they have a social conscience and are responsible enough to share their good fortune with others. Capitalism has been getting a bad press in recent years, and deservedly so, what with Liborgate, the Sub-Prime mortgage crisis, PPI mis-selling and obscenely high bonuses for bankers, to name but a few. All those things are deplorable, but could we really contemplate living in a society organised along non-capitalistic lines, such as we have witnessed in Russia and China? I don't fancy it myself.  We need to stick with the system we have got, but we need to clean it up.  The big banks should take heed of what Christine Lagarde is saying: banking reform is an essential element in preventing a future financial crisis, but it is not happening quickly enough, the new regulations are not tough enough, and financial supervision is not tight enough. Lets do the right thing, and get on with it.