This is the introduction to Mark Carney's speech to the Inclusive Capitalism conference, yesterday. It was published by the Bank of England.
Introduction
Inclusive capitalism is fundamentally about delivering a basic social contract comprised of relative equality of outcomes; equality of opportunity; and fairness across generations. Different societies will place different weights on these elements but few would omit any of them.
Societies aspire to this trinity of distributive justice, social equity and intergenerational equity for at least three reasons. First, there is growing evidence that relative equality is good for growth. At a minimum, few would disagree that a society that provides opportunity to all of its citizens is more likely to thrive than one which favours an elite, however defined. Second, research suggests that inequality is one of the most important determinants of relative happiness and that a sense of community — itself a form of inclusion — is a critical determinant of well-being. Third, they appeal to a fundamental sense of justice. Who behind a Rawlsian veil of ignorance — not knowing their future talents and circumstances — wouldn't want to maximise the welfare of the least well off?
The problem: the growing exclusivity of capitalism
This gathering and similar ones in recent years have been prompted by a sense that this basic social contract is breaking down. That unease is backed up by hard data. At a global level, there has been convergence of opportunities and outcomes, but this is only because the gap between advanced and emerging economies has narrowed. Within societies, virtually without exception, inequality of outcomes both within and across generations has demonstrably increased.4
The big drivers of globalisation and technology are magnifying market distributions. Moreover, returns in a globalised world are amplifying the rewards of the superstar and, though few of them would be inclined to admit it, the lucky.
Now is the time to be famous or fortunate.
There is also disturbing evidence that equality of opportunity has fallen, with the potential to reinforce cultural and economic divides. For example, social mobility has declined in the US undercutting the sense of fairness at the heart of American society.
Intergenerational equity is similarly strained across the advanced world. Social welfare systems designed and enjoyed by previous generations may prove, absent reform, unaffordable for future ones. And environmental degradation remains unaddressed, a tragic embarrassment now seldom mentioned in either polite society or at the G20.
To maintain the balance of an inclusive social contract, it is necessary to recognise the importance of values and beliefs in economic life. Economic and political philosophers from Adam Smith (1759) to Hayek (1960) have long recognised that beliefs are part of inherited social capital, which provides the social framework for the free market.
Social capital refers to the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.
So what values and beliefs are the foundations of inclusive capitalism?10 Clearly to succeed in the global economy, dynamism is essential. To align incentives across generations, a long-term perspective is required. For markets to sustain their legitimacy, they need to be not only effective but also fair. Nowhere is that need more acute than in financial markets; finance has to be trusted. And to value others demands engaged citizens who recognise their obligations to each other. In short, there needs to be a sense of society.
It all sounds great.
Then he offers his solutions, beginning with:
Central banks can contribute in two areas. First, our core macroeconomic objectives promote social welfare. Second, we can help to create an environment in which financial market participants are encouraged to think of their roles as part of a broader system. By building a sense of responsibility for the system, individuals will act in ways that reinforce the bonds of social capital and inclusive capitalism.
And for the detail? He wants regulation to end too big to fail, but the government has already ducked that - and it's ineffectual measures won't happen for several years yet. He wants better market transparency to stop abuse, but any hint of transparency is opposed by the City and the government (just look at country-by-country reporting). He wants to reform compensation packages, but the government has taken the EU to court on this issue. And he wants a 'sense of vocation and responsibility'.
So we're back to no change and a bit of warm CSR, and bluntly, that's the cowards way out.
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Second, we can help to create an environment in which financial market participants are encouraged to think of their roles as part of a broader system.
Then he’s going to ban high-frequency trading? 🙂
(seriously, when trades go in and out faster than the blink of an eye, it’s impossible to think about anything in relation to a broader system).
And the vast majority of this trading, particularly currency trading, is completely unregulated.
Talking of currencies, it is probably time to fix currency rates again, but instead of fixing the currency to gold, perhaps fix it to a basket of currencies.
Time maybe to end the floating of currencies and with it the huge efflux and influx of currencies that badly distort markets and causes huge disruption to entire countries.
One is not entirely sure that one would want to share the family cave with bulls and bears, especially the bears. Essentially, one would like to see the bulls in a field with secure fences and gates and the bears kept in the forests.
In countries which are successful and fair, the population can exude a degree of self-confidence and this also applies to companies of all sizes and their staff and this soon reflects in share values and the way a company is assessed by the community at home and internationally. Employees who know they can meet their monthly commitments and can see a safe future ahead will offer far more than those who are under constant threat of demotion, changed contractual terms or dismissal.
Somehow, we must all pull together to get back this social strength and ensure that a tiny minority does not steal all the cream for its own excesses and control.
“Our core macroeconomic objectives promote social welfare.” That statement alone underscores how out of touch/complacent and devoid of solutions Carney is, Richard. And ditto Legarde.
But let’s see this for what it is – an event that’s strategically positioned, both in terms of timing and content, to reclaim ground lost to campaigners such as yourself, TJN, etc, various NGO’s, the occasional academic and/or economist, the current Pope), and the odd media organisation (such as Channel 4 with Unreported World) who have been very effective this last 12 to 18 months in raising awareness of inequality.
In that sense it’s a pretty identical piece of PR strategising to the G8 (or was it G20) jamboree that focused on tax avoidance, and at which Cameron made his famous pledges that have subsequently come to nothing. I suspect we’d find that the Inclusive Capitalism (sic) event, and the group that it relates to, are actually the product of a unit within The City (or one of the many PR companies it uses) who have an ongoing brief to combat the impact that anti-poverty/inequality campaigners have enjoyed and ensure it’s business as usual once there’s been lots of media attention that creates the illusion that the 1% actually give a f—.
Depressing but utterly unsurprising.
It is in its entirety a City construct
A PR exercise for the great and good, washing over their own avarice which they describe as talent, and maybe a little luck
Beautifully and concisely put 🙂
As for the agenda of the conference read this:
http://www.theguardian.com/environment/earth-insight/2014/may/28/inclusive-capitalism-trojan-horse-global-revolt-henry-jackson-society-pr-growth
From the Hay Festival – David Boyle, a fellow at the New Economics Foundation think-tank.
Britain will be left with a “tiny elite and huge sprawling proletariat” who have no chance of “clawing their way out of a hand-to-mouth existence” in 30 years, a government adviser has warned.
http://www.huffingtonpost.co.uk/2014/05/29/middle-class-uk-proletariat-elite_n_5408916.html?utm_hp_ref=uk
I like David even if he is a LibDem speech writer
No likelihood this will make it into a Danny Alexander speech?
Mr Carney (and Ms Lagarde) appear to believe we are in danger of losing “ethics” from capitalism: that horse bolted long ago.if it was ever in the stable in the first place. I don’t know much about Mr Carney but I have read quite a lot that comes out of Ms Lagarde’s mouth: she would not recognise an ethical stance if it was rioting in the streets. She has only one prescription, and that is austerity for the poor. I do her the courtesy of presuming she believes the guff she talks (though I find it difficult to do that. She and her organisation have nothing to offer at all and should be ignored. There are few people and organisations I despise more than the IMF. Where they walk grass never grows again: and they do not notice. No matter what the problem the solution is always the same. The mark of the fanatic
Put with great precision-Fiona. Carney and Lagarde are indulging in a crocodile tera exercise whilst holding up the struts of a banking model that is close to evil.