There is no such thing as inclusive capitalism

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IMF managing director Christine Legarde called for the creation of "inclusive capitalism" at a conference in London this morning. She used fine words, like these:

Fundamentally, excessive inequality makes capitalism less inclusive. It hinders people from participating fully and developing their potential.

Disparity also brings division. The principles of solidarity and reciprocity that bind societies together are more likely to erode in excessively unequal societies. History also teaches us that democracy begins to fray at the edges once political battles separate the haves against the have-nots.

A greater concentration of wealth could–if unchecked–even undermine the principles of meritocracy and democracy. It could undermine the principle of equal rights proclaimed in the 1948 Universal Declaration of Human Rights.

Pope Francis recently put this in stark terms when he called increasing inequality “the root of social evil”.

But let's not pretend here: there is no such thing as inclusive capitalism. By definition capitalism is about the creation of inequality. In a capitalist system trade and industry are undertaken by private owners for profit, rather than by the state. Their goal is the accumulation of ever more resources under their control because that is the way they can ensure their survival. However, in a world where resources are finite this command over ever-increasing shares of resources inevitably means more and more will lose out as a consequence. You don't have to be a Marxist to think that: you merely have to observe the world as it is. Marx forgot increasing productivity and technical innovation in his analysis but neither will overcome the mechanisms that ensure in a financialised world control of resources will, in a capitalist system, become ever more in the hands of a few.

No new label will change this. It's also quite bizarre to confuse the financial services sector with capitalism as Legarde does. I am not saying we must do away with markets. Far from it: they have a place. But that is a well regulated place. Legarde did not recognise that. She said;

Ultimately, we need to ingrain a greater social consciousness–one that will seep into the financial world and forever change the way it does business.

The good news is that we are seeing some positive signs. The Inclusive Capitalism Initiative is one such example–pursuing practical ways to make capitalism an engine of economic opportunity for all.

We can draw some parallels here with our expanding environmental consciousness. Not so long ago, we had much higher levels of pollution, and littering was commonplace. Today, we are more educated about these issues, and more in the habit of respecting the planet.

By comparison, the equivalent kind of awareness in the financial sector–the idea that private misbehavior can have a broader social cost–is only in its early stages. It is akin to the initial period of environmental consciousness, which focused on the banning of lead from petroleum products.

Just as we have a long way to go to reduce our carbon footprint, we have an even longer way to go to reduce our “financial footprint”.

Yet we must take those steps.

I realize that these are deeper questions than economists and policymakers are normally comfortable talking about. Yet I also believe the link is clear–ethical behavior is a major dimension of financial stability.

Politely, this won't do. Environmentalism didn't ask is to tinker at the edges: it demanded we recommend a new paradigm. Just so, for example, with tax justice - which is at the forefront of this thinking in a new "financial footprint". That would require an end to tax havens; financial transaction taxes; closing the tax gap; investment in regulation; public ownership of the bank payment platform so that it could never potentially fail as a result of the actions of one bank; and most of all it demands that we have progressive income and wealth taxes to reallocate the inequality that capitalism is designed to create.

You don't relabel capitalism to deliver that. You call it justice. It's tax, social and financial justice. But it's not a branch of capitalism. And whilst you think it is you'll continually get this wrong.