Confronting inequality - Capitalism must change or be changed

Inequality, like the poor, will always be with us, it seems, but yesterday’s Oxfam report which recorded that the combined wealth of the world’s 85 richest people is equal to that of the world’s poorest 3.5bn — half of the world’s population — is shocking.

It is an indictment of how easily we have accepted the winner-takes-all conceit driving today’s market economies. It highlights nearly every democracy’s inability — or reluctance — to confront international business to control the concentration of wealth. It shows how we have failed to ensure that a great swathe of humanity lives with basic comforts and dignity. This unsustainable divide is a threat to stability, especially in developing economies. It jeopardises the very system that supports such an unjust imbalance — capitalism. It also threatens all of the security and social good that flows, or at least should flow, from that system.

It is terribly ironic, and an indication of how poorly we learn from history, that this is so as we approach the centenary of one of the catastrophic Russian revolutions provoked by similarly intolerable circumstances.

The threat has been recognised by one of capitalism’s grand field marshals, the IMF’s managing director Christine Lagarde, who has highlighted income inequality as the world’s business and political leaders assemble for this year’s World Economic Forum in Davos.

This trend can be seen in the collapse of the middle classes in so many parts of the world and in how opportunity for economic and social advancement is more limited than it has been for generations. The report goes further and suggests that escalating inequality has been driven by a “power grab” by a wealthy elite who have manipulated the political process. As we consider the great, crushing burden of private bank debt imposed on this small country, it is hard to argue against that assertion. It is hard too to argue against the assertion that we have been here before. But even in the terrible inequity of pre-First World War Europe — 10% of the population had 45% of the income — the divide was not as pronounced as it is across the world today.

This change, this hardening, globalised world, has gathered such momentum that a growing number of economists argue that the mid-20th century economic growth and the egalitarianism it supported was an exceptional interregnum and that we are merely returning to the economic circumstances that prevailed throughout most of history. And it is troubling that technology, once thought the great liberator, is playing such a negative role in the concentration of power and wealth.

It is doubtful that even the most ardent capitalist or the most aggressive hedge-fund manager can imagine that this divide is a good thing or even sustainable, but what to do?

So many of the certainties of the last decades of the last century are no longer reliable. Religious organisations, business corporations, and too many governments have succumbed to human weaknesses. We are at a point where so many of these entities are trying to regain some of the legitimacy they once enjoyed. This is a considerable challenge, but how capitalism reshapes itself — or is reshaped — may be the greatest challenge of all. Even if we, and the super rich, ignore history’s warnings, this obligation cannot be avoided because the consequences of not doing so would be utterly catastrophic. And it must be done without diminishing the dynamism of “good” capitalism, the force that has empowered and liberated so many millions of people.