17 June 2014

Can capitalists save capitalism?

Prominent Harvard economist Lawrence Katz illustrates the American economy with an amusing analogy. He depicts it as an apartment block in which the penthouses have increased in size, the middle apartments are increasingly squeezed and the basement is flooded. But what gets people down the most, he says, is that the elevator is broken.

Katz's analogy applies particularly to the U.S., the most inequitable nation in the developed world, and the one with the least economic mobility, but it applies to the rest of the world as well. Within nations and between nations, inequality is growing, perhaps dangerously. For this and other reasons capitalism, now the entire world's economic system, is becoming increasingly suspect. So suspect, in fact, that capitalists themselves are beginning to worry about its future.

At this year's World Economic Forum, the annual get-together of the world's corporate and government elites, one of the greatest threats to the global economy in the coming years was declared to be the growing gap between rich and poor.

Capitalists have even formed an organization to deal with inequality called the Inclusive Capitalism Initiative (ICI). Its website states that it "is concerned with fixing the elevator of the economist Larry Katz's famous analogy." The ICI recently organized a conference in London to address some of capitalism's sins. It was convened by Lady Lynn Forester de Rothschild (now there's a name to be reckoned with), CEO of E.L. Rothschild, a holding company that manages investments in The Economist Group, owner of, among other things, The Economist magazine. The institutional investors and business leaders assembled represented, or so it was claimed, companies that together control about 30 per cent of the world's total stock of financial wealth under professional management.

All of this may represent a serious concern about the future of capitalism, or even about inequality, or it may just provide occasions for rich people to get together and reassure each other they are doing their bit for society. Time will tell. Even if its no more than noblesse oblige, I prefer to give them the benefit of the doubt ... with a sensible degree of scepticism of course.

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