Ann Pettifor
Director, Jubilee Research at the New Economics Foundation
Former Director, Jubilee 2000

The Causes of Inequality

The chief causes of inequality in the world are twofold. First, the transformation of the global economy into one dominated by finance capital. Second, the displacement of democratic, political power by unaccountable "market" power.

Our global economy has been deliberately skewed in favour of the owners of finance - money- lenders and gamblers. Money-men now dominate the global economy - as bankers; compulsive credit card sellers; bullying shareholders, capricious derivatives or currency traders; or as speculators. Helped by the deliberate decisions of governments (not new technology or corporations) to de-regulate capital flows, and privatise pensions, they have expanded capital markets; corrupted business and politics; destroyed healthy economies; and massively concentrated wealth in the hands of the few. They dominate all economic policy making, so that deflationary economic policies are now the norm. Deflationary policies, Keynes taught us, transfer assets from borrowers to lenders. Inflationary policies achieve the reverse. This is why the IMF - which acts as an agent for all international creditors - is keen to impose deflationary or "austerity" policies on debtor countries.

It was a ballooning US deficit, and the refusal of Americans to match consumption with their own savings, that triggered the globalisation process. As the deficit grew in the 70's, the US colluded with the British government and the City of London to access the savings of others - through foreign capital markets. This led to the erosion of national capital controls, speeded up by Mrs. Thatcher and President Reagan. As a result, the US finances its huge deficit without "structural adjustment". Liberalisation helped capital markets became dominant in the global economy. In 1970, 90% of all international transactions were trade transactions, and only 10% were financial transactions. By the year 2000, despite a massive increase in trade, 90% of all international transactions were financial transactions and only 10% were trade transactions.

The second cause of global inequality lies in the profoundly utopian notion that only the market can be relied upon to allocate resources efficiently. The deliberate transfer of power to unaccountable market forces has hollowed out our democratic institutions; re-distributed income to the rich; and disillusioned our fellow citizens. Now markets decide if we will have pensions in our old age; if people dying of AIDS and malaria in Africa will be treated; if we will have football clubs; and if our railway tracks are to be made safe. These utopian ideas are already hitting the buffer of human resistance.

Key Reforms

First, put money back in its box. Re-introduce capital controls, and other forms of discipline on capital, including an international bankruptcy framework to check reckless lending and borrowing. Oh, and a Tobin Tax to discipline gamblers.

Second, put the market back where it has been these last five thousand years - rooted in our communities, and subject to community regulation.

Third, restore power to democratic institutions.

Strategies and Tactics

Tensions are rising in the world, fuelled by anger at the invisible forces that impoverish and render us all insecure. As in the 1930's, people are resorting to racism and authoritarianism, as the only political means for controlling these forces. In these conditions it will require widespread political will and strong leadership to challenge the dominance of capital markets, and to resist the downward spiral into protectionism, deflation and war.

There is an urgent need to de-mystify the forces that lie behind growing inequality. They are not "natural" nor are they "inevitable". Crack-pot utopian ideas must be abandoned. People must be educated and empowered. Jubilee 2000 showed how it was possible to educate a mass audience on an apparently arcane subject - sovereign debt.

Above all ordinary people must be trusted. They have better judgement than markets.

From this process leaders will emerge that put people and planet before money.

Placed on Fabian Global Forum, May 2002