What’s the problem?
You probably know that in much of the world life chances are becoming more unequal. The Occupy movement might have faded away but it captured something powerful when it coined the phrase “the 1%”. These days the richest 1% own more than rest of us combined. Only 62 people own as much as half the world’s population, a quite staggering fact, and things are getting worse. When it comes to finance, the system we have is an engine of inequality, simply put the current financial system is part of the problem.
What’s so bad about that?
At the moment finance is feeding and creating inequality. At its very simplest those with money can earn interest and dividends from the work and profits of others. In other words, via financial holdings, the rich get richer – even before they do any work. At the other end of the spectrum the invasion of finance into the lives of ordinary people in the last 30-40 years means that more and more of us are indebted, and are therefore paying money systemically to the owners of debt and shares – namely the richest. For people living in developing countries, too much foreign debt means the government has less money to tackle poverty or build infrastructure, while interest flows to those that own the debt.
Finance can also be a tool for social discrimination, for example through the ease with which it provides funding for different gender groups, or in its own gender representation. The culture of high pay and bonuses in the financial sector, which itself often lacks diversity, directly feeds wealth and income inequalities.
You might think that some of this could be corrected by redistribution of wealth, for example through taxes. But here again the financial system is messing with the way you might think things should work. It is financial firms that make possible enormous tax evasion by the largest firms and richest individuals. They play with the rules to find technically legal ways to minimise tax payments, often moving money through shell companies and offshore tax havens.
What’s the alternative?
The alternative is a financial system that is understood as a public good, that helps direct society’s energies and money towards environmental transition and that provide everyone with a fair share of society’s abundance, and not just the very few.
How will it help?
While finance is fuelling inequality the opposite is also true, inequality is fuelling finance – at least a certain kind of finance. It is fuelling a finance that invests vast resources in evading rules, minimising tax for the richest, encouraging speculation and investments that favour the richest and most powerful. We need finance to be inclusive not extractive, to abide by the spirit of the law and not just the letter. We urgently need to find ways to redistribute wealth and forgive debt where necessary, so everyone has a fair share and a fair chance, including setting society on the path towards sustainability and living well within the planet’s limits, so that it is not just the richest that avoid the worst effects of climate change.
What steps could we take to get started?
- Reduce tax avoidance through public country-by-country reporting.
- Continue to erode financial secrecy, especially through targeting tax haven jurisdictions.
- Support wealth redistribution through the tax system, in particular by increasing tax on the richest individuals and the largest corporations. Increased tax revenue will help the state provide goods and services for people, reducing their reliance on private finance.
- Find new ways to provide for basic needs such as housing, health, education & pensions without having to use the private financial system.
- Implement collective and defined benefit pension systems.
- Reverse the privatisation and outsourcing of basic public goods and services, and cancel public-private financing initiatives where appropriate. Defend, develop and increase the role of pay-as-you-go provision for pension and health systems (rather than capital savings or insurance-based systems which pour more money into financial markets).
- Explore universal basic income proposals, in combination with directly providing for people’s needs.
- Implement on-going and accountable debt audits, which involve citizens to assess the legitimacy of debt. This would lead, where necessary, to the cancellation of illegitimate debts. Enable debt relief for over-indebted countries via a UN-based multilateral or sovereign debt workout mechanism.
- Restrict executive pay at systemically important firms.