Inequality and the failings of economic theory


Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month.  

I had the pleasure of listening to Darren Walker the President of the Ford Foundation at an event at the LSE in the Autumn. The Foundation, with an endowment of $12 billion, spends over $0.5 billion a year fighting inequality in the belief that this is the defining challenge of our time.

They identify five underlying drivers of inequality; persistent prejudice and discrimination based on gender, race or disability; entrenched cultural narratives that undermine fairness, tolerance, and inclusion; failure to invest in and protect vital public goods such as education and natural resources; unequal access to government decision making and resources and unfair rules of the economy that magnify unequal opportunity and outcomes.

It is the last of these that as investors we may be able to influence. The Ford Foundation certainly believe they can. Their ‘inclusive economies’ programme seeks to encourage business, government and civil society to work together to reduce inequality and promote growth and prosperity for everyone.

There is plenty of evidence to support the fact that economic inequality is unhelpful for economic prosperity over the long term. In the UK, the Equality Trust highlight research showing that high levels of income inequality are associated with economic instability – with more equal societies able to support longer periods of sustainable growth.

Darren Walker would label us, the asset owners and charity investors, as the ‘privileged’. Our generosity is not enough; we must seek justice, interrogating our own behaviours to see how we can bring about change. In his view, capitalism served the privileged well but failed many. For a sustainable future we need our economies to work for more people.

This is a theme picked up by Kate Raworth in her recent book ‘Doughnut Economics’ (and TED talk of the same name). Described as a ‘renegade economist’ she explains how current economic theory has failed us. That the focus on economic growth has led to the destruction of the environment, and favoured the few, amplifying inequality without improving wellbeing.

Instead, she argues that we should be trying to meet the needs of all, within the means of the planet; without valuing growth above all else. The ‘doughnut’ represents the delicate balance between achieving too little for society (the hole in the middle) and achieving too much so that ecological resources are threatened (beyond the outer ring of the doughnut). Economies that achieve this balance would be less likely to be as unequal.

So what can you do, to seek justice, to encourage an inclusive economy? As charity investors you are part-owners of companies and your share holdings give you influence. You can use this position to change the narrative, to encourage businesses to place less value on short term profit metrics and to focus instead on long term sustainability. It might mean that short term financial returns are less attractive as businesses invest for the future but it should enhance the longer term rewards, for you and for the rest of society.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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