Controlling capital: ending inequality means routing the march to unrestrained movement of finance

Added 14 Jan 2016
This article was originally published on ActionAid's website.

There is a date that marks the rise of global inequality. The rich have always held their grip on the levers of power, but the transformation of our economies, institutions and societies to align with the interest of small group of the ultra-wealthy started on 15 August 1971.

This is a symbolic date, of course, but an important one. It marks the ‘Nixon shock’ – the day the US President unilaterally announced that dollars were no longer convertible into gold, effectively ending the Bretton Woods system of international monetary cooperation that had helped ensure the longest and most equitable sustained period of global growth in human history.

The breakdown of global cooperation that followed opened up space for neoliberal ideas to elbow the Keynesian paradigm out of the way, and, marshalled by the international financial institutions under the banner of the “Washington Consensus,” achieve global domination. The best symbol of how this new world order differed from the post-war consensus was that the chains that had tightly bound capital to national boundaries were smashed. The Bretton Woods system required cross-border flows of finance to be heavily regulated by governments, in order for them to manage their exchange rates within tight bounds. The new system, built on a concept of exchange rate flexibility, explicitly required the reverse: governments should not attempt to control, restrict, or influence the ‘free’ movement of capital.

The rise of the wealth and power of the super-rich has many causes, of course, but this idea is at the fulcrum of this shift. The rich no longer have to engage with the societies from which their wealth derives when trying to influence public policy – they can simply move, or threaten to move, their assets overseas. The rise of tax havens, the liberalisation of the financial sector, the race to the bottom on the regulation of multinationals, the erosion of labour rights around the world: these all make sense if the objective is to allow wealth – and the super-rich that control an eye-watering share of this wealth - to decide where best to reside, how best to be (or not to be) taxed, and what obligations may (or may not) be owed to the workers, citizens and customers by whom that wealth was built.

The high point of this march to ‘free’ capital from the obligation to consider its impacts on society arrived in the 1990s when the IMF tried – and failed - to make it effectively illegal for governments to place any restrictions on the movement of finance across borders.

Now it is time to rout this march, to tame capital once more, and put it back in the service of the public good. The fronts on which we must fight are many, but the fight is already happening. The damaging financial sector liberalisation of recent decades must be reversed. This means not just changing the nature of banks – so that large, high-profile banks can never again take extravagant risks and so that financial institutions invest rather than speculate – but also recognising that ownership matters too. The privatisation of the mutually owned financial sector in Britain, the US and elsewhere at the end of the last century helped destroy institutions that helped stabilise economies and stand up for a vision of finance rooted in the needs and priorities of ordinary people. The results of this process of financial liberalisation blossomed into the global financial crisis that began in 2007, the worst since the Great Depression that started in 1929.

The weakening of the power of public institutions to intervene and make sure that finance serves the public interest must also be reversed, and new institutions created to prevent future crises. An obvious place to start is with reviewing existing trade and investment agreements and removing the damaging limitations they place on governments’ abilities to regulate cross border investments. A new institution to fairly and quickly resolve sovereign debt crises – currently being negotiated at the UN – would be a major improvement, allowing debtors to negotiate debt reduction on fair terms with creditors, rather than repeat the Greek tragedy of years of counter-productive and emaciating austerity policies.

We should not be afraid to restate the case for public finance and investment, not just in schools, hospitals and clean water, but also in transforming our infrastructure to speed us to a climate-resilient future. This means, of course that we have to end the tax dodging that costs our treasuries hundreds of billions per year, close down tax havens, and start to cooperate, not compete, internationally to ensure multinationals and the super-rich actually pay their taxes. Progressive taxes, such as a global wealth tax, would be the best symbol of our new desire to end the march of inequality, and bring the plutocrats back down to earth. Redistribution is the flip side of that coin. The gaping chasm between not just the super-rich and the rest of us, but also between rich countries and poor countries, continues to demand large global transfers – not ‘aid’ but investment in our shared future prosperity.

Finally, the battle for control of the corridors of power matters. Placing democratic principles at the heart of powerful institutions must be at the core of all our demands, for example to end the one-dollar-one-vote system of the IMF and World Bank, to give developing countries real influence over these powerful institutions. It is not enough to try to match the armies of lobbyists, lawyers, and accountants that the plutocrats can muster. The mechanisms of politics should be exposed to the transparent daylight of democratic scrutiny, with the days of policy decisions made in private members’ clubs ended. This means adopting a transparency charter based on the right to information, applicable to all international institutions, as well as transforming the G20 club into a United Nations economic council where all countries have a say, and ending the role of the many undemocratic or unrepresentative institutions – such as the OECD (a rich country club) or the International Accounting Standards Board (a private company) in global rule setting.

There is a date that marks the beginning of the march of global inequality. The fight to rout that march, and put in place a new world order, based on equity, and shared prosperity for ourselves, future generations and the planet itself has begun on many fronts.

We must win every one.