Capitalism, Inequality And Power – Part 1

Why is the issue of inequality so crucial? Why does the type of capitalism we have matter so much to the poorest people in the world? Ben Philips, working in the field of international development, confronts the answers to these questions on a daily basis. First, to put his views in context, Philips clarifies his position on capitalism. “I am a capitalist,” he proclaims.

“A lot of what NGOs do is about helping people to make money.” He cites a group of people he met recently in Kibera – the biggest slum in Nairobi, and home to one million people – who were transforming old bones from butcher’s shops into jewellery. “There are amazing stories like that from all over the world, of people trying to make money. And that’s a good thing,” he says. “A lot of market systems have been able to deliver for poor people.”

Much of the progress we have seen since the end of World War 2, and since the independence of many former colonised countries, has been related to economic growth, he says. “But, what we’ve seen increasingly, especially in the past 20-30 years is a de-coupling of economic growth from social progress, so we now know that economic growth alone is not enough.” Philips says his views are in line with the likes of philanthropist George Soros who describe today’s capitalism as “market fundamentalism” and call for a return to a more balanced, more managed form of capitalism. “So that’s where I stand in the discussion,” he says. “I think capitalism right now is very much on the edge.”

Stark separations
Through his work, Philips has amassed a collection of encounters and images from around the world which convey the extent and scale of inequality. He shows a photograph of a slum abutting a luxury high-rise apartment block, complete with balcony swimming pools on every storey. “It happens to be Sao Paulo,” he says, “but it could just as easily be Nairobi, or Delhi or Bangkok or Islamabad or Lagos or Jo’burg; they all look as divided as this.”

The rich and poor live cheek by jowl, yet separate. And it’s not just a money separation, says Philips, it’s also a physical separation, and a social and cultural separation. He dips into a long list of statistics, throwing up similar examples of inequality from different continents. In Pakistan, half the population has no land, while just 5% of landowners have two thirds of the land; in the cities the top 20% of the population accounts for 61% of earned income, while the bottom 20% makes do on just 3%.

Angola has had a staggering growth rate of around 25% and one of the highest infant mortality rates in the world. Papua New Guinea has had the highest growth rate in the world, and yet is the only country that has not met a single Millennium Development Goal. In the US, the richest 10% of the population has captured all of the growth since the recession. In fact – it’s worse, says Philips; “the rich captured more than all the growth and the other 90% went backwards.” The good news, says Philips, is that it doesn’t have to be like this.

And that is why Philips believes it is important to talk about different forms of capitalism. He looks to Brazil, where he says the poorest 10% have grown their incomes at a faster rate than the richest. The richest have still made more money, but the poor are growing faster. “In Bolivia, even more progress being made, even faster. It is possible for things to be different.”

Why is inequality bad?
First, inequality is bad for growth. Indeed, there is a growing consensus that redistributing income can lift growth. The IMF research department says this, as does its head, Christine Lagarde; so does the OECD and the World Bank. Even publications with a reputation for economic liberalism, such as the Financial Times and the Economist have made this point.

Secondly, inequality is dangerous because it tears societies apart.

Philips points to a recent report from a security consultancy which advises countries and companies how to deal with insurrection. “They said they were really worried about rising inequality; not from a moral perspective or a growth perspective, but as a security threat.”

Thirdly, inequality promotes what academics have dubbed “social capture.” What this means, says Philips is that “Some people have so much money they don’t just buy boats, they buy elections. They buy politicians and they become immune from any form of accountability. And that then corrupts the democratic process.” He borrows the words of Louis Brandeis, US Supreme Court judge in the early decades of the 20th century, who said: “we can have extreme inequality or we can have democracy; we can’t have both”.

Putting things right
In more recent times, Philips points to the Lula government in Brazil as an example of changing policy for a fairer society: redistributing land to the poorest people, increasing incomes for the poorest people, organising the economy around jobs, investing in social protection for kids and the elderly, and so on… Delivering greater equality through policy is not rocket science, insists Philips. “The trouble is not the policy list; that we could do in an afternoon at Murray Edwards College! The hard question is the politics, and the problem is our leaders will not lead us.” The idea that producing research papers which prove something will result in changes in policy is false, says Philips. He learned that lesson when campaigning in India.

Reports which showed how investing in health and education would have a positive impact on child development and economic growth were repeatedly ignored. The reason why, says Philips, is because the politics was wrong. So, he changed tack, and the outcome was different: “We started mobilising around the issue, organising people, and then we actually started to get some significant increases in health and education funding.”

Ben Philips,
Director of Policy, Research, Advocacy and Campaigns

ActionAid