A glittering panel of global personalities gathered in London today to debate the possibility of delivering “Inclusive Capitalism“. They included the Prince of Wales, President Clinton and Fiona Woolf, Lord Mayor of the City of London, as well as CEOs of major corporations.
It seems everyone agreed that free markets were better than the alternative. There were, however, laments about the excesses located principally in the finance industry and evidence that not everyone is benefiting from the triumph of the market in the past 25 years.
“Most recently…capitalism has been characterized by excess — in risk-taking, leverage, opacity, complexity, and compensation,” IMF managing director Christine Lagarde told the gathering. “It led to massive destruction of value. It has also been associated with high unemployment, rising social tensions, and growing political disillusion – all of this happening in the wake of the Great Recession.”
Lagarde called for action to increase equality of outcomes by
- making income tax systems more progressive;
- making greater use of property taxes;
- expanding access to education and health; and
- relying more on active labor market programmes and in-work social benefits.
Lagarde also called for action to increase trust in the banking system through tighter regulation and supervision.
Economics2030 argues that Lagarde’s approach concentrate yet more power in institutions that have little role in promoting value-creation in advanced economies where services are dominant.
In economies where services account for 80 per cent and more of employment and output, value is created by constructive interaction at the level of the individual. It’s optimised when individuals are given maximum freedom to create value interactively and without the intervention of bureaucracies whether they are publicly-owned or private.
This suggests there should be less not more regulation in advanced economies.
What makes the approach supported by Economics 2030 different to that championed by liberals and libertarians is that it calls into question the validity of the dominant role played in the capital structure of advanced economies of intangible capital.
Legislation and incremental change in accounting codes over several decades have allowed corporations, in effect, to create balance sheet assets out of nothing.
Their growth in turn has squeezed out small businesses and the self-employed, particularly in non-metropolitan areas. What London in particular has gained by the rise of intangible capital, which is mainly but not exclusively owned and controlled by the finance sector, has been lost by other parts of the UK economy.
This story is repeated in all advanced economies.
The right approach therefore involves challenging the weak intellectual foundations supporting the idea that ideas can be converted into balance sheet assets. Further extensions in what can be defined as property in ideas need to be checked and it’s up to economists to show why this will be good everyone.
It will increase inclusiveness and promote greater equality in a global system that’s failing on both counts.
For more see The myth of intangible capital on this website. http://edmundosullivan.com/economics2030/the-intangible-capital-myth/