Capitalism is in danger of eating itself, says Mark Carney.
Rising inequality poses a threat to growth and financial stability, says Christine Lagarde. When the governor of the Bank of England and the head of the International Monetary Fund start banging on like a couple of social democrats at a Labour party fringe meeting, it is worth paying attention. Something is up.
That something is the way the world operates in the aftermath of its most profound economic shock of the postwar era. This has been a period of slow growth, rising inequality and – as the results of the elections to the European parliament show – political alienation. People struggling to cope with wages that don't keep pace with inflation feel that they are paying the price of a crisis they did not cause while the perpetrators of the crime get away scot free.
Carney's message was that trust in financial markets has been strained by the self-serving and often crooked activities of the bankers. Supposedly rugged markets have in fact been rigged markets, and this needs to change through a combination of tougher regulation, reform of compensation and the willingness of bankers to realise that it is in their own long-term interests to behave more responsibly.
Eyebrows were raised last autumn when Carney made what was seen as a strongly pro-City speech. This time his approach was more combative, but still broadly positive. Change was happening, the Bank of England governor said, in areas such as ensuring that banks were no longer too big to fail. Meanwhile, flooding financial markets with money through the quantitative easing programmes should not be seen as a way of boosting the value of assets held by the better off but as a means of preventing a lost generation of the young unemployed.
Lagarde's offering was less optimistic but more realistic. The financial sector, she said, was doing its utmost to resist reform. There was too little progress on too-big-to-fail banks and the industry still prized short-term profit over long-term prudence. All true.
What's more, she cut through all the handwringing about inequality by noting that policymakers needed to do more than talk about closing the gap between rich and poor: they needed to act, through more progressive income and property taxes. Also true but, like action on reforming the activities and culture of the banks, it is not really happening.
One final point. Carney and Lagarde were speaking at a conference called "inclusive capitalism" held at London's Guildhall. It was, though, an invitation-only gathering of the great and good (Carney, Lagarde, Bill Clinton, the Prince of Wales) to which the press was not invited. Perhaps it should have been called "exclusive capitalism".
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