Kate Rogers: Inequality and the failings of economic theory

Charity investors should use their position to influence long-term sustainable results rather than take short-term profits, writes our columnist

Kate Rogers
Kate Rogers

I had the pleasure of listening to Darren Walker, the president of the Ford Foundation, at an event at the London School of Economics in the autumn. The foundation, with an endowment of $12bn, spends more than $500m a year fighting inequality in the belief that this is the defining challenge of our time.

The foundation identifies 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 believes it can. Its ‘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 highlights 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. 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' in the book’s title 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 unequal.

So what can you do to seek justice and 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.

Kate Rogers is head of policy at Cazenove Charities

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