In October, the grandiose National Cathedral in Northwest Washington D.C. held a forum about the intersection of capitalism and morality: “The Inequality Challenge.” The forum was moderated by Adi Ignatius, editor-in-chief of Harvard Business Review.
After the audience had been seated, the acclaimed speakers came to the platform, both well-known in the world of international finance. First was Christine Lagarde, managing director of the International Monetary Fund (IMF) and a former French minister of finance. The second speaker was Lawrence Summers, a former U.S. secretary of the treasury as well as a former president of Harvard University.
After the two had spoken, audience members asked many questions of each. Christine Lagarde spoke to the challenge of financial inequality. “The question is not about eliminating inequity, but figure out how much inequity is too much and that’s the best response,” she said. Lagarde then explained that the IMF believes excessive inequity of wealth distribution in societies does not create the necessary foundation for sustainable economic growth. The IMF position is that this is less a question of morality and more a question of common sense and societal needs. “Well-designed redistribution policies will be good for sustainable growth,” Lagarde said.
Summers spoke to the reduction of financial inequality in many of the less-developed nations during the last 30 years. Because of economic growth in India and China, the world’s two most populous nations, there have been large global increases in education and healthcare for massive numbers of people. According to Summers, more people have benefited from increased education and healthcare in the last thirty years than in any similar period of time in the modern age.
Another promising statistic Summers pointed to was the global reduction of child mortality rates. This reduction is due to the dynamic growth of national wealth, especially in Brazil, Russia, China, and India, after those nations opened their economies to market capitalism. The task ahead, Summers stated, is to dramatically increase global trade and economic integration. The key challenge will be to ensure this process benefits local economies.
Lagarde countered this viewpoint, saying that the lessening of global inequality in the last 30 years had not progressed fast enough. “Mission not accomplished. Africa is still struggling.” She said that advances in healthcare and education have not come fast enough.
“How much inequality is too much?” asked moderator Adi Ignatius.
Summers responded by saying it is important to focus on the “equality of fairness.” He said the fact that “tax rates of the richest are lower than the people who clean their floors” is a “profound problem of fairness.” We need to work on fairness issues by focusing on those who need more while avoiding the “politics of envy,” according to Summers.
Lagarde argued that our immediate focus should be on decreasing the number of poor people, not decreasing the number of wealthy people. She outlined three ways to focus on global solutions: more opportunities for women, meaning equal constitutional rights, fair tax systems, access to childcare; make public financing available for infrastructure such as bridges, schools, and health centers, instead of providing massive energy subsidies; and more equitable tax systems.
Summers agreed with Lagarde that the empowerment of women was critical to reducing income inequality. He also agreed with spending more public funds on infrastructure. These types of construction projects create jobs, give people a sense of pride which comes from working and lowers the debt of developing countries by increasing their gross domestic product. The conversation then shifted, with Summers suggesting we need to add regulations to the Trans Pacific Partnership to “manage the excesses of capitalism.” This translated to ensuring that benefits of increased economic growth are shared by everyone, not just mega-corporations and the global one percent. Largarde responded by saying the laws need to be clear, especially the tax code in the United States, regarding the Trans Pacific Partnership and other laws regarding taxes for corporations.
When the moderator asked them to come up with remedies for inequality, Summers gave several suggestions. First he said that the U.S. needs a far more progressive system of estate taxation. This will automatically reduce income inequality by reducing the amount of money that can be passed by the super-rich from generation to generation.
Second, he called for equality of educational opportunity in the United States by changing the present system of local financing of public schools. This is a huge problem, according to Summers, since wealthy geographic areas spend more on their local schools than areas that are poorer. Other countries do not follow this system of local financing of schools. Instead, they ensure that each school receives the same amount of money.
Lagarde responded to the question by saying, “corporations have to build not only profit but value, [and] also have to be mindful of general equilibrium of society.”
The forum ended with two pivotal questions: what is the intersection between morality and capitalism? and is being Christian incompatible with wealth?
Summers answered the first question by saying capitalism is only as moral as people are and that it is imperative that all of us be mindful of others. He also said that we need to maximize profits, so we can afford to pay higher wages to people. Everyone needs to work harder to ensure this. Lagarde responding by saying it is important that the rule of law have a clarity of purpose.
The second question received a pondered response by both speakers. Lagarde said “It’s how you use it; you have to share, like the parables of the talents.”
Summers came up with a list of things for Christians and others to do. First, spend more money on education. Second, include women in all parts of society. Third, support aggressive U.S. engagement in the global economy. Fourth, politicians need to voice issues of public interest alongside commercial interests. Fifth, influential people need to ensure that the common good comes before special interests.