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Would fairer societies have fewer financial crises?

October 19, 2011
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As the protestors outside St. Pauls and in capitals around the world begin to bed in, one thing is becoming clear; there is a huge range of reasons why people are protesting, and if anything, a greater number of proposals for what to do about the current economic and financial predicament we all face.

An article by Nouriel Roubini, (he of Dr. Doom fame who successfully foresaw the financial crisis and was ridiculed for it) suggests that there is a good reason why so many different criticisms are being lumped together into a global movement that spans diverse industrial and emerging economies.  He argues that not only has the laissez-faire model of the economy beloved of US and UK policy makers failed “miserably”, so has European deficit-driven welfarism and the Asian approach to managed growth.

The common thread between these models, according to Roubini? The failure to understand that inequality breeds instability.

Inequality treated as a purely social problem blinds us to the role that it plays in unsustainable financial and economic models. As the professor puts it “The increase in private and public sector leverage and the related asset and credit bubbles are partly the result of inequality”. By failing to address this adequately, each of the major philosophies of economic growth sow the seeds of their own crises.

Much like externalities are treated in the sustainability debate, social problems are increasingly being recognised as central to questions of economic policy. Another reason why the Finance Lab’s approach to fostering social enterprises that consider social, environmental and financial necessities equally seriously is becoming ever more vital.

 

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