Why are Mark Carney and Christine Lagarde suddenly so keen on “inclusive capitalism”?

28th May 2014 by Shaun Richards

Yesterday saw a new phase in the credit crunch era as both the head of the International Monetary Fund and the Governor of the Bank of England talked about the new buzz phrase which is “inclusive capitalism”. It has the advantage of sounding good so let us investigate how Christine Lagarde explained the concept. The latter word of the two came into being more recently than you might think.

The term “capitalism” is only used for the first time in 1854 by an Englishman, the novelist William Thackeray—and he simply meant private ownership of money.

Then the inclusive part of the phrase was added in.

to make it truly the engine for shared prosperity?

If so, what would the attributes of inclusive capitalism be? Trust, opportunity, rewards for all within a market economy—allowing everyone’s talents to flourish. Certainly, that is the vision.

At this stage this is a bit like asking people to vote for apple pie! It sounds and reads well but what has actually changed since Mademoiselle Lagarde stood up and started speaking?

Also the trust issue is an awkward one for Christine Lagarde. After all she was one of the  Euro area finance ministers who proclaimed that the bailout of Greece was a “shock and awe” moment when in fact it spiralled the Greek economy into an economic depression. I doubt she will ever get trust again from the Greeks. She was also one of those involved in breaking the “no bailout” rules in the Euro area.

Dealing with inequality

In an attempt to engage with what I call the Piketty issue Christine told her audience this.

In the US, the share of income taken home by the top one percent more than doubled since the 1980s, returning to where it was on the eve of the Great Depression. In the UK, France, and Germany, the share of private capital in national income is now back to levels last seen almost a century ago.

The 85 richest people in the world, who could fit into a single London double-decker, control as much wealth as the poorest half of the global population– that is 3.5 billion people.

I wonder what the audience which included Prince Charles, President Clinton, Lady Lynn de Rothschild and Fiona Woolf, Lord Mayor of the City of London made of that? A talking shop seems likely here as some of them were no doubt mulling the fact that the weather at the ECB Forum in Sintra was much nicer. Still it passed some time for those who will be off to attend the Bilderburg conference which is apparently taking place this weekend.

Integrity in the financial system

Many of you might be thinking that this section will be rather short! However it would appear that Christine Lagarde is living in some sort of an alternative universe.

Thankfully, the crisis has prompted a major course correction—with the understanding that the true role of the financial sector is to serve, not to rule, the economy.

No-one seems to have told the UK banks that do they?! Anyway we get some more glad handing and praise.

The good news is that the international community has made progress on the reform agenda.

I wonder if Christine Lagarde was able to say this with a straight face? As back when she was finance minister of France she argued against increases in bank capital for example. There has been a road to Damascus moment as she now argues for higher bank capital.

So my position on Christine Lagarde remains the same which is that putting a woman at the head of the IMF was a positive move only spoilt by the fact that there were plenty of better female candidates for the job.

Mark Carney

As someone praised by Christine Lagarde in her speech it was no surprise to see Mark Carney talk on similar themes yesterday. Although it did remind me of what he told us last October at the 125th anniversary of the Financial Times.

By 2050, UK banks’ assets could exceed nine times GDP,………, if organised properly, a vibrant financial sector brings substantial benefits.

As I pointed out back then Mark Carney was cheerleading for the UK banking sector. Now he is telling a different story.

The big drivers of globalisation and technology are magnifying market distributions. Moreover, returns in a globalised world are amplifying the rewards of the superstar and, though few of them would be inclined to admit it, the lucky.  Now is the time to be famous or fortunate.

Is he describing himself as he is a famous “rock star” central banker?

What role do central banks have here?

This issue is addressed in the following way.

First, our core macroeconomic objectives promote social welfare. Second, we can help to create an environment in which financial market participants are encouraged to think of their roles as part of a broader system.

Fine words except only a paragraph or two along we get what has actually happened in the credit crunch era.

Extraordinary monetary stimulus – both conventional, through low short-term interest rates, and unconventional, through large scale purchases of assets – raised a range of asset prices, benefiting their owners, and lowered yields, benefiting borrowers at the expense of savers.

Here we have the silver bullet for Mark Carney and Christine Lagarde’s Dracula which is that it is deeds by which we should be judged and not words. The policies adopted by central banks and the IMF have substantially contributed to the problems they are now complaining about! Perhaps they hoped that the unwary would not spot this as they shuffle the blame from outside their front doors.

We go onto full-scale hypocrisy alert here.

First, ending Too-Big-To-Fail

In the UK the biggest banks have got bigger and even worse the mergers which created this such as Lloyds with the Bank of Scotland and the Co-operative Bank with the Britannia weakened them. To most people the UK banking system looks as oligopolistic as it did before credit crunch and claimed solution of mergers made banks even bigger. Some new entrants have joined – a welcome development – but an opportunity to really encourage them has been missed. Also we keep getting bad news from our major banks especially from the Royal Bank of Scotland suggesting that the bad news is still being fed out like it is on a notched rope.

The second issue sadly ignores the fact that the Bank of England behaved like the three wise monkeys when reports of market fixing reached it.

Second, creating fair and effective markets

Why should we believe it will behave any differently next time? Also the whole concept is flawed at a time when central banks are interfering in so many markets right now. What would be the price of UK government bonds if the Bank of England announced it was no longer going to hold £375 billion of them? Perhaps the moot point on that issue is to be found in Japan where the Bank of Japan is raising that particular issue daily as it buys more and more Japanese government debt.


This feels like a double pronged attack from the IMF and the Governor of the Bank of England. The sentiments expressed are extremely welcome but the catch is that their actions have pushed events in a different direction. There is in fact a confession to this in Mark Carney’s conclusion to his speech.

Authorities are working feverishly to end too-big-to-fail.

So they are working in 2014 to try to end a problem that could not have been more decisively highlighted in 2007/08. Not exactly keeping up with current events are they? The language is also very emotive “working feverishly” which rather contrasts with the reality of 6 years or so of not very much. After all if there had been any real gains they would have rushed to tell us about them. All we seem to get are more and more highly paid regulators which as a first order consequence increases the inequality these two regulators are complaining about. Back in 1988 it looks as though Leonard Cohen was indeed looking to the future.

Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes




17 thoughts on “Why are Mark Carney and Christine Lagarde suddenly so keen on “inclusive capitalism”?”

  1. Pavlaki says:

    Am I the only one who struggles to understand what Central bankers are saying? Are they deliberately obtuse? I have to read what they say several times to understand what they are on about! As it happens it is often so vague I wish I hadn’t bothered!!

    1. Forbin says:

      ah the beauty of being vague – they all try to emulate Nostradamus. understood by only the Mad……

      sorta sums it up dont it ?


      PS it when they put on what they think is a wise smiling face – and look constipated instead !

    2. Anonymous says:

      Hi Pavlaki

      I think that they have all modeled themeselves on this from former US Federal Reserve Chairman Alan Greenspan.

      “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

      That part of his mystique survived the failures of his policies.

  2. Anonymous says:

    news flash – George W Bush announces he will be a candidate for president of the IMF. Policies are

    deficits don’t matter

    no bank left behind

    source: wind up news inc.

    1. Anonymous says:

      Hi ExpatInBG

      Actually how would we tell?

      1. Anonymous says:

        wait till it’s officially denied

  3. Forbin says:

    Hello Shaun ,


    “First, our core macroeconomic objectives promote social welfare. Second,
    we can help to create an environment in which financial market
    participants are encouraged to think of their roles as part of a broader
    system. ”

    Since when ?

    whoa! got it now social welfare for the BANKS , and your role in a wider broader system ? ah yes BAIL IN ( or indeed further bail outs…. we’re all ininit together folks !

    Adam Ant –
    Stand and deliver !
    your money or your life !

    Time to move your money folks !



    yay! someones cheaper …… enter details and get spammed for life

    1. Forbin says:

      oh and

      “The good news is that the international community has made progress on the reform agenda.”

      thats not meaning the Banks or the IMF is it ?

      the progress is that its taken 6 years to get no where

      masterly inaction indeed !


    2. Noo 2 Economics says:

      Very well put Forbin – seconded

    3. Anonymous says:

      Hi Forbin

      I guess that page is near the top of your favourites list? I note that Butterkist are now cheaper than Tesco’s for toffee popcorn. However you spin it the falling price of corn must mean that toffee is awfully expensive these days.

  4. Noo 2 Economics says:

    Hi Shaun,

    Agree everything but I have to take issue with:

    “Also the trust issue is an awkward one for Christine Lagarde. After all
    she was one of the Euro area finance ministers who proclaimed that the
    bailout of Greece was a “shock and awe” moment when in fact it spiralled
    the Greek economy into an economic depression”

    I should say she and her cronies were successful in creating shock and awe in the Greeks and the rest of the world at the results of their bail out so you have to award them full marks for having achieved exactly what they said they would.

    I, for one completely trust Lagarde to, how did that advert go? Turn a drama into a crisis!

    1. Anonymous says:

      Exactly. Greece was made an example of. “See what happens when you don’t play banker rules!”

  5. Midge says:

    Hi Shaun Inclusive capitalism. Yes the concept is welcome from Mark Carney and Christine however as you have commented their actions have pushed events in a different direction and this is spot on.
    That so few have such a percentage of the wealth in UK and around the world has been exacerbated by the likes of QE.
    But things are unlikely to change.Even George Osborne has stopped saying that we are all in this together.In a world where bank bonus exists with food bank,ever increasing CEO’s wage packages exists with wage freeze or zeo hours no change will happen.Some struggle to to buy a football ticket others buy a football team and pay the players each week what many take years to earn.There will always be differences in wealth but surely this is too great?.

    1. Anonymous says:

      Hi Midge

      As far as I can tell via the electronic world no-one has much idea of what “inclusive capitalism” actually means. This will be regarded as a success I would imagine by Christine Lagarde and Mark Carney.

      Apparently income equality between CEO’s is not what it was either if this link below is correct.


  6. therrawbuzzin says:

    Hi Shaun,
    silver bullets are for werewolves.
    Can one be THAT unintentionally Freudian?

    1. Anonymous says:

      Hi therrawbuzzin

      In that case I would not make a very good vampire killer! I guess I had the subject on my mind from an excellent documentary on the Moon I watched on BBC 4 last night. The presenter had done a check to see if we were still adversely influenced by a full moon and no evidence could be found.

  7. Anonymous says:

    Great column, Shaun, as usual.

    I tried linking to Mme Lagarde’s speech at the inclusive capitalism conference (which Larry Elliott of The Guardian said should be called the exclusive capitalism conference) but got a message saying “You don’t have permission to access [link address] on this server”.

    I wonder if it had something to do with my comment left on one of your blogs that Mme Lagarde’s appointment of Louis-Marc Ducharme as Director, Statistics Department of the IMF made the Emperor Caligula appointing his horse a consul look like a judicious appointment by comparison? From where I sit, the IMF seems to be becoming more exclusive, not more inclusive.
    Andrew Baldwin

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