In various incarnations, egalitarianism has been a fundamental concern of economic policy for most of the twentieth century.footnote1 The egalitarian impulse—and its corollary, opposition to the stark inequalities of free market capitalism—was embodied in both Soviet-style socialism and social-democratic Keynesianism as they developed, primarily in the first quarter-century after the end of World War II. Both models achieved major successes in a range of countries, especially through the 1960s. Countries with Soviet-type economies attained high growth rates and the majority of people living in them enjoyed rising living standards, including income, job, health and housing security. The social-democratic/Keynesian approach also succeeded in reducing inequality, increasing security, as well as contributing to the dampening of the capitalist business cycle.footnote2

However, both models also contained several basic contradictions. Among the most evident were the dictatorial political foundations of the Soviet model and its related incapacity to shift from an initial phase of large-scale industrialization to one based on innovations in production processes and product designs. For its part, the Keynesian model has been unable to reverse the trends of declining growth and increased mass unemployment in advanced economies. The Soviet model has completely collapsed under the weight of such contradictions and social-democratic Keynesianism has been in eclipse since the 1970s.footnote3 Neither model now offers a viable basis for a renewed egalitarian project.

Progressive political movements have been weakened by the absence of coherent egalitarian economic programmes. In this absence, progressive movements are unable to specify a broad-based policy agenda they support. Such a lacuna is especially damaging given that support for the Left has again begun to grow, as the full implications of Reaganism, Thatcherism, imf/World Bank structural adjustment programmes and Eastern European free-market shock therapy are no longer matters of speculation.

This paper pursues a new approach to egalitarian economic policy. It is concerned with methods of bringing dramatic increases in the democratic control over financial markets and the allocation of credit, without sacrificing the basic sources of micro efficiency and macro coordination and stability that are necessary for any viable economic strategy. The focus here on financial issues is not meant to suggest that there is less need for comparable policy measures in other economic spheres, in particular the labour market and related institutions. Nevertheless, the premise of this paper is that policies focused on financial institutions and activities must be a central feature of any renewed egalitarian policy project.

There are several reasons why this is so. To begin with, it has been clear for some time that even the most mildly progressive governments face formidable opposition to their programmes from powerful interests within financial markets. Some well-known examples of this recurring phenomenon include the Labour governments in Britain in the 1930s, 1960s and 1970s, the Mitterand government in France in the 1980s, and, most recently, the Clinton Presidency in the us.footnote4 Third World governments regularly confront even stronger pressures, especially since the 1980s, as the imf and World Bank have imposed deflationary structural adjustment programmes on terms established by the international financial community.

But even assuming that such political forces could be neutralized, the tendency of financial markets toward speculation and instability have also weakened the capacity of governments to successfully implement egalitarian macroeconomic policies. The primary instruments for conducting macro policy—deficit spending and central bank monetary interventions—are both financial mechanisms, and thus their ability to operate effectively depends on how well policy initiatives can be transmitted through the financial system. Financial market instability has increased substantially since the early 1970s relative to the first phase of the postwar period, including such period-defining events as the collapse of the Bretton Woods system in the early 1970s, the Latin American debt crisis in the early 1980s, and the merger and takeover wave in the us and uk in the latter part of the 1980s. This rise of financial instability has weakened the transmission mechanism from policy instruments to policy targets.

Given these considerations, it follows that egalitarian movements will have to confront financial market pressures through explicit programmatic measures. Yet, in contrast to the situation with labour-market issues, the Left has for the most part failed to even consider seriously the types of policies that might be effective in addressing both the political and structural problems deriving from financial markets. There are also more positive reasons for egalitarians to pay attention to polices focused on the financial system. Finance is the conduit for all economic activity in market economies. Because nothing happens unless it is financed, exerting control over the financial system is an efficient way to influence the widest possible range of activity with a set of relatively modest and simple policy tools.