Reforming capital markets to build broad-based prosperity and reduce economic inequality

In this paper, Predistribution Initiative (PDI) demonstrates that economic inequality should be understood as a macro-financial risk to markets and diversified portfolios, comparable to how climate change and biodiversity loss are now treated. It explains how inequality manifests across companies, capital value chains, firms, and regions; and it traces structural drivers—including financialization, deregulation, monetary policy, market concentration, and shareholder-primfacy governance—that have concentrated wealth and shifted risk onto workers and communities while returns accrue to capital holders. The report details two major pathways through which inequality becomes systemic risk: societal instability (rising populism, distrust in institutions, social unrest) and financial instability (asset bubbles, monopolistic market concentration, household debt dynamics, and vulnerabilities in emerging markets). It draws on data showing extreme wealth concentration globally and in the U.S. PDI advocates for predistributive solutions that involve reforming how capital is allocated and structured upfront, such as living wages, employee ownership, and multistakeholder governance.

In his latest post, PDI Project Lead on Broadening Corporate Governance Participation, Tom Powdrill zeroes in on a timely report from Mainstream — a pro-Burnham Labour faction — titled The Productive State: A Framework for Manchesterism. The report makes a supply-side case for public corporations in energy, water, housing, and transport, but what makes it especially relevant to PDI's work is the governance model it proposes: arm's-length operational independence, workers on boards as a foundational design feature, and democratic accountability running outward to workers and communities rather than upward to ministers. As Tom puts it, corporate governance reform is not merely an accountability mechanism, it is a building block of predistribution.

This discussion paper, the first in PDI's Predistribution AI Lab series, analyzes four scenarios, modeling the cascading effects of income erosion and unemployment on consumption, tax revenue, mortgage markets, corporate debt, equity values, pension systems, and insurance assets. Scenarios are designed to illuminate key transmission channels of potential macro-financial risk through the real economy, markets, and to diversified investment portfolios. Three scenarios are based on higher unemployment numbers as predicted by Anthropic CEO, Dario Amodei, while the “lighter” scenario is built on the historical precedent of declining returns to labor and a “fissured workplace” even as employment has grown with technology. We do not take a view on whether AI will lead to higher unemployment. Rather, we center our attention on the risks of historical and ongoing declining returns to labor that are shared across stakeholders in society, including financial risks to diversified investors’ portfolios. We argue that the advent of AI is an inflection point at which the world is either poised to deepen the current trends toward risk, or at which we can sculpt and refine economic structures to avoid such risks. This first paper primarily focuses on macro-financial analysis. However, safety, blind spots, and cognitive bias risks are also considered, particularly in Part II of the discussion paper series.