It is important in any capability approach to consider which are the drivers of income inequality and to design policies to enhance human capabilities. One can distinguish between different set of drivers of inequality. The first set of drivers, mainly exogenous, is beyond the control of individual country governments and related to broader globalization dynamics. The second set of drivers, mainly endogenous, is more related to national policies. The policy reforms adopted to promote and support global economic integration failed to safeguard against the potential, and now very real, adverse impacts of globalization on income distribution. Macroeconomic policies often emphasized price stability over growth and job creation. Labour market reforms weakened the bargaining position of labour vis-à-vis employers. Fiscal policies prioritized fiscal consolidation at the expense of progressive taxation and public investments (especially in critical sectors such as education and health). This chapter provides evidence of the above and gives, based on theoretical analysis and on various country case studies, how national policy space can be enhanced, while at the same time arguing for changes in current systems of international governance structures to reduce inequality and improve people’s capabilities.