Reversing inequality: from capital to citizens

[Celerity]

Reviving the postwar spirit of egalitarianism is an economic and social imperative.

https://socialeurope.eu/reversing-inequality-from-capital-to-citizens


Child poverty increased in two-thirds of OECD countries after the crash—a homeless child in Tirana in 2010

For the last 40 years, a rising tide of inequality has swept across much of the globe, reversing the achievement of peak equality in many nations in the early postwar decades. Today most rich countries are significantly more unequal than half a century ago. The trigger for this shift from the dominant postwar philosophy of egalitarianism was an assumption of power by a coterie of small-state, ‘free market’, anti-equality thinkers. For these neoliberal evangelists, equality had gone too far, while faster economic progress, it was said, depended on bigger rewards at the top and accumulation of much larger private fortunes. Although these pro-capital doctrines were applied most forcefully in Anglo-Saxon countries, neoliberalism infected policy-making across much of the globe.

Extractive practices

Seizing the new political licence to get rich, a small group of empowered financial elites engineered a range of extractive business practices to secure an excessive slice of the economic cake. They adopted methods which have reverberated across economies and societies, affecting wages, livelihoods and the resilience of communities. Through a state-assisted process of levelling up at the top and levelling down at the bottom, today’s top 1 per cent have taken 38 per cent of all additional wealth accumulated since the mid-1990s, leaving the bottom half with just 2 per cent of the fruits of growth. Examples of extraction include the rigging of financial markets, the manipulation of corporate balance sheets and the skimming of returns from financial transactions, often enabled through the suppression of competition. This has been anything but a pro-market revolution.

The American magnate Warren Buffett has said: ‘I don’t want a business that’s easy for competitors. I want a business with a moat around it.’ Multi-billion fortunes derived from technology companies are the product of monopolisation through the ruthless destruction of rivals: Google has bought more than 200 companies. And the post-millennium boom in private-equity takeovers of publicly owned companies has brought outsized returns, at the expense of staff and the long-term viability of companies. This remarkable process of extreme wealth concentration has been assisted by the deliberate erosion of a range of anti-inequality policies. Governments have launched privatisation, deregulation and monetary-policy tools which have further boosted the power of capital, while the social-protection systems built after the war have been widely downgraded. Most states have reduced top tax rates, while turning a blind eye to global tax avoidance—corporate and individual. As the Organisation for Economic Co-operation and Development has warned, ‘the reduced redistributive capacity of tax-benefit systems’ has been a key source of widening income gaps.

Social erosion

The rise of extraction and weakened state intervention have driven a high-inequality, high-poverty cycle, which shows no sign of abating. Far from the promised prosperity, higher income, wealth and opportunity gaps have helped weaken economies while leaving a trail of social erosion. In the wake of the 2008 financial crash, child-poverty rates rose in two-thirds of OECD countries, while charitable food aid has become commonplace across Europe. Such gaps are also associated with divided democracies. In the United Kingdom, there was a 23 percentage-point gap in the 2010 general election between the turnout of the richest and poorest income groups. It was broadly level in the early 1980s. While they espoused market competition, the pioneers of economics had warned of the impact of a rush to enrichment. In 1896 the influential Italian economist Vilfredo Pareto highlighted the distinction between ‘productive activity’ and the ‘appropriation of goods produced by others’.

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