14.03.2024
Rules of the game
Liam Byrne reckons that the social mission of Labour is for ‘equality’ and ‘fairness’ and yet the fundamental causes of inequality lie in the system of capital itself, writes Michael Roberts
On February 28 I attended the book launch1 at the London School of Economics of The inequality of wealth2, by Liam Byrne - a Blairite Labour MP. Byrne was a stalwart of the Blair and Brown Labour governments in the UK and was most famously known for his quip when handing over his role in the UK government’s finance ministry to the winning Conservatives in 2010 with a note saying, “I’m afraid there is no money” (ho, ho). An ex-tech entrepreneur, Byrne now heads up the UK parliament’s Business Select Committee and will probably be in the cabinet if Labour wins office at the end of this year.
Byrne reckons that the social mission of the Labour Party is for ‘equality’ and ‘fairness’ - not for any radical transformation of the economic structure of the capitalist economy (ie, socialism). In this sense, he represents the ‘moderate’ wing of the party - or you might say the current dominant, pro-capitalist wing.
In his professed mission for equality, he tells us in his book about the shocking levels of inequality of wealth (and income) that exist in modern Britain. Byrne presents us with lots of factoids - some of which are confusing and incorrect - but, no matter, something must be done, because “the inequality of wealth is toxifying our politics and our society. It’s destroying our economy, and it’s about to get 10 times worse”. The feeling is, he notes, like the very last days of Rome:
The average wealth of a Roman aristocrat was about one and a half million times that of the average income of the Roman citizen. But in the last Sunday Times rich list, the wealth of the [Indian-born, London-based billionaires] Hinduja brothers was about 1.2 million times the average earnings in our country.
He is concerned about tax avoidance schemes for the rich: “It’s wrong that someone who [thanks to capital gains on investments as well as his salary] makes £2 million a year, like Rishi Sunak (current UK premier), is paying half the rate of tax of a senior teacher” - although he holds out little hope that a Labour government will do anything about this if it takes office at the end of this year.
Inequality is going to get worse, he reckons. The ‘baby boomers’ are about to die and five and a half trillion pounds of wealth is going to get transferred down the generations:
Some people are going to inherit millions and others are going to inherit care bills. Generation Z is about to become the most unequal generation for half a century, and we would be naive to think it isn’t going to have political consequences. Wealth inequality is at the heart of the new populism.
Middle way
And populism is very worrying to Byrne, as it threatens democracy. Growing inequality threatens to cause a break-up of the existing democratic order.
At the LSE launch, Byrne said he aimed to find a ‘middle way’ to rectify things between the view that nothing can be done and the view that some revolutionary transformation of the economic structure was needed, which the electorate would not accept.
What were his policies for his ‘middle way’ to greater equality? What we want, Byrne said, was a “wealth-owning democracy” - a phrase recalling Thatcher’s ‘property-owning democracy’, which actually kick-started the sharp rise in UK inequality in the 1980s. The phrase also echoes the position of the current Labour leader, Keir Starmer, who pledges to make Labour “the party of home ownership”.
In the UK, 65% are home-owners, with some 38% having mortgages. It seems we already have a property-owning democracy, which has not led to a reduction in extreme inequality. Nevertheless, apparently the answer to reducing inequality of wealth is for everybody to get a home that they can call their own. As the Conservative ‘intellectual’, David Willetts, puts it,
There is a myth that somehow young people are not aspirational. If you look at people’s aspirations, they want to own their own home, to have a decent job with a decent wage, and be able to afford to raise their kids - young people are not young Marxists.
Byrne’s aim is that everybody should get on the ladder to owning their own home (presumably with a mortgage) and also have some savings to invest for their retirement. To do this, a government should give every young person £10,000 to kick their careers off; it should establish a sovereign wealth fund to build up funds (what for, Byrne did not explain); and there should be fairer taxation: eg, income from capital gains should be taxed at the same rate as income from work. He even flirts with the idea of a wealth tax on the very rich that could bring in billions for the economy and for redistribution. But that was basically it. Moreover, all these ‘radical’ measures to reduce inequality of wealth would have to be slowly introduced over “three parliaments” (I make that 15 years!), so that the electorate gradually got used to the policies!
The packed LSE audience, along with Byrne’s fellow speakers (a professor of sociology and somebody from the anti-poverty research institute, the Rowntree Trust), had no criticisms to make of the Byrne programme. So let me make just a few.
What Byrne never talked about was why there was such inequality of wealth and income in the UK and in all the other countries of the world? Why are the rich rich and why are the poor poor? Surely, there is something endemic to the capitalist economy that explains this permanent inequality. In several posts and papers,3 I have discussed the underlying causes of inequality, but Byrne does not do so: it is just there and shocking, and we need to do something about it before it explodes into revolts!
Pre-distribution
But here is the policy problem. If inequality is endemic to capitalism, then what is needed are policies prior to redistribution. It is not a question of trying to redistribute excessive wealth from the rich to the rest of us through taxes and/or closing up evasion loopholes and tax havens, etc. That might help a bit, but the underlying generation of the forces of inequality would remain untouched.
Pre-distribution policies are needed. Byrne advocated only one - better jobs with better pay for those at the bottom of the ladder. How that was to be achieved, given the state of the UK economy (and other capitalist economies), was not explained. He also seemed to suggest raising the social security minimum level to take people out of poverty - again how that was to be implemented was not explained.
Byrne noted the disparity of wealth between London and the regions. The latest Institute for Public Policy Research ‘State of the north’ report found that:
While England’s average wealth per person grew from around £226,300 in 2010 to £290,800 by 2020, regional inequalities in wealth have widened. For instance, the gap per head between the average wealth per person in England overall and the north stood at £71,000 in 2020, almost double the gap in 2010, at around £37,300 (ONS 2022a in 2023 prices).
The gap between levels of wealth in the north and Midlands, and the rest of England, is growing. Overall in England, the wealthiest 10% hold almost half of all wealth. Nearly half of wealth is found in the south, where 40% of the population reside, against a fifth of wealth being found in the north, where around 30% cent of the population live, with the remainder in London and the Midlands.4
It is clear why. The rich live in London and the south mostly, the most important means of production and finance are based in London, and the jobs that pay the best are in London. What is Byrne’s answer to this? Give the regional mayors more money to spend, taking central government funds away from London. This would solve little - especially given that some of the poorest boroughs in England are in London!
The point is that post-distribution policies will do little to change the underlying inequality of income and wealth. That would require a radical shift in the ownership and control of that wealth: ie, public ownership of the banks and large companies, and public investment directed towards social need, not profit. But such policies are anathema to those like Byrne seeking the ‘middle way’.
That also applies to policies like a wealth tax or a minimum tax on corporate profits - policies strongly advocated by leading inequality economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman, based at the Inequality Lab in Paris. Zucman and his colleagues have provided invaluable data on the scale of inequality between countries and within countries. Zucman is a leading campaigner for reducing inequality globally.
Last week, he was invited by the G20 finance ministers meeting hosted by Brazil to present the case for a coordinated minimum tax on the super-rich. Zucman addressed the ministers and reckoned:
… there was strong support for the idea that we need new forms of cooperation to tax the super rich, increase tax progressivity, and fight inequality. This in itself is a historic development - for too long these issues have been ignored.5
Zucman was commissioned by the G20 ministers to come up with detailed policy measures to tax the super-rich. But what are the chances of this ever being implemented through global cooperation? As Zucman said, “… it may take years to get there for the super-rich. But it’s in our collective interest to act fast, because what’s at stake is not only the future of global inequality - it’s the future of globalisation and the future of democracy.”6
I am not attacking the genuine efforts of Zucman and others to find ways of reducing inequality. And the recent attack on their analysis of rising inequality of income in the US by some US government economists has been proven bogus.7 But will such redistribution ever be adequate, even if implemented? And won’t such policies be watered down to accommodate vested interests (the rich) to the point that they do little to reduce inequality?8
Worsening
Over the last 80 years, inequality of income and wealth in the major economies has only got worse. The World Inequality Report (WIR) shows that the world has become more unequal in wealth in the last 40 years.9 In 2021, “after three decades of trade and financial globalisation, global inequalities remain extremely pronounced … about as great today as they were at the peak of western imperialism in the early 20th century.”
The global concentration of personal wealth is extreme. According to the WIR, the richest 10% of adults in the world own around 60-80% of wealth, while the poorest half have less than 5%. According to the UBS Global wealth report,10 1% of all adults in the world own 44.5% of all personal wealth, while more than 52% have only 1.2%. The 1% are 59 million, while the 52% are 2.9 billion.
If you own a property to live in and, after taking out any mortgage debt, you still have over $100,000 in net assets, you are among the wealthiest 10% of all adults in the world. That is because most adults in the world have no wealth to speak of at all. And, apart from the phenomenal rise of China, personal wealth and power remains in the rich bloc of North America, Europe and Japan, with add-ons from Australia. Just as this bloc rules over trade, gross domestic product, finance and technology, it has nearly all the personal wealth.
In the 21st century, inequality of wealth has risen significantly. Indeed, the wealth of the 50 richest people on earth increased by 9% a year between 1995 and 2021, with the wealth of the richest 500 rising by 7% a year. Average wealth grew by less than half that rate, at 3.2% over the same period. Since 1995 the top 1% took 38% of all additional global wealth in the last 25 years, whereas the bottom 50% captured just 2% of it. The rise of the so-called ‘middle class income group’ is mostly due to China’s reduction of poverty levels. The top 0.01% of adults increased their share of personal wealth from 7.5% in 1995 to 11% now. And the billionaire population increased its share from 1% to 3.5%.
Tony Atkinson was the founding father of modern research into inequality11 - somebody who clearly should have got a Nobel (Riksbank) prize in economics before he died. In an address, ‘Where is inequality headed?’,12 Atkinson pointed out that the biggest rises in inequality took place before globalisation and the automation revolution got underway in the 1990s.
He pinned down the causes of inequality to two. The first was the sharp fall in direct income tax for the top earners under neoliberal government policies from the 1980s onwards. But the second was the sharp rise in capital income (ie, income generated from the ownership of capital rather than from the sale of labour-power). The rising profit share in capitalist-sector production that most Organisation for Economic Cooperation and Development economies generated since the 1980s was translated into higher dividends, interest and rent for the top 1%-5%, who generally own the means of production.
Piketty, Saez and Zucman in their latest paper on US inequality of income find:
… the stagnation of incomes for households in the bottom 50% is particularly noteworthy, given the growth for those in the top one percent. In 1980, the bottom half received about 20% of national income; by 2014, their share had declined to 12%. For the top one percent, the picture is exactly the reverse: in 1980, they received 12% of national income; in 2014, they received 20%.13
And they conclude: “Given the massive changes in the pre-tax distribution of national income since 1980, there are clear limits to what redistributive policies can achieve.”
Capitalist mode
Indeed. Marx considered that any distribution of the means of income and wealth was only a consequence of the ownership of production. The capitalist mode of production rests on the fact that the material conditions of production are in the hands of non-workers, in the form of property in capital and land, while the masses are only owners of their personal conditions of production - of labour-power. Capitalists accumulate profits as capital.
As Ian Wright has put it,
Firms follow a power-law distribution in size. And capital concentrates in the same way. A large number of small capitals exploit a small group of workers, and a small number of big capitals exploit a large group of workers. Profits are roughly proportional to the number of workers employed. So capitalist income also follows a power law.14 The more workers you exploit, the more profit you make. The more profit you make, the more workers you can exploit.15
This is the reason for rising inequality: when there are no checks on capital accumulation.
Wright sums it up in this way:
The fundamental social architecture of capitalism is the main cause of economic inequality. We can’t have capitalism without inequality: it’s an inescapable and necessary consequence of the economic rules of the game.
Michael Roberts blogs at thenextrecession.wordpress.com
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. See www.lse.ac.uk/Events/2024/02/202402281830/inequality.↩︎
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. L Byrne The inequality of wealth: why it matters and how to fix it New York 2024.↩︎
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. See, for example, thenextrecession.wordpress.com/2017/02/19/inequality-after-150-years-of-capital.↩︎
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. ippr-org.files.svdcdn.com/production/Downloads/State_of-the_north_2024_Mar24_2024-02-22-154025_rrfw.pdf.↩︎
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. See www.brookings.edu/articles/measuring-income-inequality-a-primer-on-the-debate.↩︎
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. www.weforum.org/agenda/2023/10/loopholes-weaken-minimum-global-corporate-15-percent-tax-eu.↩︎
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. See thenextrecession.files.wordpress.com/2023/08/global-wealth-report-2023.pdf.↩︎
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. thenextrecession.wordpress.com/2013/07/14/the-story-of-inequality.↩︎
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. ethicsinsociety.stanford.edu/news/tony-atkinson-where-inequality-headed.↩︎
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. See Wikipedia’s definition here: en.wikipedia.org/wiki/Power_law.↩︎
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. See thenextrecession.wordpress.com/2018/04/11/inequality-and-exploitation.↩︎