Nearest to dream team for the 99%: Miliband, supported by Greens, Plaid, NHAP and SNP, with Brand as scrutineer?

99%-3

Economic inequality: inimical to civilised life

The FT recently published an essay by Martin Wolf, their associate editor and chief economics commentator. He said that the extraordinary response to Thomas Piketty’s Capital in the Twenty-First Century revealed that the ground for renewed interest in inequality was already fertile, noting that two experts, the British economist Sir Anthony Atkinson and the French economist François Bourguignon [chief economist at the World Bank] have written books which make important new contributions:

“Those who desire a thought-provoking guide to policy options in advanced countries should grapple with Atkinson’s work”.

Atkinson notes that the US and UK have experienced exceptionally large rises in inequality since 1980 whereas levels of inequality are relatively low in the Nordic countries. He points out that ratios of wealth to national income have risen sharply since the mid-1970s and that a significant part of this increase in wealth belongs to the middle and upper-middle classes, because of the rise in the proportion of the population that owns its own homes, many of which have appreciated greatly in value. Underlying these trends, argue the authors, are complex economic forces:

  • globalisation;
  • technological change;
  • the rise of winners-take-all markets;
  • financial liberalisation

Specifics: a huge increase in rent extraction and a decline in the egalitarian ethos of the ‘50s

There has been a huge rise in the pay of the business executives who control a large part of the economy’s resources, in extraordinary earnings in the financial sector assisted by the pro-free-market turn by politicians across the world since about 1980, and a decline in the egalitarian ethos that held sway in many countries in the mid-20th century.

Atkinson argues that unequal societies do not function well. The need to protect personal security or to incarcerate ever more people is likely to become a drag on economic performance and inimical to civilised life. If inequality becomes extreme, many will be unable to participate fully in their society.

He points out that the economic argument is that putting a pound in the hands of someone living on £10,000 a year must be worth more to them and to the economy than it would be to someone living on £1m.

His programme of radical reform for the UK is precise and costed, according to Wolf. It begins with the argument that rising inequality “is not solely the product of forces outside our control. There are steps that can be taken by governments, acting individually or collectively, by firms, by trade union and consumer organisations, and by us as individuals to reduce the present levels of inequality”. Policy makers should:

  • develop a national pay policy, including a statutory minimum wage set at the “living wage”,
  • offer guaranteed public employment at that rate,
  • introduce a “participation income”  at a national or even EU level, or — as an alternative to such a universal income — social insurance should be made more generous.,
  • offer national savings bonds that guarantee a positive real return, and should create a capital endowment paid to all on reaching adulthood,
  • return to far more progressive personal income taxes, up to a top rate of 65 per cent,
  • make the tax on property should be proportional or progressive, not regressive, as it is now, largely because the main tax on property — the council tax — bears proportionately far more heavily on lower-value housing.

Yet, Wolf comments, history is not on Atkinson’s side. The two world wars and the Great Depression not only devastated private wealth, but also created a powerful sense that “we are all in it together”. Moreover, capital flows were controlled and capitalism was predominantly national.

Wolf: “a situation in which the world’s wealthiest are among the least taxed is indefensible”

Martin Wolf describing Atkinson’s thinking as ‘radical’, takes a palliative line advocating concentrating resources on children, and particularly the children of the relatively disadvantaged. This could in many cases break the multi-generational cycle of deprivation for some families.

He thinks that the sensible, though politically difficult course, is to tax ownership of land and other scarce natural resources more heavily. Furthermore, a tax on lifetime receipts of gifts and bequests, plus wider spreading of educational opportunities, seems to him to be the only way to limit the cascade of unearned advantages across generations.

It is also important to reduce rent extraction, including by corporate management, and to improve co-operation over the taxation of income, particularly income from capital.

Wolf believes Atkinson’s ideas will not be adopted, at least in the UK, even though he recognises that unequal societies do not function well, increasing ‘the need to protect personal security or to incarcerate ever more people, is likely to become a drag on economic performance and inimical to civilised life’.

The writer thinks that some South and Central American countries, Iceland, Scotland, Wales, the Nordic countries and, at present, Greece, have more sense and a desire to promote the common good with the potential to recreate a powerful sense that “we are all in it together”, with capital flows controlled – voluntarily or politically – and a co-operative capitalism, focussing primarily on meeting the needs of all rather than foreign trade and speculation.

Could Miliband, supported by Greens, Plaid, NHAP and SNP, with Brand as scrutineer move firmly in this direction?

Inequality: What Can be Done?, by Anthony Atkinson, Harvard University Press, RRP£19.95/$29.95, 304 pages

The Globalization of Inequality, by François Bourguignon, translated by Thomas Scott-Railton, Princeton University Press, RRP£19.95/$27.95, 200 pages

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Posted on May 5, 2015, in Government, Inequality and tagged , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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