Dick
Pountain/Political Quarterly/03/06/2012
The Cost of Inequality: Three Decades of the Super-Rich and the Economy by Stewart Lansley
(Gibson
Square, Oct
2011, 320pp, £17.99)
Conspicuous economic inequality has supplied the impetus behind radical religious and social reform movements at least since Jesus of Nazareth preached of rich men, camels and needles and kicked over the money-lenders' tables. In the English civil war the Diggers and Levellers fought to construct an egalitarian society, while égalité was one prong of the ideological trident which brought down the French monarchy and the Bastille. In more recent times Richard Wilkinson and Kate Pickett (in "The Spirit Level"), and the late Tony Judt have written powerfully on the deleterious effects of inequality on the fabric of society, included increased crime and mental illness. All these critics of inequality share to greater or lesser degrees a moral condemnation of inequality, as sinful, or harmful to the happiness of the individual and society as a whole.
Economists
by and large don't do morality nowadays, but they nevertheless
continue to squabble about the causes of inequality and the degree to
which it is tolerable or even desirable in a capitalist economy. The
present author, Stewart Lansley, is an economist, financial
journalist and award-winning television producer, and though his
sympathies clearly lean in the direction of less inequality, the
central argument of his book is not a moral one: that "Cost"
in the title is meant literally, because out-of-control deregulated
capitalism has destroyed value in an unprecedented way. He
demonstrates very convincingly that excessive and growing inequality
was not only the cause of our current economic crisis - the worst
since the Great Depression - but that it is lethal to capitalism
itself, and if not corrected will lead us into a state of permanent
recession. In the process of laying out this argument he constructs a
powerful defence of the social democratic consensus that prevailed
throughout much of the developed world in the three decades following
WWII (precisely that defence which the Labour Party used to make so
poorly, and since New Labour has abandoned completely). Lansley does
not use the term social democracy himself, but prefers the term
"managed capitalism" and opposes it to "market
capitalism".
Lansley
explains how we arrived at the mess we're in now in a well-paced and
readable narrative, employing no more economic jargon than necessary
and backing it up with a whopping 440 footnotes that point to rich
source materials which represent years of research. Briefly
summarised his story is this. Our problems arise because, over the
last 30-odd years, the share of global output paid out in wages has
been forced down below the level at which the employed population can
afford to consume all of the product, while profits have soared to
create massive surpluses that slosh around the world economy in a
highly destabilising fashion (like water in the hold of a listing
ship). It's a fundamentally Keynesian argument, but considerably more
sophisticated than the current, ineffective, revival of
faux-Keynesianism whereby central governments apply a "stimulus"
by printing money to restore liquidity to banks rather than people.
It's fairly close to the Marxist analysis made by David Harvey,
though Lansley is no Marxist.
To
expand this story a little, the post-war consensus broke down around
1973 after the OPEC oil-crisis, the ending of Bretton Woods
exchange-rate controls, and a wave of labour militancy that pushed
the share of wages too high, engendering high inflation and crippling
investment. Right-wing political parties – notably those under
Thatcher in the UK and Reagan in the USA – were able to exploit the
resulting popular dissatisfaction to enact laws that greatly reduced
trade union power and gave management the upper hand again. At the
same time they set about permanently reducing the power of labour by
policies that favoured the financial and service sectors of the
economy over manufacturing. These measures included removing most of
the controls on credit and banking activities, for example the City
of London's "Big Bang". Over the next decades management
was able to push back the wage share of output too far, to 52-54%
which is below the 58-60% level required to balance consumption with
production. Rather than raise wages they extended cheap credit to
workers to enable them to continue consuming. The result was a series
of booms, from the Dot Com boom to the Property boom, fuelled by this
cheap credit, and massive profits accrued to owners of capital, which
they could multiply many times over by deploying innovative financial
institutions like hedge funds and private equity, and new kinds of
high-risk financial instrument like securitised loan packages and
other derivatives.
I
quite often bless my old maths teacher, who gifted to me the ability
to read graphs without anxiety, and I did so again when reviewing
this book. Lansley makes excellent use of graphs, and figure 2.1 on
page 44 raised the hairs on my back of my neck: captioned "The
UK's Long Wage Squeeze, 1955 to 2008", this is nothing less than
a picture of the British class struggle, distilled down to a
steadily-sinking wiggly line :-
The UK's Long Wage Squeeze, 1955 to 2008
A big question that Lansley's story
raises is, to what extent did the ideologues who initiated this
process (who include Chicago-School economists as well as
conservative politicians) intend this result? Did they sincerely
believe that the spoils of a "dynamised" deregulated
economy would "trickle down" to create universal
prosperity? Were such basically good intentions then perverted by a
locust-swarm of greedy, testosterone-crazed City and Wall Street
traders who used this new liberty to loot the economy, destroy the
industrial base and create a new super rich class? Or were they
always aware that their policies would lead to 1% of the population
owning one third of the world's wealth, a concentration not seen
since the eve of the Great Depression? In short, were they knaves or
fools?
In
favour of the fools thesis, one must regrettably look to the record
of New Labour. Lansley quotes from Gordon Brown's 2007 Mansion House
lecture "I believe it will be said of this age, the first
decades of the 21st century, that out of the greatest restructuring
of the global economy, perhaps even greater than the industrial
revolution, a new world order was created". It was one of those
sentences (like Peter Mandelson's "intense relaxation")
that can sink a career: six weeks later the wheels fell off his new
world order. With the mandate given it in 1997 New Labour could have
made a start on turning around the decline of labour, but chose
instead to embrace the Conservative's credit-fuelled agenda.
PQ
readers' blood may boil the way mine did when reading his chapter 9,
"The Cuckoo in the Nest", which examines the alternative,
knave thesis. He queasily picks through the activities of investment
bankers, hedge funds and private equity both during and after the
crash of 2008. Nothing substantial was done to curb their activities
which continue to this day, concentrating wealth and despoiling
industry, but now using tax-payers' stimulus money. He mentions one
David Tepper of Appaloosa Management who pocketed $4billion for eight
month's work in 2009 - after
the credit crunch and bank bailout - a humourist who seemingly keeps
a sculpture of a pair of testicles on his desk.
The
remedies Lansley proposes in his final chapter "The Scale of the
Task Ahead" are all sound, including fighting tax avoidance;
re-regulating offshore activities, takeovers and bankers' fees; a
Tobin Tax on financial transfers; higher minimum wage and welfare,
but time limited and with stringent job search conditions; protecting
collective bargaining; and a restoration of steeply progressive
taxation to start whittling away those huge fortunes (he mentions
with approval Robert Shiller's ingenious proposal to index the
gradient of the tax curve to the current level of inequality).
However he is not optimistic that sufficient political will can be
found to implement them, since the political classes on both sides of
the Atlantic have been thoroughly suborned by the big money lobbies,
and without such a will he prophecies a state of permanent recession
and mass unemployment. This book is nevertheless required reading for
anyone who seeks to influence Ed Millibank in the direction of an
effective reordering of Labour's priorities.
My
own intuition is that it may not be possible to reverse such decline
within the bounds of democracy as presently constituted. The post-war
social democratic state was not an end to class-struggle but rather a
highly-desirable armistice, and now that one side has broken that
armistice and shows no will to return to it, perhaps the sardonic
Slavoj Žižek will prove to a necessary supplement to the
well-mannered Lansley. Žižek wrote in London Review of Books in
January 2012 ("The Revolt of the Salaried Bourgeoisie")
that "it is a great mistake to think that a reasonably just
society which also perceives itself as just will be free of
resentment: on the contrary, it is in such societies that those who
occupy inferior positions will find an outlet for their hurt pride in
violent outbursts of resentment." It's not inconceivable that
those testicles on Tepper's desk may end up being his own.
