Unequal stakes – what is to be done?

The story of the growth of inequality of income, wealth and capital over the past forty years or so is becoming reasonably familiar. And yet, beyond hopeless utopian ideas such as a global wealth tax or micro measures such as incremental increases to minimum wages, there has yet to be a totally convincing account of what can and should be done about it.

It is now taken as read that inequality matters in a way that was highly disputed just a few years ago. There are three dimensions to this: ethical, instrumental, and political. The ethical dimension aligns with the broad notion of the ‘Power to Create’. Without requisite power and resources, it is far more difficult to create a better life either in isolation or with those who surround you (family, neighbourhood etc). This hampers our ability to turn our ideas into reality.

Barriers to forging a better life are an ethical concern but they are also an instrumental concern. We know that inequality incurs an economic cost as it hampers demand and creates financial instability as those on low incomes need to borrow their way to short-term security. There are wider issues such as lower educational performance and poorer health also. And finally, we know that those who are less well-off are also less likely to participate in civic life and political decisions either through voting, activism or financial contributions. This skews political decision-making towards those who participate who are wealthier and more powerful than the population average.

So inequality of opportunity and of outcome are both significant concerns – and not only for the left. The right has traditionally been blasé about these questions but the message is starting to percolate. At least on inequality of opportunity it is. That’s a start at least.

Given the enormity of the challenge the relative quiet when it comes to real-world solutions has been disappointing. We have bucket loads of data. We have an increasing understanding of the social, political, institutional and technological forces at play whilst there are ongoing disputes about the relative importance of these different factors. Ideas for a response have tended to group into the frankly unobtainable (global wealth tax), the isolated (narrowing education gaps and expanded access to higher learning), and the nostalgic (returning to the institutional structures of the 1950s, e.g. increasing trade union power).  

Anthony Atkinson’s new work Inequality enters the debate at this point. He summarises the concepts, debates, philosophy, and data around inequality of wealth, capital and income in a smart fashion. Of particular importance is his distinction between capital and wealth (I might be misremembering Piketty but I don’t remember that distinction being made particularly clearly). Capital carries with it power over the means of production, wealth does not (though possession of a certain degree of wealth is important nonetheless). Atkinson fully engages with the sociological aspects of inequality. He quotes fellow economist Robert Solow on sociological form:

“In real life we worry about the relations between managers and shareowners, between banks and their borrowers, between workers and employers, between venture capitalists and entrepreneurs…[the economic] models exclude all this landscape.”

So inequality arises from different starting points, different resources in an economic sense (for example, routine versus non-routine workers), but also power relations. This is why Atkinson seems to have a particular affinity with John Kenneth Galbraith and James Meade. From the former he takes the needed for countervailing powers within the economy such as stronger trade unions and from the latter the notion of a need for dispersal of ownership of capital through a sovereign wealth fund (what Meade would have termed a Citizens’ Trust).

Thomas Paine also makes an appearance. Paine lost the contemporary debate to Burke but has won pretty much everything since. Meade might well be an echo of this as his theories of technology-driven inequality seem to have gained force over recent decades. Atkinson advocates a £10,000 endowment for every young person entering the age of majority to put to some useful purpose. It would be financed by a reformed inheritance tax which would be taxed just as income is for the beneficiary. He also advocates a form of basic income – the ‘participation income’ which would exclude those who choose a life of leisure. We will be publishing a paper on a basic-type income after the election which takes a slightly different approach but is nonetheless in the same category.

So this is a formidable book. Some of the ideas do feel outdated. Corporatist structures such as ‘Economic and Social Councils’ connect with an economic structure and trade union movement that no longer really exist after 40 years of institutional and sectoral change. New forms of networked union power are emerging – in the US at least- that move beyond the old hierarchies. Political barriers to 65% tax rates and the like will be obvious.

There is also much more to be said on spreading capital ownership. Further thought about how to enable people to build up capital ownership through their employment could be added – of all kinds. Atkinson is precisely right that the power relationship between workers and capital owners is critical – more can be done to disperse this power. For example, some thought could be given to how some ownership can transfer as of right the longer someone is employed with a firm or how ownership can be pooled in trust for all employees in a firm (at least in large firms).

In many ways though, Inequality is more impressive than Piketty’s Capital. It is often clearer and more practical (though, as indicated above, it certainly has its utopian and nostalgic moments). The question is power as well as economics. Losing sight of that has been costly for western societies. There is a need now to move from diagnosis to prognosis and treatment. We are at a critical juncture. We need the best roadmaps at our disposal. This is one.