Don Flynn on the limitations of civic capitalism
The Inequality of Wealth: Why it Matters and How to Fix It by Liam Byrne – published by Head of Zeus
The fight against inequality has become the rallying cry of the centre-left in Britain and the rest of the world in recent times. There are good reasons why this should be the case. The advance towards more equal societies in industrialised countries which marked the decades immediately after the second world war was halted in the 1970s and then thrown into dramatic reverse.
For a long time the ideologues of neoliberal capitalism insisted that this was not something anyone needed to worry about. An absolute increase in inequality was not a problem in itself providing a ladder of opportunity existed which allowed the brightest and most hardworking of the have-nots to rise above the station they were born into. Complacency has allowed the conservative establishments of the wealthy nations to believe this was still the case, even when all the evidence showed this was not so.
Liam Byrne has joined this debate with an intelligent book that reviews much of what has been argued about over growing inequality. He leads readers through the maze of economic analysis which point to its drivers in recent decades. His crucial point is that the growth in asset prices over the period 1970 to today – covering such things as housing and land, stocks and shares, pension funds and trusts, and other things which generate rents for the holder – has far outstripped the value of income derived from earnings. The killer stat shows that, whilst wages have increased income thirty-six- fold over the last fifty years, increases in the price of the homes we live in have multiplied sixty-five-fold over the same period.
Assets generate their own forms of income, called rents, which economists tell us are an excess payment made for a good or service over and above the cost of its production. Asset owners receive rents simply because they own something, rather than having worked to produce or improve it. In Britain today the bulk of rent-bearing assets are held by people who gained control over them in periods when the gap between income and property prices was much smaller. In the main these are the “baby-boomer” generation, born after the war, who benefited from an economy offering full employment, affordable housing and a welfare state providing free health and education to all.
The boomers got a further boost to their wealth in the 1980s when the right-to-buy policies of the Thatcher government, combined with the opportunity to cash in on the sell-off of publicly owned companies and mutual businesses meant further cash transfer to their accounts. The opportunity to transform these prizes into investments in buy-to-let property and well-padded pension schemes has sustained the wealth of this generation into their final years and even leaves a tidy pile to be picked up by their fortunate offspring when they finally shuffle off.
All this means that inequality is now locked in place by the famous equation that Thomas Piketty has exhaustively demonstrated – that the return on capital exceeds the rate of growth of the economy – meaning that the wealth of society is relentlessly transforming into the wealth of those lucky enough to own rent-bearing assets.
Byrne provides a highly readable version of the argument for measures which counter the grab for all the rest of society’s wealth made on the part of those already lucky enough to be property owners. He calls for a “civic capitalism” to replace the system currently in place, with the leading role being given to a “creative state” geared up to producing well-paid jobs in the high tech and creative industries that are on the horizon. A chapter on company reform aims at curbing the short-termism fostered by the mantra of hiked-up shareholder value as the sole legitimate objective of business. He calls for a right to “Universal Basic Capital” as the cornerstone of modernised social security, riffing on the popularity of Universal Basic Income but preferring a lumpsum transfer of wealth between the generations rather than a regular income. And there is interest in the thorny issue of wealth tax in there as well, with a call for a “moral tax code”, which deals with the multiple exemptions of tax liabilities enjoyed by people with over £10 million in assets.
It is ironic that Byrne, the one-time Blairite and now, presumably, Starmerite Labour politician places a lot of hope in the activism of millennial and Gen Z people as the force which will drive the reforms he advocates. We can certainly recommend that they read this book. But asking for confidence to be placed in the instinctively small “c” conservatism of the present-day Labour party to achieve these ends is something that many will shy away from.