Andrew Sayer, Why We Can't Afford the Rich, Policy Press, 2014.
This is the latest in a long stream of books on inequality that have been published since the 2008 crash. This is significant in itself. Before 2008, inequality was a mole hill of an issue. Newspapers largely ignored the growing income gap, mainstream political parties, including Labour, didn't care, while the public were mostly content with debt-fuelled improvements in living standards. Today inequality has seemingly climbed up the political agenda, with political leaders – Presidents, Prime Ministers, even the Pope – declaring war on an ever-growing divide. Even The Economist magazine, the pro-market house journal, has questioned the falling share of the national cake going to labour.
Yet talk counts for little. Despite the condemnation from those with the power to implement change, from President Obama to the head of the IMF Christine Lagarde, the mighty inequality wagon simply carries on rolling, steering more of global and national wealth to fill the already bulging pockets of the few.
Andrew Sayer's Why We Can't Afford the Rich is the latest book on why we should care. For the most part, inequality has been condemned on the grounds of social injustice and fairness, with rewards at the top seen as increasingly disproportionate and undeserving; the product of the concentration of political and market power rather than a greater economic contribution. The author, along with a growing number of others, mostly takes a different route, offering an anti-inequality critique from an economic standpoint, concentrating on the implications of how we divide the cake. Sayer focuses on the vital question of 'functional distribution', an issue that historically dominated economic thought but which was ejected from economic thinking during most of the pro-market era. He shows how growing inequality stems increasingly from unearned income, mostly driven by the deregulation of finance and banking since the 1980s. The roots of today's growing concentration of incomes and wealth lie in the growth of the 'rentier' economy, with runaway personal fortunes less the product of new wealth creation, than of the extraction of existing wealth, 'siphoned off through dividends, capital gains, interest and rent, and much of it hidden in tax havens'. Although he draws heavily on the work of others, Sayer offers new insights, in the process granting today's capitalist class – along with the mainstream political parties –very little merit at all.
Why we can't afford the rich adds to the growing body of work that challenges mainstream economic thinking and traditional self-justifications for inequality. It provides an extended catalogue of the multiple and often complex devices used by those with financial and economic power to grab a bigger share of the cake, manipulating the control of assets like land and money, to 'siphon off wealth that others produce'. Meanwhile those left to manage on a shrinking share of what is left are 'marginalised, disciplined and stigmatised as actual or potential cheats.'
There is nothing especially original in Sayer's critique of today's increasingly dysfunctional model of capitalism. From its foundations, the history of economic thought has recognised the distinction between wealth creation and wealth diversion. Adam Smith, the founder of modern economics, warned in 1776, that because of their love of quick money, 'the prodigals and projectors' could lead the economy astray. In the 1930s it was Keynes who called for the 'euthanasia of the rentier'. A modern-day equivalent, the leading World Bank economist Branko Milanovic has distinguished between 'good' and 'bad' inequality.
Today, this distinction is being more and more widely embraced, not just by heterodox economists, but by the very organisations – including the IMF and the OECD – which promoted, from the 1980s, the deregulated capitalist model and the pro-inequality orthodoxy.
The accumulation of plutocratic fortunes by a tiny elite are in the great majority of cases grotesquely out of proportion to any economic or social contribution being made. Worse, wealth accumulation is also increasingly decoupled from productive activity which can benefit society more widely, and grow the cake, while much of the activity which creates big fortunes has contributed to the crisis-ridden nature of modern capitalism.
While such a critique is now well established, it has yet to be turned into positive action. Sayer provides a brief and undeveloped list of prescriptions for change in a final chapter. He favours either the nationalisation of land and minerals, or the introduction of a land value tax; much tougher controls over lending to ensure that credit is used for productive purposes; greater rights for employees, and, along with Thomas Piketty, much higher global levels of taxation on capital. Few on the left would disagree with such a list, which is common across parallel options for change.
What is now lacking in this critical debate is less a list of necessary measures for transforming capitalism, but a strategy for implementing them. Some political leaders and mainstream economists may be waking up, finally, to the destructive reality of modern-day capitalism, but this awakening has yet to be transformed into an effective programme for change – one that holds intellectual credibility and commands widespread public backing.
Today the best that is on offer in the UK is tinkering: an upward nudge to the minimum wage, a bit more tax at the top, plus the possibility of tougher talk on tax avoidance. Desirable as these are, they would have only a marginal impact on the current distribution and without measures which directly tackle the prevalence of rentier activity, the few would be able to continue to enrich themselves by making others poorer. One catalyst for change, public protest, while stirring on a number of fronts, notably on pay and tax avoidance, has yet to prove sufficiently strong and enduring to force a change in direction.
Yet, as long as national economic cakes are divided so unevenly, economies will continue to slide from crisis to crisis. Economies built around poverty wages and huge corporate and private surpluses are unsustainable. Perhaps the best hope for change lies in the ultimately self-destructive nature of rentier capitalism. Today's dominant business model helped cause the crash of 2008, then helped prolong the recession, and is now sowing the seeds of the next crisis. In that sense, restoring the balance between wages and profits, and narrowing the great income divide, is not just a matter of social justice and proportionality, but increasingly an economic imperative.
Stewart Lansley is the co-author (with Joanna Mack) of Breadline Britain: The Rise of Mass Poverty and author of The Cost of Inequality.