Inequality DOES Matter
A return to the politics of envy could serve us well
As inequality grows, the country becomes nastier. We should be seriously unrelaxed about the existence of the filthy rich
Friday December 29, 2006
I hope the employees of Goldman Sachs and other City firms who netted a reported Â£9bn in end-of-year bonuses – with many receiving several million pounds each – had a very merry Christmas. I am not, heaven forfend, envious of them. The politics of envy is so 1970s and besides, I cannot imagine anything more dispiriting than spending all my waking hours shuffling money from one hedge fund to another.Unfortunately, though, it is no longer possible to follow Peter Mandelson’s manifesto for New Labour: to be “relaxed about people getting filthy rich”. Mandelson’s argument was that high earnings at the top of the tree don’t hurt those at the bottom. We can now see how economically illiterate he was. For one thing, as the TUC general secretary, Brendan Barber, pointed out yesterday in his new year message, that Â£9bn of bonuses would be enough to give every worker in Britain an extra Â£350. As Barber also points out, the colossal purchasing power of the super-rich has sent house prices, particularly in the south-east, to levels far beyond the average wage earner. That’s fine for people who already own houses and find themselves sitting on rapidly appreciating assets. It’s not so good for those under 35 who, failing the early death of an affluent relative, face a lifetime of renting property.
In that sense, high pay rises among the top 1% are as inflationary as wage rises among the mass of the population. It’s just that this inflation affects assets rather than goods and services. For years our rulers have insisted that one worker’s wage rise is another’s job loss. It is equally true that one person’s fat-cat bonus is another’s loss of home ownership prospects. It may be a job loss, too, since the Bank of England’s concerns about an overheating housing market may cause it to raise interest rates.There is more, much more. In some areas of London, such as Belgravia, shops selling things that ordinary people can afford have almost disappeared in favour of the high-value retailing of interior design, fashion, jewellery, beauty and so on. The very rich can hog the best surgeons, denying their services to others. They can monopolise the best restaurants, forcing prices even higher. More important, they can hire the best accountants to minimise or wipe out their tax liabilities. If an increasing proportion of national income and wealth is taken by a tax-avoiding elite, the tax base ultimately shrinks. Increasingly, we must look to the philanthropic efforts of the rich to relieve poverty and to create social assets such as schools and arts centres. That sounds fine in principle, and Victorian philanthropy, free from the stultifying effects of public bureaucracy, is often held up as a model. But the result is a step backwards for democracy, with the super-rich deciding our social priorities. In education, for example, they tend to channel resources to the more elitist institutions, such as Oxford and Cambridge. Worse, as we have seen with New Labour and as has long been evident in America, the wealthy tend to buy up political parties. Politicians become accountable not to a mass electorate but to a rich minority.
Most seriously, there is overwhelming evidence that as inequality grows a country becomes nastier. In The Impact of Inequality, Richard Wilkinson, professor of social epidemiology at Nottingham University, shows rates of violent crime and racism tend to be higher where the gap between rich and poor is greater. So firmly established is the link between homicide rates and inequality, according to Wilkinson, that many criminologists regard it as more important than any other environmental factor.
One man’s bonus from Goldman Sachs, then, is almost literally another person’s killer, particularly given the evidence, also set out by Wilkinson, that in some countries inequality reduces the life expectancy of the poorest by as much as 25%. We are talking about the effects not of absolute poverty but of inequality – which apparently leads to acute anxieties and insecurities, and a chronic lack of social trust. New Labour’s argument that, if we can drag the poor off the bottom, it doesn’t matter if a rich minority jets off into the financial stratosphere is thus wrong in almost every respect.
What can be done is another matter. Financial services, Britain’s major industry, are by their nature inegalitarian because new technology allows a few to control enormous resources across the globe. The economy is stimulated by constant injections of money from the global mega-rich; perhaps a million jobs depend directly on London’s status as a financial centre and haven for billionaires. Like crack cocaine, this drug is highly addictive. It destroys normal economic activity. Attempts to wean us off it, through higher taxes on the rich or more controls, would lead to acute national withdrawal symptoms. But it would be a good start if New Labour at least recognised the problem. Let us all make a new year resolution to be seriously unrelaxed about the filthy rich and to recognise that bringing back the politics of envy may not be such a bad idea after all.
Â· Peter Wilby is a former editor of the New Statesman