openDemocracyUK

Back to the future for economic inequality

We are returning to Victorian inequality. Why is it tolerated?

Jonas Fossli Gjersø
14 November 2014
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Flickr/Nicobobinus. Some rights reserved.

Apart from global warming, it is arguably the rise in economic inequality witnessed over the past forty years that constitutes the most significant threat to our democratic social order. Unlike pandemics or acts of terrorism, inequality develops insidiously during which it transforms social institutions and indeed the very way in which we think. It moves us away from fundamental ethical principles enshrined in the golden rule to accept vast greed and inequalities as a universal certainty. Like an intellectual virus it moulds political philosophies so as to make us rationalise its negative social effects post facto as inevitable and even desirable.

The same ideology that made the slave-holder believe his position unquestionable in the early 19th century is what makes the CEO of today think her salary in multiples of hundreds over the average worker as fairly earned. Or why the heirs and heiresses look down upon the striving poor convinced that their ‘birth right’ was inevitable. Indeed it is the same grounds upon which the poorest in society often also votes for the most conservative party in elections. Why - because right-wing thought appeals to the most primitive, yet powerful aspect of the human intellect, our ego. Although recognising that the odds for winning the lottery is infinitesimally slight, millions still play it because they are convinced that just they might win. The ego which persuades us that we are special and will one day ‘make it’ also renders us almost incapable of defining ourselves as victims of an unjust system no matter our socio-economic status.     

As the recently published Credit Suisse report found, the richest 1% of the world’s population now owns 48.2% of all wealth; indeed the poorest half owns less than 1%. But the bank’s findings were hardly ground-breaking; they merely serve to further confirm Thomas Piketty’s findings. The latter’s great academic achievement was to demonstrate the inherent flaw in the capitalist socio-economic model, namely that over time the return on capital is substantially greater than the rate of economic growth. Left to itself without any mechanism of wealth redistribution, this model will over time concentrate capital onto fewer and fewer hands. It was only due to the extreme shocks of the two world wars and the great depression that made the first post-war decades so remarkable in their egalitarian wealth distribution. It was this period of Western history Paul Krugman termed the ‘great compression;’ a period in which a majority middle-class ensured high economic growth rates and the institutional development of a welfare state. Unfortunately, neo-liberal economic orthodoxy has since succeeded in rolling back the progress made in the three decades after WW2 – today we are instead witnessing the return to normalcy, the great divergence has managed to recreate the levels of economic inequality of the 19th and early 20th centuries.

But aside from the negative moral reflections that can be made about the imbalances in wealth distribution, it is a trend that both impedes total economic growth and undermines democratic rights. As Joseph Stiglitz has argued, high levels of economic inequality reduce aggregate demand, encourage rent-seeking rather than innovation and undermines trust. They constitute a holy trinity of rational economic arguments in favour of putting in place redistribution mechanisms so as to ensure greater prosperity for all in society, including the wealthiest one percent.      

Unfortunately the global economy is instead headed down a well-trodden path. The two major routes to financial success in the 18th and 19th century world were not through hard work or innovation, but rather through birth or marriage; you were either an heir or you married one. In a society determined by inheritance and class you will also find a much-reduced rate of intellectual utilisation since fewer people have access to education and capital is allocated on a non-meritocratic principle. Consequently the society’s competitiveness is reduced and its internal democratic debates are stifled. Wealthy individuals can translate their financial muscle into policymaking: either directly by funding political parties and lobbying activities, or indirectly through the funding of political think-tanks and of professorial chairs at academic institutions. All these tactics has been successfully employed in particular the US and Britain since the early 1980s. Over time this strategy has served to frame the political debates in both countries, whilst also co-opting the political, and parts of the intellectual, elite to the cause of the wealthy - namely laissez faire policies.

It is this political import from imperial China that must bear the brunt of the blame for today’s level of economic inequality. As Britain emerged as the world’s industrial powerhouse in the late 18th century, it also adopted the doctrine of free trade as an axiomatic prerequisite for not only economic, but civilizational development. Over the 19th and early 20th centuries the doctrine was employed not only as the pillar of domestic fiscal policy, but it formed the principal objective of foreign policy as well. Such was the unwavering belief in the transformational power of free trade that it was the tool of choice even in Britain’s struggle against the African slave trade. English national identity is still very much tied up with this concept – that of the free market as a one stop shop cure-all, neglecting the fact that the absence of capital leaves you disenfranchised in such a system. However since Britain no longer enjoys many absolute or comparative economic advantages, the continued insistence upon the doctrine in this age of globalisation only serves to undermine the employment rate and earning capacity of its low-and medium skilled workers.

The ‘big bang’ deregulation of the financial markets by Margaret Thatcher in the 1980s and the doctrinaire continuation of this privatisation agenda affecting all sectors of the economy by John Major, New Labour and David Cameron in the decades since have only served to increase economic inequality. Real wages for the majority have remained stagnant since the early 2000s whilst the richest 1% has amassed as much as the bottom 55%. Britain truly is the odd one out in Europe in more ways than through its left-hand side driving or absence of mixing taps. But contrary to what followers of classic liberal economic thought might have theorised, the trickle of economic benefit has not dripped down upon the hapless hoi polloi. It has rather trickled up to further inflate the offshore bank accounts of the rent-seeking hoi oligoi of the City. The rising tide has indeed lifted all the luxury yachts to dizzying heights, whilst in a tsunami-like fashion it has sunk the majority of the light craft moored in the British marina.

The question really is why, in this information age, in which an unprecedented proportion of society has benefited from an education, there is such complacency with regard to the radical rise in economic inequality. To find an answer to this (particularly if you are an historian of 19th century East Africa) one must look to the history of East African slavery. Slaves on the Island of Pemba in the Sultanate of Zanzibar constituted in the 1880-90s approximately 95% of the population, in contrast the slave-owning Omani elite numbered only around 2.5%. Despite their numerical inferiority they managed to control the slave population and avoid revolts. To place the statistics in an international perspective: the slave population in revolutionary Haiti constituted 88% (in 1789) and in the not so revolutionary slave-holding states of the US around 32% (in 1860). Frederick Cooper, the leading scholar of East African plantation slavery, hypothesised that despite the Zanzibar slaves having had every opportunity to successfully rebel they refrained from doing so because they had internalised the ideology of slavery. This was the way of things and who were they to challenge the existing order. Perhaps it is time for us to recognise that the existing state of affairs is not in our common interest and to adopt a socio-economic model that benefits all of society rather than just a very small minority.


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