In The Inequality of Wealth: Why it Matters and How to Fix it, Liam Byrne examines the UK’s deep-seated inequality which has channelled wealth away from ordinary people (disproportionately youth and minority groups) and into the hands of the super-rich. While the solutions Byrne presents – from boosting wages to implementing an annual wealth tax – are not new, the book synthesises them into a coherent strategy for tackling this critical problem, writes Vamika Goel.

Liam Byrne launched the book at an LSE event in February 2024: watch it back on YouTube.

The Inequality of Wealth: Why it Matters and How to Fix it. Liam Byrne. Bloomsbury. 2024.

Wealth inequality, a pressing issue of our times, reinforces all other forms of inequality, from social and political to ecological inequality. In The Inequality of Wealth, Liam Byrne recognises this fact and emphasises the need to move away from a narrow focus on addressing income inequality. He reaffirms the need to deal with wealth inequality and address the issue of inequality holistically.

The book adopts a multi-pronged approach to addressing wealth inequality in the UK. It is divided into three parts. The first part discusses the extent of wealth inequality and how it affects democracy and damages meritocracy. The second part discusses the emergence of neoliberalism which has promoted unequal distribution of resources, while the third part proposes corrective measures to reverse wealth inequality.

According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth.

The first chapter reflects on the exorbitant surge in wealth globally during the past decade, primarily enjoyed by the world’s super-rich. According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth. In the UK, wealth disparity has risen, with the top 10 per cent holding about half of the wealth while the bottom 50 per cent held only 5 per cent in Great Britain in 2018-20, as per the Wealth and Assets Survey. Byrne claims that this inequality has only been exacerbated in recent years. Despite adverse negative shocks like the COVID-19 pandemic, austerity, and Brexit, about £87 billion has been added to UK billionaire’s wealth during 2021 and 2023.

The book highlights that youth have borne the brunt of this widening wealth disparity. According to data from Office of National Statistics (ONS), those aged between twenty and forty, hold only eight per cent of Britain’s total wealth. In contrast, people aged between fifty-five and seventy-five owned over half of Britain’s total wealth in 2018-20. Their prospects of wealth accumulation have further declined with a squeeze in wages and booming asset prices as a result of quantitative easing. Byrne contends that this has made Britain an “inheritocracy” wherein a person’s parental wealth, social connections and the ability to access good education are more important determinants of wealth than hard work and talent.

Those aged between twenty and forty, hold only eight per cent of Britain’s total wealth.

The second part of the book explores the spread of the idea of neoliberalism since the 1980s, that helped sustain and flourish wealth inequality. Neoliberalism promoted the idea of market supremacism and reduced the role of the state. The later chapters in this section engage in depth with rent-seeking behaviour by corporates and the increase in market concentration via mergers and acquisitions.

The third part of the book proposes corrective measures needed to reverse wealth inequality. The book contends that the starting point of arresting wealth disparity is to boost labour incomes by creating well-paying, knowledge-intensive jobs. Byrne does not elucidate as to what he means by these knowledge-intensive jobs. Usually, knowledge-intensive jobs are those in financial services, high-tech manufacturing, health, telecommunications, and education. Byrne argues that earnings in knowledge-intensive jobs are about 30 per cent higher than average pay. However, these jobs accounted for only about a fifth of all jobs and a quarter of economic output in 2021. Hence, promoting such jobs will significantly raise workers’ earnings.

The author maintains that knowledge-intensive jobs can be generated by giving impetus to state-backed research and development (R&D) spending and innovation. He draws attention to low growth in R&D spending in UK at per cent between 2000 and 2020, when global R&D spending has more than tripled to £1.9 trillion. However, there are some fundamental concerns regarding the effectiveness of such reforms in curbing inequality and ensuring social mobility.

People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts.

First, knowledge-intensive jobs are highly capital-intensive and high R&D spending may not generate enough jobs or may make some existing jobs redundant. The author has not substantiated his claim with any empirical evidence. Second, it’s possible that innovation spending and jobs perpetuate the existing social and regional inequalities. In the UK, about half of all knowledge-intensive jobs are generated in just two regions: London and the South East. To address regional disparities, Byrne suggests setting up regional banks, training skills and integration at the regional level, and promoting Research and Development (R&D) in small and medium enterprises (SMEs) via tax credits and innovation vouchers. However, no mechanism is laid out with which to tackle social inequality. People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts. It seems likely that new knowledge-intensive jobs would disproportionately benefit people of white ethnicity from wealthy backgrounds with connections and access to good education.

Another measure specified to boost labour incomes is to shift towards a system that adequately rewards workers for their services, that is, a system of “civic capitalism”, as coined by Colin Hay. Byrne alleges that one step to ensure this is to create an in-built mechanism that ensures workers’ savings are channelled into companies that adopt sustainable and labour-friendly practices. One of the ways to achieve this is to require the National Employment Savings Trust (NEST) sets up guidelines and benchmarks for social and environmental goals for the companies in which it invests. In this way, Byrne has adopted an indirect approach to workers’ welfare, as opposed to a direct approach through promoting trade unionisation among workers, which in the UK has fallen from 32.4 per cent in 1995 to 22.3 per cent in 2022 . This would enhance workers’ bargaining power to increase their wages and secure better benefits and security.

Apart from boosting workers’ wages, Byrne underscores the need to create wealth for all, ie, a wealth-owning democracy. Inspired by Michael Sherraden’s idea of “asset-based welfare” and Individual Development Accounts, Byrne proposes to create a Universal Savings Account that enables every individual to accumulate both pension and human capital. He advocates that a Universal Savings Account can be created by merging Auto-enrolment pension accounts, Lifetime Individual Savings Accounts (LISAs) and the Help to Save scheme. Re-iterating the proposals from the pioneering studies by the Institute of Fiscal Studies and the Resolution Foundation, Byrne proposes to expand the coverage of the auto-enrolment pension scheme to low-income earners, the self-employed and youth aged between 16 and 18, to increase savings rates and to reduce withdrawal limits from the pension fund.

In the last chapter, Byrne emphasises the enlargement of net household wealth relative to GDP from 435 per cent in 2000 to about 700 per cent by 2017, without any commensurate change in wealth-related taxes to GDP share. This has created a problem of unequal taxation across income groups, which, he states, must be rectified. To do this, he endorses Arun Advani, Alex Cobham and James Meade’s proposals of introducing an annual wealth tax.

Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms.

Overall, the book presents a coherent strategy to reverse wealth disparity and build a wealth-owning democracy through a guiding principle of delivering social justice and promoting equality. The remedies for reversing wealth inequality offered in the book are not new; rather, Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms. The pathway for the acceptance and adoption of all these reforms is no mean feat; it would entail a shift from a narrow focus on profit-maximisation towards holistic attempts to adequately reward workers for their services and improve their wellbeing.

Note: This post gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.

Image credit: Cagkan Sayin on Shutterstock.

In The Wealth of a Nation: Institutional Foundations of English Capitalism, Geoffrey Hodgson traces the roots of modern capitalism to financial and legal institutions established in England in the 17th and 18th centuries. Hodgson’s astute historical analysis foregrounds the alienability of property rights as a key condition of capitalism’s rise to supremacy, though it leaves questions around the social dimensions of the free market system unanswered, writes S M Amadae.

The Wealth of a Nation: Institutional Foundations of English Capitalism. Geoffrey M. Hodgson. Princeton University Press. 2024.

English capitalism was built on empire and slavery…State intervention and slavery are examples of impurities within capitalism. Impurities can be necessary or contingent for the system. Some state intervention was arguably necessary, but slavery was not. (13)

Countering conventional understandings of capitalism, Geoffrey Hodgson contends that “Secure property rights were not enough,” because “[m]ore wealth had to become alienable and usable as collateral for borrowing and financing investment” (119). Hodgson’s The Wealth of a Nation: Institutional Foundations of English Capitalism is a welcome contribution to heterodox economics that incorporates historical excavation and theoretical analysis to provide refreshing nuance to established accounts of the rise of capitalism. Hodgson provides historical details of Great Britain’s early modern property rights and finance institutions, building on his previous works and covering a dense corpus of theories and data going back to Adam Smith’s 1776 Wealth of Nations. Hodgson’s analysis of the financial origins of English capitalism focuses on types of property rights from 1689 to 1760 and varieties of financial credit supporting British industrialisation between 1760 and 1830. While readers can expect a perceptive analysis of the origins of British capitalism, they should not expect a critique of the social dimensions of the free market system.

The Wealth of a Nation […] incorporates historical excavation and theoretical analysis to provide refreshing nuance to established accounts of the rise of capitalism.

Part II, “Explaining England’s Economic Development,” including Chapter Three “Land, Law, War,” Chapter Four “From the Glorious to the Industrial Revolution,” and Chapter Five “Finance and Industrialization,” carries the brunt of Hodgson’s argumentation. Three aspects of the book stand out. The first is his overarching argument that the central institution enabling the rise of modern political economy in England was finance: the ability to alienate the ownership of land and other property to serve as collateral for investment loans. The second is Hodgson’s heterodox economic analysis emphasising historical contingency (as opposed to universal laws); Darwinian Variation, Selection, Replication (203-206); and the role of institutions. The third is Hodgson’s apparent embrace of capitalism. He celebrates the productive power of finance capital and industrial investment, but eschews a critical analysis of capitalism’s social consequences articulated by the likes of Karl Marx, John Maynard Keynes and Karl Polanyi.

[Hodgson] celebrates the productive power of finance capital and industrial investment, but eschews a critical analysis of capitalism’s social consequences

Hodgson engages the theories of Karl Marx, Douglass North and Barry Weingast and Deirdre McCloskey, criticising their arguments for being incomplete or flawed. Marx identified the exploitation of the working class by the bourgeoisie; he missed that changes in law preceded changes in the material base that ultimately consolidated bourgeois power. North and Weingast apprehend the importance of secure property rights but missed that these could encompass feudal property rights mandating primogeniture (oldest son inherits all property) and entailments rather than the new class of alienable property rights. McCloskey rightly focuses on ideas as a force for social evolution but misses the exigencies of paying for costly wars and the practical need for legal means to pay off sovereign debt.

The key underlying factor of the British Industrial Revolution from 1760-1830 was the ability to obtain finance.

Hodgson’s treatment is astute. The Dutch were leaders in public finance, and William III’s accession to the British throne in 1689 brought those practices into Britain (121). The period from 1689-1815 was one of “war capitalism” requiring that the state be efficient in raising taxes. The state gained the right to create money by decree, and debt itself could be sold along with contractual obligations to repay the debt. Hodgson dates the financial revolution to 1660-1760 (135) and associates the growing sovereign debt with the need to finance war efforts. The key underlying factor of the British Industrial Revolution from 1760-1830 was the ability to obtain finance. Hodgson challenges the conventional view that entrepreneurs obtained loans from family and friends. His argument rests on documenting that investors were able to stake collateral for their loans. He presents evidence on mortgages, such as for canals, and the rising ratio of capital existing as financial assets versus as physical assets. The British banking system had to adapt to offer credit for investment because the central bank was focused on financing sovereign debt for war efforts.

Hodgson redirects attention from the security of property rights to their alienability as the driving institutional invention critical for capitalism to emerge. Slaves represented a crucial category of this exchangeable type of property. Hodgson acknowledges that “By the end of the eighteenth century, slaves amounted to about a third of the capital value of all owned assets in the British Empire” (109). A sizeable category of alienable property in the early 18th century was that of slaves: £6.4 billion was land, buildings, animals, ships, equipment and other non-human assets, while £3 billion was slaves (2021 currency values, 149). Hodgson’s treatment of slaves’ contribution to the origins of what Adam Smith called the “system of natural liberty” is limited to their functional role as legally institutionalised property that could be alienated. Readers looking to heterodox economics to provide a critical stance on the origins of western free markets may seek more than Hodgson’s proposition that the institution of slavery was merely a contingent factor in the system’s rise. Hodgson acknowledges that the £20 million compensation paid to former slave owners for the 1833 Slavery Abolition Act stands as a historically unprecedented sum of liquid financial capital freely available for industrial investment in the 19th century.

The £20 million compensation paid to former slave owners for the 1833 Slavery Abolition Act stands as a historically unprecedented sum of liquid financial capital freely available for industrial investment in the 19th century.

In a twist of prevailing perception that the burden of debt is a form of bondage (eg David Graeber’s Debt, 2012), Hodgson frames indebtedness as the means of liberation to finance capital, which in turn drives economic growth. Hodson effectively defends Hernando De Soto’s property rights institutions to increase the welfare of the destitute by issuing land titles as a means to obtain credit. In a similar inversion of conventional sentiment, we can recall Adam Smith’s admonishment, counter to contemporary American libertarians, that tax, including poll tax, “is to the person who pays it a badge, not of slavery, but of liberty” because tax payers are subjects of government.

Hodgson adopts a Darwinian-inspired methodology based on variation, selection, and replication (the “V-S-R” system, 204).  The section “Applying Darwinism to Scientific and Economic Evolution,” (206) is conjectural. He observes that, “Some individuals were more successful than others, affecting their chances of survival and procreation” (207). He rejects either a material account or a mental account of agency. The latter refers to “folk psychology” which attributes action to individuals’ desires and beliefs. Hodgson follows the school of thought holding that human action occurs before intention is conscious or rationalised (189-190). He holds that habits and dispositions, rather than deliberately formed intentions, govern action and form the bedrock of institutions.

[Hodgson] holds that habits and dispositions, rather than deliberately formed intentions, govern action and form the bedrock of institutions.

How, then, do we assess the merits of, or the underlying affirming conditions for, either the institution of slavery or alienable property and financial capital? Hodgson observes that,

People often obey laws out of respect for authority and justice, and not because they calculate advantages and disadvantages of compliance. Dispositions to respect authority have evolved over millions of years because they aided cohesion and survival of primate and human groups (201).

Hodgson’s argument that alienable property and appropriate financial institutions for investment were a condition for the rise of capitalism in Britain is convincing. However, without a clear conceptualisation of effective human agency, other than that driven by dispositions and habits, we are left with the stubborn question of the extent to which capitalist institutions are either emancipatory or the best means to better the human condition.

Note: This post gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.

Image: The painting Coalbrookdale by Night by Philippe Jacques de Loutherbourg depicting the Bedlam furnaces at Coalbrookdale in Shropshire, England. Credit: The Science Museum, London.

Kara Swisher is a little sorry!

In The Big Con, Mariana Mazzucato and Rosie Collington claim that our overreliance on the consulting industry has negative consequences for society, inhibiting knowledge transfer and corporate and political accountability. The authors expose how consultancies’ goal of “creating value” may not align with addressing major issues such as climate change, arguing convincingly for greater transparency and a revitalised public sector, writes Ivan Radanović.

The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies. Mariana Mazzucato and Rosie Collington. Penguin Press. 2024 (paperback; 2023 hardback).

In their book The Big Con, Mariana Mazzucato and Rosie Collington warn that relying on consultancies harms the public interest. Asking what happens to the brain of an organisation when it is not learning by doing because someone else is doing the doing, they conclude that societies must return public purpose in centre of attention.

The authors’ thesis is that overreliance on consultancies harms public interest, disables governments, and threatens democracy.

In 2021, the consulting industry was valued at over 900 billion dollars. Its ninefold rise since 1999 is the result of rising reliance of states on consulting agencies. The authors’ thesis is that overreliance on consultancies harms public interest, disables governments, and threatens democracy. They investigate this trend and how to reverse it.

The “Big Con” is the term Mazzucato and Collington use to mark the biggest auditing, accounting, and consulting agencies such as Ernst & Young (EY), KPMG, PwC, Deloitte, McKinsey, Boston Consulting Group (BCG), Accenture and others. The consulting market emerged during early industrialisation, when engineers, periodically recruited by major industrial firms, formalised their work. In the 1920s many consultants, among them James McKinsey, cooperated with American businesses. The popularity of management consultancy rose in 1970 when BCG introduced the matrix for mapping the profitability of business portfolio. After two years, this tool was used (and paid for) by more than 100 enterprises. American firms, on the wings of the Marshall plan and later IT management projects, have spread throughout Europe.

Golden years

The election of the right-wing populists Margaret Thatcher in the UK (1979) and Ronald Reagan in the US (1981) occurred after a decade of economic turmoil, led by the end of the Bretton Woods system and two major oil crises. The opinion that the responsibility for the turmoil lay in how states were run mushroomed. The neoliberal credo was that the only value creators in society are markets, and with Thatcher and Reagan, favour was refocused from the worker to the citizen-taxpayer.

The neoliberal credo was that the only value creators in society are markets, and with Thatcher and Reagan, favour was refocused from the worker to the citizen-taxpayer.

Contrary to the belief that the essence of neoliberalism is to slash public spending, Mazzucato and Collington suggest “it is more precise to describe it as public spending redirection towards the stronger role of the market” (49). In Thatcher’s era (1979-1990) government expenditure rose in real terms by 7.7 percent (43). In Reagan’s (1981-1989) federal spending rose by almost nine percent annually (43). From the US to Australia, thousands of neoliberal reforms such as privatisation, deregulation or outsourcing states had to be implemented, and advised. The authors show us that the annual public spending for consulting in the UK from 1979 to 1990 rose fortyfold – from 7.1 million to 290 million dollars. The 1980s saw the advent of a new management doctrine. In place of earlier stable forms of organisational life emerged the model of flexible “learning organisations” which view instability as an opportunity. The main goal becomes maximising value for shareholders. In the 1990s, that led to the popularisation of storytelling in politics and business. It is no longer a product or brand that is sold, but the story about value, challenges and business success through positive change, peddled by elite consultants or management gurus.

Creating the impression of value

Today, consultants are seen as experts who transfer know-how and utilise advanced management techniques to improve clients’ businesses. The enormous rise of consulting in the last four decades is explained by the “value” they create for states and companies. However, according to the authors, consultants do not always meet expectations and they seldom transfer knowledge. Created “value” is often unclear and depends on the perception of the client. Consultants hustle to create the impression of value.

Created “value” is often unclear and depends on the perception of the client. Consultants hustle to create the impression of value.

There are many examples where engaging consultancies has backfired for states. In developing countries such as Nigeria, Mexico and Angola, hiring consultancies was a condition of their IMF loan agreements (50). The authors focus on wealthy countries, arguing that even if contracting consultants experienced in the implementation of complex macroeconomic programmes could be justified in developing countries, it is less justifiable in developed countries, which should ostensibly have high competency in these areas.

Unmet deadlines, spiralling costs

Consultancies often fail to deliver on their promises. In 2010, Sweden started the construction project for a new university hospital in Stockholm which would be the most advanced in Europe. Its operations were to be grounded in “value-based healthcare”, a concept designed by management guru Michael Porter. Costs were initially valued at 1.4 billion euro, with the project set to be completed in 2015. City authorities opted for a public-private partnership which contracted consultants from PwC and EY who claimed they would ”maximise the value and keep the costs under control” (145). Representatives from the construction company Skanska stated that this model would “transfer the risk from the state and taxpayers to the private sector” (145). However, the costs immediately surpassed the projections because vital equipment had not been included in the budget The project, beset by problems, was passed to BCG, who had nine consultants working on its implementation while earning a monthly salary of almost 70,000 euros over six years. Another consultancy, Nordic Interim AB was then contracted for an additional 12 million euro, and when the hospital was eventually finished in 2018, costs a billion euros higher than the original estimate.

Absence of accountability

It is not all about money. Consultancies contribute to many undemocratic practices, maintaining what Acemoglu and Robinson named as extractive institutions. Often, they act as a mechanism for public wealth extraction, whereby states recruit consultants when they want to “hedge” the political risk of unpopular economic measures. The states maintain legitimacy, and consultants get their share of political influence. Authors emphasise the example of Puerto Rico, which faced bankruptcy in 2016. Then-President Obama initiated the creation of an Oversight Board to supervise the bankruptcy process. Keeping reputational risk low, Washington ensured that the majority of members of the Board were of Puerto Rican heritage. The Board did not hire a large staff, to avoid looking like it was setting up a parallel government. Instead, it brought in consultants. Instead of the state, McKinsey engaged in the privatisation of public enterprises, healthcare reforms “based on value”, slashing public spending and restructuring debt. Moreover, McKinsey owned $20 million of Puerto Rico’s bonds: consultants were set to profit from the very same debt they were helping to restructure.

Regaining control

Even though consultancies did not cause the maladies of neoliberal capitalism, they have profited from them. Without transparency and democratic permission, they erode the capabilities of states and enterprises. Because knowledge is not cultivated within state workforces and institutions, a dependency on the “expertise” of consultancies spirals.

[Consultancies] erode the capabilities of states and enterprises. Because knowledge is not cultivated within state workforces and institutions, a dependency on the “expertise” of consultancies spirals.

The last section of the book is about “climate consulting”. Omnipresent and long-term, climate change is ideal ground for consultants. Competition is fierce; consultancies’ “websites are replete with beautifully designed free reports on sustainability issues for every sector, from oil and gas to healthcare” (190). They promise solutions, pitching themselves as an avant-garde of change.

The key takeaway, according to Mazzucato and Collington, is that we must challenge the predominance of consultancies. With their ultimate goal of “creating value”, they advise both the fossil polluters and the governments mandated to reduce emissions. Moreover, states are catalysts of technological change for public good, while the private sector only invests in fundamental research when it becomes enticingly profitable.

Putting aside the authors’ techno-optimistic view – which holds that climate change mitigation is mostly a technical issue regarding innovations for green transition, which is being debunked – their final suggestions are valid. A new narrative and vision for the role of the state, recovering public capacities, embedding knowledge transfer into consulting contracts’ evaluation and mandating transparency are, undoubtedly, desirable. The book’s importance lies in how it reveals the political implications of the consulting industry. Whether we choose “green growth” or abandon the growth imperative, one thing is certain: democratically elected governments are key actors. Only they can mobilise the resources required for achieving “moonshot” missions, the most urgent of which is climate change.

Note: This interview gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.

Image credit: Alena Veasey on Shutterstock.