Social Security
The Inequality of Wealth: Why it Matters and How to Fix it – review
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.
Kate Pickett and Richard Wilkinson: Spirit Level Lessons
A Six Point Plan For The Right (Left) Kind Of Active Government
Ten Years and Counting…
In 2009, we wrote The Spirit Level, based on our work as epidemiologists researching the social determinants of health and wellbeing. We showed, emphatically, that greater equality – a smaller gap between rich and poor – is the fundamental basis of a better society. The more equal of the rich, developed countries have resoundingly better physical and mental health, which is part of the reason why they weathered the storm of Covid-19 better than more unequal countries.
But economic inequality, and its intersection with inequalities related to ethnicity, gender, disability, language, religion and more, is not just a health issue. In The Spirit Level we showed that all the problems that are more common at the bottom of society, that have a social gradient, get worse with greater inequality. And that body of evidence has continued to grow in the years since, based on our own research and the work of many others across the world. In addition to shorter life expectancy, higher death rates and levels of chronic disease, increased obesity, mental illness and poor child wellbeing, more unequal societies suffer from more violence, including homicides, domestic violence, child maltreatment and bullying. Children and young people do less well in school and have lower chances of social mobility and higher rates of dropping out and teenage births. Drug and alcohol abuse, problem gambling, status consumption and consumerism also rise with inequality, while levels of trust and solidarity, and civic and cultural participation decline.
Countries that tend to do well on any one of these measures tend to do well on all of them, and the ones that perform badly do badly on most or all of them. And not only is the impact of inequality wide-ranging, differences between countries are large; and although the poor are worst affected, inequality affects almost everybody.
And that means that the UK is trailing behind the countries to which we usually compare ourselves, on that long list of problems, and that all of us – young or old, male or female, in the North or the South, rich or poor – ALL OF US, are damaged. We are each at higher individual risk, and our whole society is ground down and trapped by inequality: we, and it, fail to thrive.
We’ve used a robust framework analysis to show that this is a causal problem and we’ve done a lot of work to understand the pathways through which inequality does the damage.3 We know that tackling inequality is the central task in responding to the multiple crises we face: the climate crisis, the cost of living crisis, the North-South divide, food insecurity, the gig economy, threats to our democracy. Inequality is at the heart of it all.
The lost decade
When The Spirit Level was published we were at first heartened by the political response to the research. Politicians across the political spectrum seemed to understand the evidence and inequality seemed to take its rightful place on the political agenda.
But what has happened in the UK since then – a decade of austerity, followed by a global pandemic, and now a cost of living crisis, means we’re just as unequal now as we were then. And every crisis that comes along seems to be another engine of increasing inequality.
Who suffered from the Global Financial Crisis? Average real incomes declined, and that was particularly true for the youngest and lowest paid workers. Who were most likely to be exposed to Covid, to be infected, to be really sick, to die? Death rates were twice as high in the most deprived areas of the UK as in the most affluent. And we know who is already suffering most from rising prices, rising interest rates in the cost of living crisis – those on low incomes, on benefits, families with children, especially lone parents and everyone living outside of London and the south east.
And in all three of these crises, it hasn’t simply been a matter of the poor getting poorer. In these big existential crises, the rich have got richer, a lot richer. In the years following the Global Financial Crisis, the world’s richest 1% increased their wealth until they owned more than the bottom half of the world’s entire population. Top investors made billions by buying up shares in failing banks, betting against housing markets that were foreclosing on the mortgages of the poor, basically “buying when there’s blood in the streets” to realize massive gains during recovery. The pay of the FTSE 100 chief executives has sky rocketed, unlike that of their workers. During the pandemic, the rich accumulated wealth, including from government procurement under emergency regulations with lowered scrutiny for corruption. Oil and gas companies have made huge profits since the energy crisis began, and their chief executives continue to be paid millions, some of them many millions.- Huge pay and benefits packages and dividends have enriched the chief executives and shareholders of the UK’s water companies despite their abysmal record on tackling leaks, pollution and investment in new reservoirs.
We need the right (left) kind of active government
The Coalition and Conservative governments have certainly been active since 2010. They have actively failed to tackle inequality; they have acted to benefit the rich and harm the rest of us. Their actions speak much louder than their hollow words on levelling up.
An Active Labour Government could do so much to transform our society from the failing, unproductive, harmful state it is in, to one that promotes and, crucially, achieves the welfare and wellbeing of all its citizens. An active government that puts wellbeing first through tackling inequality would see spin-off benefits and savings across health, education, social care, law enforcement and more.
The courage to change
Labour should take heart from the progressive preferences of British citizens. When polled, the large majority of the public are in favour of progressive policies that are too often dismissed as radical, utopian, or unfeasible by the press or the Westminster bubble.
Close to 80% of the British public believe that the gap between those on high and low incomes is “too large” and this has been a consistent trend (varying between 72-85%) over the four decades that the British Social Attitudes (BSA) survey has been running. In 2018, the BSA concluded that “the public are likely to have more of an appetite for policies aimed at addressing poverty and inequality than they did a decade ago.”
The majority of the British public want water, energy, rail, buses, Royal Mail and the NHS to be run in the public sector, and that includes the majority of Conservatives.
Recent academic research on public opinion research in “red wall” constituencies found consistently high levels of support for Universal Basic Income, even when the policy was presented to voters in terms used by its opponents. There is little evidence that voters with conservative social values – those in left behind communities in Labour’s former heartlands – won’t actually support radical social policy.
The vast majority of the public support action on climate change and they are much more worried about the costs of doing nothing than they are about the cost of tackling the problem.
The triple-win manifesto
So what should the Labour Party do? We are not politicians, or even political scientists or policy experts. But we do know that Labour needs a bold and compelling vision that brings people onside by painting a picture of a society that can respond to the climate emergency while at the same time transforming people’s lives for the better and creating sustainable growth.
What follows is by no means an exhaustive list, but six triple-win active policy options include:
- Joining WEGo, the Wellbeing Economy Governments (currently Canada, Scotland, Iceland, New Zealand, Wales and Finland), a collaboration of national and regional governments promoting sharing of expertise and transferrable policy practices for building wellbeing economies. It is growth in wellbeing that we need, not growth in GDP.
- Committing to actually tackling inequality by taxing wealth, top incomes and financial transactions
- Giving people resilience and stability through a universal basic income and a proper living wage.
- Enacting the Socioeconomic Duty of the 2010 Equality Act
- Promoting fair work and economic democracy within a Green New Deal
- Putting children and young people at the centre of policy: recommit the country to ending child poverty; end selective education and remove charitable status from private schools; properly fund the comprehensive education system; enshrine in law universal free school meals and free holiday meals for families on benefits; and close the digital divide
Labour needs to act fast and boldly, with energising urgency, to make sure that the policies needed to tackle the climate emergency are politically acceptable to the public because they can see that they are part of a transformation to a fairer, better society in which they and their children and grandchildren can flourish.
What inspired progressive political change in the past was a vision of socialism, embodying the belief that a better society is possible for all of us. The loss of that ideal has meant political hope has dwindled for so many. Labour must build a new vision, firmly built on the foundations of an egalitarian and sustainable society.
Kate Pickett is a social epidemiologist, co-author of ‘The Spirit Level’ and ‘The Inner Level’ and co-founder of The Equality Trust.
Richard Wilkinson is Professor Emeritus of Social Epidemiology at the University of Nottingham Medical School, Honorary Professor at University College London and Visiting Professor at the University of York.
This article is published with permission from Labour Tribune MPs. It first appeared in a collection of essays published by Labour Tribune MPs in 2022 entitled “THE CHANGE WE NEED : How a Starmer Government can Transform Britain”
Further Reading
Wilkinson RG, Pickett K. The Spirit Level: Why Equality is Better for Everyone. London: Penguin; 2010.
Pickett KE, Wilkinson RG. Income inequality and health: a causal review. Social Science & Medicine 2015;128:316-26
Wilkinson R, Pickett K. The Inner Level: How more equal societies reduce stress, restore sanity and improve everybody’s wellbeing. London: Allen Lane; 2018.
Greater Manchester Independent Inequalities Commission. The Next Level: Good Lives for All in Greater Manchester, 2020: https://www.greatermanchester-ca.gov.uk/media/4337/gmca_independent-inequalities-commission_v15.pdf
Pickett K, Wilkinson R. Post-pandemic health and wellbeing: putting equality at the heart of recovery. In: Allen P, Konzelmann SJ, Toporowski J. The Return of the State: Restructuring Britain for the Common Good. London: Agenda Publishing, 2021.
Wilkinson R. If it doesn’t work for people, it won’t work for the planet. Club of Rome, 2021: https://www.clubofrome.org/blog-post/wilkinson-inequality-sustainability/
Reed H, Lansley S, Johnson M, Johnson E & Pickett KE. Tackling Poverty: the power of a universal basic income, London: Compass, 2022. Available at: https://www.compassonline.org.uk/publications/tackling-poverty-the-power-of-a-universal-basic-income/
Johnson M, Nettle D, Johnson E, Reed H & Pickett KE. Winning the vote with a universal basic income: Evidence from the ‘red wall’. London, Compass, 2022.
Picture credit: flickr
The post Kate Pickett and Richard Wilkinson: Spirit Level Lessons appeared first on The Progressive Economy Forum.
Strange bedfellows
Via MacroBusiness, here's the TL;DR of the Business Council of Australia's submission to a 2012 Senate inquiry into social security allowances:
- "The rate of the Newstart Allowance for jobseekers no longer meets a reasonable community standard of adequacy and may now be so low as to represent a barrier to employment.
- "Reforming Newstart should be part of a more comprehensive review to ensure that the interaction between Australia’s welfare and taxation systems provides incentives for people to participate where they can in the workforce, while ensuring that income support is adequate and targeted to those in greatest need.
- "As well as improving the adequacy of Newstart payments, employment assistance programs must also be reformed to support the successful transition to work of the most disadvantaged jobseekers."
Not only did the BCA's confederacy of Scrooges suffer unaccustomed pangs of sympathy, the Liberal Party senator chairing the inquiry also agreed that Newstart is excessively miserly. However, he failed to recommend raising the allowance, saying:
"There is no doubt the evidence we received was compelling. Nobody want's [sic] to see a circumstance in which a family isn't able to feed its children, no one wants to see that in Australia. But we can't fund these things by running up debt."
Sigh. (Here we go…) There is no need to "fund these things", whether it be by "running up debt" or any other means. The Federal Government creates money when it spends. We, as a country, run out of the capacity to feed our children when we run out of food. We cannot run out of dollars, since we can create the dollars without limit.
The government does however, at the moment, have a purely voluntary policy of matching, dollar-for-dollar, all spending with government bond sales. There's no good reason for this; as Bill Mitchell says, it's just corporate welfare. Even so, selling bonds is not issuing new debt. Bonds are purchased with RBA credits (or "reserves", if you prefer). The purchasing institution simply swaps a non-interest-bearing asset (reserves) at the RBA for an interest-bearing one (bonds), still at the RBA. It's just like transferring some money from a savings account to a higher-interest term deposit account at a commercial bank; do we say that this is a lending operation? Of course not.
There is no fiscal reason why the government should punish the unemployed to the extent that they become an unemployable underclass. Even if we are generous and assume the good senator and his colleagues on the inquiry are just ignorant about how the economy works, we are still bound to conclude that there must be some (not so ignorant) people in government, who do want to see people suffering for no just reason.