|SocialismToday Socialist Party magazine|
The rich get richer
The Cost of Inequality: three decades of the super-rich and the economy
By Stewart Lansley
Gibson Square Books, 2011, £17.99
Reviewed by Sean Figg
THAT THE rise in inequality over the past 30 years could be a central explanation for the world economic crisis sounds implausible on first hearing. However, Stewart Lansley builds up a convincing argument through the course of his book to show that rising inequality was a major factor. The sound case underlying the soundbite is the following: after the economic turmoil of the 1970s, the capitalist class internationally – represented par excellence by Margaret Thatcher and Ronald Reagan – was able to shift the distribution of wealth within society decisively in its own favour.
The share being paid in wages was reduced. Consequently, the share accruing in profits increased. In other words, those who had to work for a living were taking a smaller slice of the cake than previously and, as the cake increased in size, their slice got even smaller. Lansley tells us that in the mid-1970s the share of national output going to wages peaked at 64.5%. By 2008 this had dropped to 53%. The working class was £100 billion per year worse off. The capitalist class got this and more. For example, in the US the share of income going to the richest 1% increased from a low of 8.9% in 1976 to 23.5% in 2007. Lansley goes on to argue that this rising inequality inflated the asset bubbles, the bursting of which – most notoriously the sub-prime mortgage bubble – crashed the world economy in late 2008.
The squeeze on the incomes of the majority had its counterpart in booming profits at the top and the accumulation of vast cash reserves. Quite simply the super-rich had vast amounts of cash to speculate with as the cake was redivided in their favour. Several processes reinforced this. Lower wages meant less purchasing power in economies where consumer spending was the major source of demand. This created an enormous problem for capitalism. Profits might boom in the short term as a result of squeezing incomes, but in the long run the economy would stagnate as demand disappeared. To overcome this, the gap was plugged with a massive expansion of personal debt, facilitated by the loosening of regulation. Between 1994 and 2007 credit card debt increased sevenfold, with personal debt reaching £1,400 billion in 2008. Remortgaging skyrocketed. Interest payments on debt sucked more wealth from the bottom to the top, further augmenting profits.
Pay and bonuses in the financial sector became dependent on ‘maximising shareholder-value’ a result most immediately satisfied by making the biggest returns in the quickest time whatever the means. This wealth stalked the world in the form of destabilising capital flows looking for ever bigger returns. The weight of finance within the economy increased massively. In 1960 bank-owned assets equalled 60% of GDP. In 2010 they were 500% of GDP. In the early 1990s private equity owned 1% of ‘UK plc’. By 2011 it was 15%. In the US the financial sector grew from accounting for 14% of corporate profits in 1981 to more than 40% throughout the 2000s.
Lansley is damning of the failure of ‘market capitalism’ (neo-liberalism) when compared with its post-war predecessor ‘managed capitalism’. He deplores the establishment of a ‘two-track economy’ and the increasing divergence between the ‘good, productive economy’ and the ‘bad, money economy’. Between 1950 and 1973 unemployment averaged 1.6%. Since that time it has averaged 7.8%. Recessions in the era of ‘market capitalism’ have all been longer and deeper than under its predecessor.
He says that "finance has come to play a new role – that of a cash cow for a domestic and global super-rich elite". This elite uses "growing political and economic muscle to extract an increasing share of existing wealth, sucking lifeblood out of the wider economy". Lansley goes on to demonstrate how post-2008 the wealth of this elite has continued to surge after only a momentary pause. For example, in the first six months of 2010 the average pay of chief executives increased 55% to over £5 million per year, and 2009 saw a record bonus pool in the City of over £9 billion.
Lansley argues that the elite "have built a system that has largely fire-walled their own wealth against economic failure". Marxists would agree with this stark way of posing it. Even now, the politicians remain timid in the face of finance. Lansley spends pages detailing the vast amounts of money behind financial sector lobbying of politicians, and the revolving door that has developed between boardroom and political office.
Lansley’s exhaustive (and exhausting!) statistics provide near endless ammunition for those wishing to smash the arguments of those who defend capitalism and inequality as ‘necessary evils’. It is impossible to do justice to the volume of facts and figures in a short review. Suffice to say, if you find yourself being wound-up by a big-business politician giving ‘common sense’ justifications for capitalism, reach for this book to debunk them.
However, while Marxists would find numerous points of agreement in his analysis of the last 30 years, other parts of his analysis are far from satisfactory. Lansley is not anti-capitalist but anti-finance capital. Throughout his book there are clumsy sops and assertions to, as he sees it, the ‘inevitability’ and fundamental correctness of capitalism. These stand out gratingly against the empirical rigour used to debunk the ills of finance capital.
Although Lansley takes a swipe at the right-wing ideologue economists of the Chicago School for trying to "turn real economies into textbook models", he falls foul of the same abstract approach in his treatment of the 1950-73 upswing. Consider the following assertion of "the norm of the immediate post-war decades" which saw a "natural equilibrium" in the economy. Surely an examination of the history of capitalism would show the 1950-73 upswing as an exceptional period, not the ‘norm’. Though he describes the 1930s in near teleological fashion as nations "embarked on a long march towards greater equality" with history moving towards Lansley’s ideal.
With this ‘natural’ ideal in mind, it goes without saying that Lansley does not try to explain the unique features of 1950-73 that temporarily overcame what is, in fact, natural to capitalism: massive inequality. In his ‘norm’, capitalism is much more equal. It is an ideal that requires no explanation. For that reason it is unnecessary to break with capitalism.
Lansley sees the policy choices of the Thatcher and Reagan governments as decisive in moving from ‘good’ to ‘bad’ capitalism. He frequently refers to the ‘switch’ in policy. But this is far too simplistic. The policies of these neo-liberal governments were primarily a response to an already existing crisis of capitalism, manifested in the 1970s as the post-war boom exhausted itself. Ultra-free market policies reinforced emergent trends within capitalism. They were not policies carried out on a whim that everyone else just went along with in a moment of madness.
Lansley’s conclusions are that a return to the ‘norm’ of 1950-73 is needed, that finance capital should be re-tamed with the effect of reducing inequality. With his simplistic view of how neo-liberalism was switched on, he thinks it can just be switched off again with the same ease. Socialists would support many of the individual reforms of the financial sector he proposes, the difference being that we recognise the massive class struggle necessary to win them. And it is that last point which underlies the inadequacies of Lansley’s analysis.
The subject of this book, in reality, is the results of the class struggle over the past century. They span the struggles and revolutionary movements of the 1930s and before, the international balance of class forces hemming in capitalism immediately after the second world war, the protracted struggles of the 1970s and 1980s that showed the ascendency of ‘market capitalism’ was never uncontested, and the mass movements developing today. And it is these mass movements that will ultimately ‘correct’ inequality because, as has been the case since the advent of capitalism, the division of wealth is determined by the struggles of classes. This does not feature, however, as part of Lansley’s analysis.