Leader: Even the global elite in Davos are alarmed by deepening inequality

In the week when Oxfam found that the world’s 85 richest individuals are now worth as much as the bottom half of the total population of seven billion, the WEF announced that its 700 members view the increasing gap between the rich and the poor as the big

In the years preceding the crash, inequality was dismissed as a left-wing obsession. Incomes might have been rising faster at the top than at the bottom but everyone was sharing in the fruits of seemingly permanent growth. Tony Blair captured the spirit of the age when he declared that he didn’t go into politics “to make sure that David Beckham earns less money”.

Yet the financial crisis and the austerity that followed have revived the distributional issues that politicians ignored during the long boom. Britain is a country in which more than half a million people have turned to food banks since April 2013, in which homelessness has risen by 34 per cent since 2010, and in which, for the first time ever, there are more people from working families living in poverty (6.7 million) than from workless and retired ones (6.3 million).

It is also a country where the typical FTSE-100 chief executive had already earned more than the average annual wage of £26,000 by 8 January this year. George Osborne’s recent announcement that he favours an above-inflation increase in the minimum wage, which is now worth no more than it was in 2004 (and which the Conservatives voted against in 1998), was an acknowledgment that the government cannot remain entirely indifferent to these trends.

Among the global elite at the World Economic Forum (WEF) in Davos, Switzerland, inequality was also on the agenda. In the week when Oxfam found that the world’s 85 richest individuals are now worth as much as the bottom half of the total population of seven billion, the WEF announced that its 700 members view the increasing gap between the rich and the poor as the biggest threat to prosperity in the next decade. They are right to do so. It was inequality that created the conditions for the crash, as low- and middle- income households borrowed excessively to maintain their living standards in the face of falling real wages.

In the United States, where, remarkably, the wealthiest 1 per cent has received 95 per cent of the proceeds of post- recession growth, the issue has acquired a rare prominence. In a recent speech on the subject, Barack Obama said, “The basic bargain at the heart of our economy has frayed” – the bargain that “if you work hard, you have a chance to get ahead”. He warned: “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream.” In the US, as elsewhere, extreme inequality is corrosive of opportunity, trust, health and happiness. Over the past three decades, the reduction of taxes on the wealthy (and their outright avoidance), the weakening of trade union power and the monopolisation of markets by corporations have combined to make it a permanent reality.

If the causes and the symptoms of inequality are easy to identify, the remedies are not. As a result of the long-term trends of globalisation and increased automation, any government seeking to narrow the gap has to run merely to stand still. Western economies are being hollowed out as many of the middle-class jobs that enabled decades of rising living standards after 1945 disappear. Governments, most notably in Scandinavia, continue to redistribute large amounts of income through taxes and benefits but it is increasingly hard for them to do so when the rich are so adept at avoiding their share and when outcomes are so unequal to begin with. The rising hostility of voters to established models of welfare further limits the scope for transfers of this kind.

But if parties and governments can agree on the problems,  a more intelligent debate about the solutions can begin. These could include a substantial increase in property and land taxes (which are harder to avoid than those on income), greater investment in areas with long-term benefits, such as childcare and education, and improved corporate governance.

If appeals to egalitarianism fail, then appeals to enlightened self-interest may succeed. Societies that grow ever more unequal are societies in which ever fewer citizens can meaningfully participate, stifling innovation, productivity and growth. Inequality leaves us all poorer: governments can no longer evade this truth.
 

British prime minister David Cameron answers questions to the World Economic Forum in Davos on 24 January 2014. Photo: AFP/Eric Piermont/Getty.

This article first appeared in the 21 January 2014 issue of the New Statesman, The radicalism of fools

David Cameron speaks at a press conference following an EU summit in Brussels. Photograph: Getty Images.
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Cameron's EU concessions show that he wants to avoid an illegitimate victory

The Prime Minister is confident of winning but doesn't want the result to be open to challenge. 

Jeremy Corbyn's remarkable surge has distracted attention from what will be the biggest political event of the next 18 months: the EU referendum. But as the new political season begins, it is returning to prominence. In quick succession, two significant changes have been made to the vote, which must be held before the end of 2017 and which most expect next year.

When the Electoral Commission yesterday recommended that the question be changed from “Should the United Kingdom remain a member of the European Union?” ("Yes"/"No") to "Should the United Kingdom remain a member of the European Union or leave the European Union?" ("Leave"/"Remain"), No.10 immediately gave way. The Commission had warned that "Whilst voters understood the question in the Bill some campaigners and members of the public feel the wording is not balanced and there was a perception of bias." 

Today, the government will table amendments which reverse its previous refusal to impose a period of "purdah" during the referendum. This would have allowed government departments to continue to publish promotional material relating to the EU throughout the voting period. But after a rebellion by 27 Tory eurosceptics (only Labour's abstention prevented a defeat), ministers have agreed to impose neutrality (with some exemptions for essential business). No taxpayers' money will be spent on ads or mailshots that cast the EU in a positive light. The public accounts commitee had warned that the reverse position would "cast a shadow of doubt over the propriety" of the referendum.

Both changes, then, have one thing in common: David Cameron's desire for the result to be seen as legitimate and unquestionable. The Prime Minister is confident of winning the vote but recognises the danger that his opponents could frame this outcome as "rigged" or "stitched-up". By acceding to their demands, he has made it far harder for them to do so. More concessions are likely to follow. Cameron has yet to agree to allow Conservative ministers to campaign against EU membership (as Harold Wilson did in 1975). Most Tory MPs, however, expect him to do so. He will be mocked and derided as "weak" for doing so. But if the PM can secure a lasting settlement, one that is regarded as legitimate and definitive, it will be more than worth it. 

George Eaton is political editor of the New Statesman.