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Leader: Inherited inequality in the age of meritocracy

Thomas Piketty’s book Capital in the 21st Century has had a rapturous reception. 

Not since John Rawls’s A Theory of Justice in 1971 has a work of political theory been as rapturously received on the left as Thomas Piketty’s Capital in the 21st Century. The book having reached the summit of the Amazon sales chart in the United States, its 43-year-old French author, who visited London last week and whom the New Statesman was the first British publication to profile, has become that rarest of things: a celebrity economist.

In this supposedly superficial and anti-intellectual age, his 690-page treatise on inequality, rich in empirical research, has resonated because it speaks to one of the central anxieties of our time: that society is becoming ever more fragmented as the very rich pull away from the rest. As Mr Piketty elegantly demonstrates, as long as the rate of return on what he calls capital continues to exceed the growth rate of the economy (as it has done since the 1970s), inequality will widen to levels unknown since the Victorian era.

It is the United Kingdom that best embodies the troubled future he sketches out: “a society even more inegalitarian than that of the 19th century, because it will combine the arbitrariness of inherited inequalities with a meritocratic discourse that makes the ‘losers’ responsible for their situation”. Britain is the land of the baronet and the banker, the landed aristocrat and the asset-stripper. It combines the worst of capitalism with the worst of feudalism. The result is a society in which both income and wealth are grossly mal­distributed, innovation is stifled and equality of opportunity remains a myth.

To date, Mr Piketty’s critics on the British right have chided him for his focus on inequality, contending that an alternative metric, such as GDP, is a better measure of a country’s long-term success. Yet, as meticulously charted in 2009 by Richard Wilkinson and Kate Pickett in their book The Spirit Level, after a certain point of development, how well a society performs is dependent not on how wealthy it is but on how equal it is. More egalitarian countries, such as the Nordic states and Japan, enjoy higher levels of social mobility, trust and educational performance and lower levels of crime, obesity and mental illness than their divided counterparts, notably the US and the UK. Mr Piketty, who, despite his book’s allusion to Marx, is a mainstream social democrat, not a revolutionary socialist, concedes that some degree of inequality is necessary to stimulate enterprise. But the US and the UK long ago exceeded this point.

If we accept the premise that inequality is a social ill, the question becomes how to reduce it to the benefit of all. After the Scandinavian countries, Britain has one of the most redistributive tax and benefit systems in the world. National Insurance, VAT, income tax – the government already takes a lot of our money. Yet so great is the initial gap between rich and poor that the divide persists.

The solution is twofold. First, policymakers should look to embrace what the Yale political scientist Jacob Hacker calls “predistribution”: seeking to stop inequality before it starts. By pledging to spread the use of the living wage, raise educational standards, build more affordable homes, improve lending to small and medium-sized businesses and expand free childcare, Ed Miliband is trying to develop a programme to do so.

Second, the next government should be bold and secure a more resilient tax base. It should seek to bring the super-rich into taxation. One way to do this is to tax so-called unearned income and inherited wealth, most obviously land and property (and other static assets), which in Britain is even more unequally distributed than income. Wealth taxes are progressive and hard to avoid in an age when capital is so mobile; they benefit the economy by shifting investment away from housing and into more productive industries.

Rather than a society in which birth determines destiny – or “parentage dictates progress”, as the Education Secretary, Michael Gove, puts it – our politicians should seek to build one in which reward is once again linked to contribution.

This article first appeared in the 08 May 2014 issue of the New Statesman, India's worst nightmare?

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Should London leave the UK?

Almost 60 per cent of Londoners voted to stay in the EU. Is it time for the city to say good by to Brexit Britain and go it alone?

Amid the shocked dismay of Brexit on Friday morning, there was some small, vindictive consolation to be had from the discomfort of Boris Johnson as he left his handsome home in EU-loving Islington to cat-calls from inflamed north London europhiles. They weren’t alone in their displeasure at the result. Soon, a petition calling for “Londependence” had gathered tens of thousands of names and Sadiq Khan, Johnson’s successor as London mayor, was being urged to declare the capital a separate city-state that would defiantly remain in the EU.

Well, he did have a mandate of a kind: almost 60 per cent of Londoners thought the UK would be Stronger In. It was the largest Remain margin in England – even larger than the hefty one of 14 per cent by which Khan defeated Tory eurosceptic Zac Goldsmith to become mayor in May – and not much smaller than Scotland’s. Khan’s response was to stress the importance of retaining access to the single market and to describe as “crucial” London having an input into the renegotiation of the UK’s relationship with the EU, alongside Scotland and Northern Ireland.

It’s possible to take a dim view of all this. Why should London have a special say in the terms on which the UK withdraws from the EU when it ended up on the wrong side of the people’s will? Calling for London to formally uncouple from the rest of the UK, even as a joke to cheer gloomy Inners up, might be seen as vindicating small-town Outer resentment of the metropolis and its smug elites. In any case, it isn’t going to happen. No, really. There will be no sovereign Greater London nation with its own passport, flag and wraparound border with Home Counties England any time soon.

Imagine the practicalities. Currency wouldn’t be a problem, as the newborn city-state would convert to the euro in a trice, but there would be immediate secessionist agitation in the five London boroughs of 32 that wanted Out: Cheam would assert its historic links with Surrey; stallholders in Romford market would raise the flag of Essex County Council. Then there is the Queen to think about. Plainly, Buckingham Palace could no longer be the HQ of a foreign head of state, but given the monarch’s age would it be fair to turf her out?

Step away from the fun-filled fantasy though, and see that Brexit has underlined just how dependent the UK is on London’s economic power and the case for that power to be protected and even enhanced. Greater London contains 13 per cent of the UK’s population, yet generates 23 per cent of its economic output. Much of the tax raised in London is spent on the rest of the country – 20 per cent by some calculations – largely because it contains more business and higher earners. The capital has long subsidised the rest the UK, just as the EU has funded attempts to regenerate its poorer regions.

Like it or not, foreign capital and foreign labour have been integral to the burgeoning of the “world city” from which even the most europhobic corners of the island nation benefit in terms of public spending. If Leaver mentality outside the capital was partly about resentment of “rich London”, with its bankers and big businesses – handy targets for Nigel Farage – and fuelled by a fear of an alien internationalism London might symbolise, then it may prove to have been sadly self-defeating.

Ensuring that London maintains the economic resilience it has shown since the mid-Nineties must now be a priority for national government, (once it decides to reappear). Pessimists predict a loss of jobs, disinvestment and a decrease in cultural energy. Some have mooted a special post-Brexit deal for the capital that might suit the interests of EU member states too – London’s economy is, after all, larger than that of Denmark, not to mention larger than that of Scotland, Wales and Northern Ireland combined – though what that might be and how that could happen remain obscure.

There is, though, no real barrier to greater devolution of powers to London other than the political will of central government. Allowing more decisions about how taxes raised in the capital are spent in the capital, both at mayoral and borough level, would strengthen the city in terms of managing its own growth, addressing its (often forgotten) poverty and enhancing the skills of its workforce.

Handing down control over the spending of property taxes, as set out in an influential 2013 report by the London Finance Commission set up by Mayor Johnson, would be a logical place to start. Mayor Khan’s manifesto pledged to campaign for strategic powers over further education and health service co-ordination, so that these can be better tailored to London’s needs. Since Brexit, he has underlined the value of London securing greater command of its own destiny.

This isn’t just a London thing, and neither should it be. Plans are already in place for other English cities and city regions to enjoy more autonomy under the auspices of directly elected “metro mayors”, notably for Greater Manchester and Liverpool and its environs. One of the lessons of Brexit for the UK is that many people have felt that decisions about their futures have been taken at too great a distance from them and with too little regard for what they want and how they feel.

That lesson holds for London too – 40 per cent is a large minority. Boris Johnson was an advocate of devolution to London when he was its mayor and secured some, thanks to the more progressive side of Tory localism. If he becomes prime minister, it would be good for London and for the country as a whole if he remembered that.  

Dave Hill writes the Guardian’s On London column. Find him on Twitter as @DaveHill.