Five million dollars in cash. Photo: Joe Raedle/Getty Images
Show Hide image

Leader: The 1 per cent and the masses

The thesis developed by Capital author Thomas Piketty is set to be vindicated, with the most prominent critiques of inequality now economic.

Based on current trends, as research by Oxfam has found, a remarkable new threshold will be passed next year: the richest 1 per cent will own more than 50 per cent of the world’s wealth. The corollary is worth stating: the remaining 99 per cent will own less than half.

Inequality fell immediately after the 2008 financial crisis as incomes at the top and in the middle declined more sharply than those at the bottom (the poor having less to lose and being partly insulated by social security). But it has risen since, as quantitative easing has inflated asset prices, fiscal austerity has eroded welfare benefits and wages have remained depressed. The thesis developed by the French economist Thomas Piketty – that the gap will widen as long as the rate of return on capital exceeds the growth rate of the economy – appears destined for vindication.

The usual objections to inequality are moral. For Karl Marx, it represented the corrosion of our common humanity and the denial to workers of the products of their labour. For John Rawls, a society that did not redound to the greatest benefit of the least advantaged was one that no rational, self-interested individual would accept unless he or she was behind a “veil of ignorance”.

But the most prominent critiques of inequality are now economic. From the IMF, the OECD and the Bank of England, the message has gone out that the wealth gap is bad for growth. The uneven distribution of rewards threatens economic stability (as the poor are forced to borrow to maintain their living standards), reduces productivity and undermines social mobility. A recent study from the OECD estimated that the UK economy would be roughly 20 per cent larger if the gap between the rich and the poor had not become a chasm in the 1980s. It found that “income inequality has a sizeable and statistically negative impact on growth” and that “redistributive policies achieving greater equality in disposable income have no adverse growth consequences”.

It is this that explains why a subject once regarded as a leftist talking point again features on the agenda of the World Economic Forum in Davos, with 14 measures proposed to narrow the gap. Among them are more progressive systems
of taxation, increased trade union membership, higher minimum wages and greater investment in public services. Such remedies would once have appeared banal, but in the post-Thatcherite landscape they can seem daringly radical. The very legitimacy of the state as an economic actor is a belief that has to be fought for.

In the years since the crash, governments have focused on the immediate task of ensuring macroeconomic stability by repairing banking systems and reducing fiscal deficits. But as recovery takes hold, most notably in the US and the UK, it is right to ask more profound questions about the shape of modern capitalism. Rather than the trickle-down economics of recent decades, global leaders need to rediscover the virtues of Keynesian “trickle-up”. By increasing the disposable incomes of the poorest, governments and businesses will help to generate the growth on which capitalism depends. It is time for states not merely to listen but to act.

This article first appeared in the 23 January 2015 issue of the New Statesman, Christianity in the Middle East

Grant Shapps on the campaign trail. Photo: Getty
Show Hide image

Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.