Show Hide image

How can growth reduce equality?

This year’s prize-winning essay from the Webb Memorial Trust.

Richard A Easterlin concludes Growth Triumphant, his 1996 defence of the unbridled free market, with a utopian vision of “never-ending economic growth, a world in which ever-growing abundance is matched by ever-rising aspirations”. Easterlin’s work, written in the triumphalist “end of history” mode that was prevalent in the waning years of the 20th century, seems quaint in this age of austerity. Yet it encapsulates the central components of the ideological defence of market-driven growth.

It is not true, as many critics of the market maintain, that growth is pursued for its own sake. The argument for growth is always implicitly moral. It relies on the belief that, in search of greater efficiency, the market will deliver a perpetual rise in profits that, in spite of existing inequalities, will trickle down to the majority of the world’s population. We still turn to the ­18th-century political economist Adam Smith for the most eloquent and cogent defence of this. In a less well-known but more apt use of his favourite metaphor, he argued that, in a free market, the rich “are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the Earth been divided into equal portions among all its inhabitants, and thus . . . advance the interest of the society”.

Reality, however, differs from theory. As recent history proves, economic growth is often correlated positively with increasing inequality. According to the 2008 study Growing Unequal, published by the Organisation for Economic Co-operation and Development (OECD), income and wealth inequality have risen in most of the OECD countries since the 1980s, despite growth and higher government welfare spending (the situation has worsened since the financial crisis). Often, only a very limited amount of wealth trickles down to most of society. In the United States (one of the most unequal societies in the developed world), 91 per cent of income growth between 1989 and 2006 was appropriated by the top 10 per cent, according the Economic Policy Institute.

The defence of the free market ignores this. It is usually conducted at an abstract level, within a historical vacuum, which sustains the myths of meritocracy and free competition on which it rests. Yet we are all born into a pre-existing unequal society and the capital that we are born with plays a large role in determining whether we succeed or fail.

The same process contributes towards economic concentration and monopolisation. Just as individuals begin from a position of inequality in their pursuit of jobs, companies begin from a position of inequality in pursuit of markets. Over time, some businesses drive out competitors and occupy an ever-increasing share of capital and markets, which aids them in future competition. Although it is true that even the oldest and largest firms sometimes collapse, in general the historic unfolding of economic growth, wherever it is unimpaired by government regulation, has entailed the expansion of large enterprises at the expense of smaller ones and the growth of monopolies. The percentage of nominal US GDP held by the Fortune 100 companies, for instance, increased from 33 per cent in 1994 to 46 per cent in 2013.

Where the benefits of growth have reached the poor, as Beatrice Webb recognised, it is often in spite of market mechanisms. Government reforms – such as socialised health care, state education and minimum-wage legislation – have allowed greater access to the benefits of growth, along with political pressure from parties and unions that won these reforms. However, as government regulation has been relaxed, inequality has again increased.

The tendency for competition to intensify pre-existing inequality is even more insidious at an international level. The economic expansion of the Western world was driven by the exploitation of Africa, Asia and Latin America. Denial of this historic truth is sadly common in the economics profession, in which one can find reputable books, generally written by white, European authors, which blame African poverty on the “institutions” of African society and proclaim: “The main reason why Africa’s people are poor is that their leaders have made this choice.” This denial of colonial exploitation was reiterated last September by David Cameron who, responding to the justifiable Jamaican request for reparations to compensate for the legacy of slavery, urged the country to “move on”.

Poor countries, however, cannot simply escape or forget the legacy of colonialism. They entered the global market, after independence, in a status of underdevelopment that was conditioned by the exploitation they had suffered. The policies of “free trade”, which poor countries the world over have been forced to accept, deepen inequalities for the same reason as free markets within a nation do: those that are already rich are better placed to compete. Since the collapse of Keynesianism and the advent of what are, in effect, unrestricted free markets, this process has intensified. The share of world incomes received by the richest 20 per cent of the global population increased from 30:1 in 1960 to 103:1 in 2005.

Countries in Africa and Latin America are often forced by the poverty of the domestic market to pursue growth through exports, tailoring their economies to the needs of Western consumers. In Bangladesh, over 80 per cent of the country’s exports relies on the garment industry, which employs four million people – most of them women, and many at near-starvation wages. The country has the distinction of producing the cheapest clothing in the world, and so its
garment industry is highly competitive.

Who gains from this growth? The proceeds accrue overwhelmingly to the Western retailers that buy the clothes. Some of the profits are gained by Bangladesh’s native elites who own the factories. A vanishingly small proportion – roughly £25 a month (almost half of what is considered subsistence level) for 14-16 hours of work per day – is earned by the women who make the clothes. But Bangladesh is an economic success story, according to a recent article on Bloomberg.


The same article suggests that the exploitation of impoverished women in garment factories will lead to universal enrichment, because: “As the economy develops, garment factories will move on from country to country, until every country has industrialised to the point where no one in the world is working for [poverty wages].”

No statement could illustrate more clearly the insulation of economics from reality. In 300 years, the end of poverty has not been achieved by the market mechanism and there are not 300 years left of a free-market economy in which to test the theory further. The competitive quest for growth is – though unnoticed by some – destroying our natural environment at terrifying speed. As Naomi Klein has written, climate change represents “an existential threat . . . with no historical precedent”.

Climate change is overwhelmingly produced by the consumption of rich nations but the devastation it wreaks will first be felt disproportionately in the poorest. This represents the supreme inequality of the economic system. Vast swaths of the world were looted by Western powers in the colonial era. Now the West’s consumption threatens to unleash further devastation on already impoverished populations.

We must overcome growth or perish. It will not be easy. As Edward Heath once said, “The alternative to expansion is not an England of quiet market towns . . . The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.”

Growth is inherent to an anarchic free-market system. Businesses do not face a choice whether or not to grow – they face an imperative. If a business decided not to exploit new technology or new pools of cheap labour for moral reasons (such as concern for wages or the environment), it would quickly be overtaken by competitors.

I want to end, however, not with a bleak warning of dystopia but with a dream. We must look beyond measures such as economic growth, which treasure profit at any social cost, and examine new measures, such as the Index of Sustainable Economic Welfare (produced by the New Economics Foundation), which include factors such as the necessity of ecological sustainability and social equity in judgements of economic well-being.

We must address the inequitable consumption of fossil fuels by rich nations and examine plans (such as the Global Commons Institute’s “contraction and convergence” initiative), which call for an equitable redistribution of emissions. We must rethink our approach to work and leisure to ensure that technological advances represent the possibility of greater leisure and personal enrichment for all and not a threat to employment.

Most significantly, to achieve any of this, we must bring the market mechanism under control and build a democratically managed economy, in which the lust for profit is subordinated to the need for ecological sustainability and social equity. We must build this world for the sake of our survival – but we should struggle for it in any event, for the sake of our souls.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle

Photo: Getty
Show Hide image

How the row over Jackie Walker triggered a full-blown war in Momentum

Jon Lansman, the organisation's founder, is coming under attack. 

The battle for control within Momentum, which has been brewing for some time, has begun in earnest.

In a sign of the growing unrest within the organisation – established as the continuation of Jeremy Corbyn’s first successful leadership bid, and instrumental in delivering in his re-election -  a critical pamphlet by the Alliance for Workers’ Liberty (AWL), a Trotskyite grouping, has made its way into the pages of the Times, with the “unelected” chiefs of Momentum slated for turning the organisation into a “bland blur”.

The issue of contention: between those who see Momentum as an organisation to engage new members of the Labour party, who have been motivated by Jeremy Corbyn but are not yet Corbynites.

One trade unionist from that tendency described what they see the problem as like this: “you have people who have joined to vote for Jeremy, they’re going to meetings, but they’re voting for the Progress candidates in selections, they’re voting for Eddie Izzard [who stood as an independent but Corbynsceptic candidate] in the NEC”.  

On the other are those who see a fightback by Labour’s right and centre as inevitable, and who are trying to actively create a party within a party for what they see as an inevitable purge. One activist of that opinion wryly described Momentum as “Noah’s Ark”.

For both sides, Momentum, now financially stable thanks to its membership, which now stands at over 20,000, is a great prize. And in the firing line for those who want to turn Momentum into a parallel line is Jon Lansman, the organisation’s founder.

Lansman, who came into politics as an aide to Tony Benn, is a figure of suspicion on parts of the broad left due to his decades-long commitment to the Labour party. His major opposition within Momentum and on its ruling executive comes from the AWL.

The removal of Jackie Walker as a vice-chair of Momentum after she said that Holocaust Memorial Day belittled victims of other genocides has boosted the AWL, although the AWL's Jill Mountford, who sits on Momentum's ruling executive, voted to remove Walker as vice-chair. (Walker remains on the NEC, as she has been elected by members). But despite that, the AWL, who have been critical of the process whereby Walker lost her post, have felt the benefit across the country.

Why? Because that battle has triggered a series of serious splits, not only in Momentum’s executive but its grassroots. A raft of local groups have thrown out the local leadership, mostly veterans of Corbyn’s campaign for the leadership, for what the friend of one defeated representative described as “people who believe the Canary [a pro-Corbyn politics website that is regularly accused of indulging and promoting conspiracy theories]”.

In a further series of reverses for the Lansmanite caucus, the North West, a Momentum stronghold since the organisation was founded just under a year ago, is slipping away from old allies of Lansman and towards the “new” left. As one insider put it, the transition is from longstanding members towards people who had been kicked out in the late 1980s and early 1990s by Neil Kinnock. The constituency party of Wallasey in particular is giving senior figures in Momentum headaches just as it is their opponents on the right of the party, with one lamenting that they have “lost control” of the group.

It now means that planned changes to Momentum’s structure, which the leadership had hoped to be rubberstamped by members, now face a fraught path to passage.

Adding to the organisation’s difficulties is the expected capture of James Schneider by the leader’s office. Schneider, who appears widely on television and radio as the public face of Momentum and is well-liked by journalists, has an offer on the table to join Jeremy Corbyn’s team at Westminster as a junior to Seumas Milne.

The move, while a coup for Corbyn, is one that Momentum – and some of Corbyn’s allies in the trade union movement – are keen to resist. Taking a job in the leader’s office would reduce still further the numbers of TV-friendly loyalists who can go on the airwaves and defend the leadership. There is frustration among the leader’s office that as well as Diane Abbott and John McDonnell, who are both considered to be both polished media performers and loyalists, TV bookers turn to Ken Livingstone, who is retired and unreliable, and Paul Mason, about whom opinions are divided within Momentum. Some regard Mason as a box office performer who needs a bigger role, others as a liability.

But all are agreed that Schneider’s expected departure will weaken the media presence of Corbyn loyalists and also damage Momentum. Schneider has spent much of his time not wrangling journalists but mediating in local branches and is regarded as instrumental in the places “where Momentum is working well” in the words of one trade unionist. (Cornwall is regarded as a particular example of what the organisation should be aiming towards)

It comes at a time when Momentum’s leadership is keen to focus both on its external campaigns but the struggle for control in the Labour party. Although Corbyn has never been stronger within the party, no Corbynite candidate has yet prevailed in a by-election, with the lack of available candidates at a council level regarded as part of the problem. Councilors face mandatory reselection as a matter of course, and the hope is that a bumper crop of pro-Corbyn local politicians will go on to form the bulk of the talent pool for vacant seats in future by-elections and in marginal seats at the general election.

But at present, a draining internal battle is sapping Momentum of much of its vitality. But Lansman retains two trump cards. The first is that as well as being the founder of the organisation, he is its de facto owner: the data from Jeremy Corbyn’s leadership campaigns, without which much of the organisation could not properly run, is owned by a limited company of which he is sole director. But “rolling it up and starting again” is very much the nuclear option, that would further delay the left’s hopes of consolidating its power base in the party.

The second trump card, however, is the tribalism of many of the key players at a local level, who will resist infiltration by groups to Labour’s left just as fiercely as many on the right. As one veteran of both Corbyn’s campaigns reflected: “If those who have spent 20 years attacking our party think they have waiting allies in the left of Labour, they are woefully mistaken”. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.