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.