|Graphic not with original|
In a recent post, I argued that the recent rise in the inequality of incomes and wealth in some major advanced capitalist economies, like the US and the UK, was not the cause of crises under capitalism, and in particular, the Great Recession.
A correlation between rising inequality, slower growth and economic recession does not prove causation. Indeed, I argued that rising inequality has been a consequence of capitalism trying to avoid slumps from declining profitability by trying to squeeze more out of the workforce in increased surplus value – during the neoliberal era.
The British think-tank Resolution Foundation published a study by Paolo Lucchino and Salvatore Morelli that looked at all the empirical evidence on this issue. They concluded that “efforts to validate empirically the posited relationship between inequality and crisis have so far been inconclusive”. Morelli had worked with the eminent ‘inequality economist’, Sir Anthony Atkinson (see my post, http://thenextrecession.wordpress.com/2013/07/14/the-story-of-inequality/) on a study of 25 countries over a long period and again they “did not find conclusive evidence supporting the hypothesis that a growing level of economic disparities leads to higher macroeconomic instability”.
But that does not mean the grotesque levels of inequality of wealth and income that have been reached can be ignored – on the contrary, these inequalities exhibit the rottenness of a mode of production that concentrates wealth in the hands of a very few while the billions globally are poor in every sense of the word. And being poor is bad for you. The ever-increasing gulf between rich and poor in Britain is costing the economy more than £39bn a year, according to a report by the Equality Trust think tank.
The effects of inequality can be measured in financial terms through its impact on health, wellbeing and crime rates. The report puts the annual cost of inequality to the UK at £622 for every man, woman and child, with a total of £12.5bn lost through reduced healthy life expectancy, £25bn lost through poorer mental health, £1bn lost through increased imprisonment figures and £678m lost through an increase in murders. But it points to the incalculable extra benefits of a higher level of community cohesion, trust and social mobility associated with less unequal countries.
The wider economic cost of mental illness in England alone is estimated to be £105.2bn each year, which includes direct costs of services, lost productivity at work and reduced quality of life. The cost of poor mental health to businesses is just over £1,000 per employee per year, or almost £26bn across the UK economy. In 2008-09, the NHS spent 10.8% of its annual secondary healthcare budget on mental health services, which amounted to £10.4bn. Service costs, which include the NHS, social costs, and informal care costs, mounted to £22.5bn in 2007 in England. In a more equal UK, people could expect an extra eight and a half months of healthy life expectancy while rates of poor mental health could improve by 5%, valued at £24bn.
This sore in the side of humanity is getting worse, according to Thomas Piketty, one the world’s experts on global inequality (see his book, Capital in the 21st century at http://www.voxeu.org/article/capital-back and my post http://thenextrecession.wordpress.com/2014/01/13/americas-lost-generation-and-pikettys-rise-in-capitals-share/). Piketty recently commented: “According to Forbes’s global billionaires list, very top wealth holders have risen at 6 to 7 percent per year over the 1987-2013 period, i.e. more than three times faster than per capita wealth and income at the world level. Wealth concentration will probably stabilize at some point, but this can happen at a very high level.”
I already reported on the Oxfam report that found the wealth of 85 global billionaires is equivalent to that of half the world’s population – or 3.5 billion people. (see http://thenextrecession.wordpress.com/2014/01/23/more-on-global-wealth-inequality-davos-and-the-chinese-princelings/). These figures came from the extensive analysis of the UN database by economists Anthony Shorrocks and Jim Davies, who found that the top 10% wealth holders had 86% of all household wealth globally while the bottom 41% had just 1% (http://thenextrecession.wordpress.com/2013/10/10/global-wealth-inequality-10-own-86-1-own-41-half-own-just-1/).
Now, as the UK government prepares to present an annual budget designed to cut welfare benefits further for the working poor and squeeze real incomes for the average earner, Oxfam reports the country’s five richest families now own more wealth than the poorest 20% of the population. In its report, a Tale of Two Britains (mb-a-tale-of-two-britains-inequality-uk-170314-en-1), Oxfam said the poorest 20% in the UK had wealth totalling £28.1bn – an average of just £2,230 each. The latest rich list from Forbes magazine showed that the five top UK entries were the family of the Duke of Westminster, David and Simon Reuben, the Hinduja brothers, the Cadogan family, and Sports Direct retail boss Mike Ashley – between them had property, savings and other assets worth £28.2bn. These are Britain’s own top oligarchs (aside from the Russian ones that live in London).
Indeed, the 100 wealthiest people in the UK have as much money as the poorest 18 million – 30% of all people. The total wealth of these oligarchs rose £25bn last year to £257bn to surpass the £225bn held by the poorest 30% of British households. And remember household wealth consists of the ownership of a house or flat, pension fund and other possessions like cars. Total household wealth in the UK is £10trn, with the top 10% having £967bn and the bottom 10% just £13bn. The bottom 10% really have no wealth at all except old cars and a few personal possessions.
Imagine a room with 100 hundred people. 90 people are so short they can hardly reach the door handle to get out. Another nine people are only high enough to get a drink from the table. But one person is so huge that his or her head hits the ceiling and bursts through it. Such is the scale of inequality and concentration of wealth. Even the top 10% of wealth holders really own only their house that they live in along with maybe a reasonable pension. It’s the top 1% or even the top 0.1% who really have wealth in stocks, bonds and commercial property and businesses etc.
You see what really matters is not personal wealth but the ownership of the means of production. That gives you power as well as wealth – this is what oligarchs have. What is decisive for capitalism is surplus value (profit, interest and rent), not wage income or spending. Control of that surplus is key. The main feature of the last 100 years of capitalism has not been growing inequality of income. The main feature has been a growing concentration and centralisation of wealth, not income. And it has been in the wealth held in means of production and not just household wealth.
I have mentioned this before but it is worth repeating. Three systems theorists at the have taken a database listing 37 million companies and investors worldwide and analyzed all 43,060 transnational corporations and share ownerships linking them (see http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/). They have a built a model of who owns what and what their revenues are, mapping out the whole edifice of economic power. They discovered that a dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the network. A total of 737 companies control 80% of it all. This is the inequality that matters for the functioning of capitalism – the concentrated power of capital.
Britain’s oligarchs are part of this nexus.