An elite view of inequality
Inequality has become a central preoccupation of Britain’s ruling elite but is the concern justified? Yesterday one of the leading figures of “the great and the good” put the case for making the issue a top priority.
Richard Lambert is without doubt one of the country’s most eminent figures. Previous roles held by the current chancellor of Warwick University include editor of the Financial Times, director general of the Confederation of British Industry and membership of the Bank of England’s monetary policy committee.
At a breakfast organised by CentreForum, a liberal think tank, he gave, as would be expected, a succinct overview of the subject. Lambert covered why inequality has risen sharply since the mid-1970s, whether it matters and what can be done.
He identified two key factors that have led to the widening of inequality across the western world (with the interesting exception of France) and the emergence of a “winner takes all society”. The rise of information technology has eliminated many mid-level processing jobs while globalisation has opened the West to intense competition from emerging economies.
An additional influence is what he calls “assortative mating”. People have become more likely to marry their social peers rather than someone from another class.
Lambert went on to argue that this trend to increasing inequality has become “turbo-charged” in Britain. One reason is the poor record of schools at providing skills to their pupils. Another is the rise of Thatcherite politics.
For Lambert this widening social division matters for both economic and social reasons. In relation to the former he identified four main problems:
· Demand has suffered as a result of the extreme concentration of high incomes at the top. This is because the wealthy are more likely to save than the less well off. In this argument he acknowledged The Price of Inequality (2012) by Joseph Stiglitz as a key influence.
· High income inequality is a waste of human capital. In this argument he referred to work on employment by the Organisation for Economic Cooperation and Development (OECD). The organisation has also monitored labour’s declining share of national income across the western world.
· The “trick-down effect” has not worked. This is contrary to earlier arguments from the International Monetary Fund (IMF).
· Rising inequality and poor social safety nets played a big role in causing the economic crisis. In this he said he follows the argument in ‘Fault Lines’, by Raghuram Rajan, a former chief economist at the IMF.
On the social level he pointed to the corrosive effect of widening inequality. Last summer’s riots in Britain were, he argued, an example of the dangers of a highly divided society. In this argument he was influenced by Michael Sandel whose recent book ‘What Money Can’t Buy’ focuses on the moral limits of economic growth.
Finally, Lambert raised possible solutions to the problems he identified. These included investing more in human capital through such initiatives as apprenticeships and putting more emphasis on skills in schools. He also favoured using tax measures such as a wealth tax or a land tax.
Two features of Lambert’s introduction stand out. The first is the heavy reliance on American authors. Although there are some influential British works on the subject, such as ‘The Spirit Level’, Americans seem to set the terms of debate. Perhaps this is not surprising given the huge size of the country and its extremely unequal character.
The other striking characteristic is strong anxiety about inequality itself. It is not as if the elite’s social position is being threatened by any radical movement.
Of course it would be possible to accept Lambert’s arguments at face value. But, as I intend to show in subsequent articles, there is more to the question than first appears.
Daniel Ben-Ami is a writer on economics and finance. His personal website can be found at www.danielbenami.com
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