RIP Tony Benn

March 17, 2014

How does emigration affect countries-of-origin? Paul Collier kicks off a debate on migration

March 17, 2014

Q: How many people is one rich man worth? A: 6.3 million. Extreme Inequality in the UK

March 17, 2014
empty image
empty image

Following his uber killer fact paper (assets of world’s 85 richest individuals = 3.5 billion poorest) Ricardo Fuentes (@rivefuentes) Ricardo Fuentes, autor de un informe de desarrollo social de la ONU.turns his jaundiced but numerate gaze to the UK (and triggers another media splash – see end for links)

Economic inequality is much talked about these days. Two documents have made a splash over the last month: first, an IMF paper highlighting the potential dangers of inequality argued that redistribution does not harm economic growth. And last week, the much awaited English translation of Thomas Piketty’s book Capital in the 21st Century was released, prompting several new reviews.

In January, Oxfam released the paper “Working for the Few”, which got its share of attention. In it, we highlighted the vast global disparities in wealth and the worrying trends for some countries.

Now it’s the turn to look closely at Britain’s numbers. Here are the facts (from a new Oxfam briefing, A Tale of Two Britains):

  • The richest person in the UK (Gerald Cavendish Grosvenor, aka the 6th Duke of Westminster) is wealthier than the bottom 10 % of the population in the UK (that’s 6.3 million people).
  • The richest 5 families in Britain are wealthier than the bottom 20 % of the population (12.6 million people).
  • In the last two decades (since 1993) the income of the bottom 90 % has increased by 27%, while the income of the richest 0.1 % has increased by 101%. In absolute terms the difference is much bigger – 1% of a shedload of cash is much more than 1% of a pittance. The bottom 90% has seen an increase in real income of about £150 per year . The top 0.1%, on the other hand, has seen its income rise by more than £24,000 a year, for two decades.

Since the fiscal year 2002/2003, real after-housing income for the poorest 95% of the population has actually gone down, while the after housing yearly income of the richest 5% has gone up.

The calculations are quite straightforward, using several sources, including the most recent billionaire’s list from Forbes, the Credit Suisse Databook, the World Top Incomes Database and the Family Resources Survey by the Department of Work and Pensions (also analyzed in detail by the Institute of Fiscal Studies in their “Living Standards, Poverty and Inequality in the UK:2013”).

crony wealthIn “Working for the Few”, we argued that this type of extreme inequality creates a vicious circle. Wealth that is concentrated in the hands of a few can then be used to buy political influence to rig the rules in favour of this small elite and perpetuate inequality. This process is not only worrying Oxfam. This week’s Economist has a cover story on “The New Age of Crony Capitalism”. In the accompanying leader, the magazine argues that:

“Capitalism based on rent-seeking is not just unfair, but also bad for long-term growth. As our briefing on India explains (…), resources are misallocated: crummy roads are often the work of crony firms. Competition is repressed: Mexicans pay too much for their phones. Dynamic new firms are stifled by better-connected incumbents. And if linked to the financing of politics, rent-heavy capitalism sets a tone at the top that can let petty graft flourish.”

How does this relate to billionaire’s wealth? The Economist goes on to argue in the full article that “Billionaires in crony sectors have had a great century so far (…). In the emerging world their wealth doubled relative to the size of the economy, and is equivalent to over 4% of GDP, compared with 2% in 2000. Developing countries contribute 42% of world output, but 65% of crony wealth.”

Britain is not immune to this problem. In the Economist’s “Crony-Capitalism Index”, it ranks higher (meaning billionaires’ wealth from crony capitalism indexcrony-prone sectors) than the US, Japan, Germany, France and South Korea and has some pretty unsavoury neighbours in the table.

All this is happening while the use of food banks is increasing across the country.

This is not about politics of envy. It is about ensuring that political representation and voice is not captured by a few. Some degree of inequality is required to reward those with talent, hard earned skills, and the ambition to innovate and take entrepreneurial risks. And plenty of wealthy people contribute to individual good causes. But the observed trends (in the level of wealth concentration and crony capitalism) point to a politically and economically dysfunctional level of inequality that everyone – from the IMF to the late Tony Benn – realize needs to be sorted out. As Paul Krugman wrote recently, while discussing the issue: people aren’t envious, they are angry – and with good reason.

Lots of media coverage on this bit of number crunching, including the Daily Mail, the Mirror, Sky News , ITVThe Independent and Guardian (front page, below). Hope the ‘policy into practice‘ pundits are paying close attention.

Guardian front page

3 comments

  1. Great article Duncan, and well done for bringing lots of excellent resources together.

    I would also recommend a visit to the Equality Trust’s site – lots of great data and powerful evidence for why this is phenomenon is so corrosive socially as well as economically:

    http://www.equalitytrust.org.uk

    A point I would like to make is that even under “Labour” (well, Tony Blair’s twisted version) inequality in the UK continued to widen. So often the discourse is hijacked towards mobility, incentives and opportunity for routes out of poverty for the indivudual. Whilst these too have all but frozen, it misses the point that the problem is the very existence of obscene and widening income gaps at all; not the often mythical opportunities for social advancement between the strata.

    Looking forward to the traction of this discussion moving up a notch when we have a chance to see the films “Inequality for All” and “The Spirit Level”.

  2. So what is The Economist’s solution?
    Free market capitalism with ‘lite-touch’ self regulation is what they have always touted (how they loved Thatcher).

    This leads inevitably to cronyism and worse. Is it epiphany time therefore or are they just wringing their hands, as usual, at a ‘market failure’?

  3. Dear Duncan,

    As you mentioned…so many conversations about inequality as if it’s a plague….some kind of communicable disease that struck us. With all due respect for the good work that was done to pull this (these) research together – it just continues to convey a message that we are a “Society of Victims”. The new trends to have Lifebuoy, Coca Cola, and SAB Miller be the new faces of international development will just help accelerate inequality.

    Corporations are just like politicians…we have the power to keep them in power and we also have the ability to reduce their capability to create further inequality. Don’t get me wrong…I love corporations — I do use Lifebuoy once in a while, I rarely drink Coca Cola, and yes I am sure I drink beer made by SAB Miller.

    Just look at Guatemala…it’s owned by eight families that control – communication, beer, chicken, flour, banking, and much more. They also influence politics and manage prices of commodities/goods in Guatemala. The same situation applies to most developing countries (and developed country).

    We all have the power to change the situation and effectively reduce inequality. The ongoing discussion to paint “us” like a Society of Victims doesn’t really help in changing the situation.

    This is self-inflicted inequality.

    I am currently based in Colombia where the poorest of poorest prefer to drink soft drinks because it’s cheaper than freshly squeeze juice – on the other hand…farmers suffer from malnutrition and it’s more efficient to let crops rot in the field than take them to the market.

    Once again…I am not against corporations – do we need more research and infographic to show the disparity or just common sense!

Leave a comment