In all the debate about economic recovery inequality is scarcely mentioned. Yet gross inequality is not only deeply resented and demoralising in wider society, it is also profoundly inimical to recovery and growth. This of course stands on its head the conventional wisdom of the last 30 years of neoliberal capitalism which asserts that inequality is good for all of us because it increases growth which then trickles down to everyone – in the tired old cliche’, all boats are lifted on a rising tide.
The evidence of the last three decades however shows that this is plain flat wrong. Comparing the three decades 1950-80 with the next three 1980-2010, in the latter period the wage share was reduced while at the same time productivity fell back, industrial investment declined, the recessions were deeper and longer, and debt grew massively. All boats did not rise equally: the bottom tenth of earners increased their incomes by 20% (until the crash in 2008, after which they have fallen by 7% in real terms), median earner incomes rose 60% and the top tenth rose 100% (and after the crash have continued to rise).
In other words, the neoliberal capitalist model has been proved utterly false. It has colossally benefited the top 10% and particularly the top 1% and most of all the top 0.1%, but at the price of leaving everyone else behind and now after the crash not only widening relative inequalities, but absolute inequalities by big cuts in real incomes. The wage share in GDP has been cut from 65% in 1977 to just 53% in 2008, and by 2009 21% of employees were in low-paid work (on OECD definitions) compared, say, with France at 11%.
So what happened to all the enormous tidal wave of wealth accumulating at the top under neoliberal capitalism? Has it benefited the rest of society?Quite the reverse. Profits have hugely increased their share of GDP, and that money has been used overwhelmingly by the big institutions (the big 4 banks and the FTSE-100 companies) and the waelthiest individuals for investment in property, overseas speculation and tax avoidance often of the most aggressive artificial kind. Only 8% of the money supply has been allocated to manufacturing and exports.
It is even worse than that. As incomes of the vast majority of the population flatline or, worse, actually shrink as at present, the level of demand shrivels and the economy contracts. This is compensated under conditions of neoliberal capitalism by artificial ways of boosting demand, mainly by the growth of debt. Inevitably the property and credit bubbles since the 1980s eventually burst, partly because the other characteristic of recent neoliberalism – ‘light touch’ controls and regulatory capture – allowed the whole system rapidly to self-destruct.
The lesson of all this is that a very different economic model is now called for, one which massively reduces inequality which has got totally out of control. That requires a government relentlessly committed to increasing the bargaining power of labour to push up the wage share to achieve a stable wage-productivity ratio, making the pursuit of full employment the prime objective of economic policy, and replacing prolonged austerity with a dedicated jobs and growth strategy initially funded by a levy on the £730bn corporate cash piles now standing unused. Is Labour listening?