The ‘inequality question’ has no solution under capitalism

Since the 1970s, inequality has grown to such obscene proportions, both domestically and globally, that some historians are comparing modern society with medieval feudalism and ancient slave-owning economies to try and understand what might happen next.¹ The vast majority of people have taken only a small part of income growth for several decades; they look on with growing and justified resentment as an elite minority accumulates spectacular wealth while their own wages stagnate, decade on decade, and the public services they depend on for daily life are neglected, dismantled and privatised. Some sections of the capitalist class are clearly becoming uneasy as the growing rift between rich and poor could soon threaten economic and political stability. Economists, business leaders and policy thinktanks attempt to solve the ‘inequality question’ with a variety of proposals, ranging from well-meaning philanthropy to a global wealth tax. But they are bringing knives to a gunfight. The historians are right – inequality will be levelled by disaster or by revolution. Will Harney reports.

Income inequality in Britain

If you ask the British government, it insists that all is well and income inequality is at a 30-year low. It points to Office of National Statistics (ONS) data, which calculates the Gini coefficient (a measure of equality ranging from 0 to 1, with 0 meaning everyone on the same income and 1 meaning that just one person took everything) for income in Britain as currently scoring 0.32, compared to 0.37 in the late 1980s and around 0.35 in the mid-2000s. The Prime Minister and Chancellor have argued that British people’s incomes are therefore more equal now than at any time since the mid-1980s.

But the ONS data is flawed. This was pointed out in a report by the Resolution Foundation,² which indicates that both the ONS and Department for Work and Pensions (DWP) data fails to properly take into account the incomes of the richest people. The DWP’s statistics are slightly more reliable in that they take more account of very high incomes, the top 1% – and indeed they show that income inequality in the UK is at 0.35 and has remained, at best, flat for a long time but is now rising. But even the DWP does not consider the money which the richest 0.1% receives from sources such as inheritance or capital gains. It is in the interests of the state to conceal these sources of income: as governments under both Conservatives and Labour over the last two decades have made tax changes which benefit the rich and increase inequality, Britain is on track to fail its international agreement to reduce inequality within and between nations as part of the 2030 UN sustainable development goals.

Recent reports on incomes and inequality by the Resolution Foundation³ indicate the true extent of inequality in the UK and the shape it will take in the years to come. In 2017-18, typical incomes grew by 0.9% after housing costs and over the next five years income growth is expected to reach only 1.3%, well below the average of 2% before the 2007-8 financial crisis. Real household incomes fell by 0.5% to 1.5% among the bottom third of households, while in the top half they grew by around 0.4%. The most recent ONS data published on 26 July casts no illusions: in the financial year ending 2017 the average British household experienced a shortfall of £900, with outgoings surpassing income for the first time since 1988; ‘the poorest 10% of households spent two-and-a-half times their disposable income, on average… In contrast, the richest 10% spent less than half of their available income during the same period.’⁴

Wealth inequality, the elephant in the room

The statistics on income inequality show a lack of progress and potentially worse times ahead. Statistics on wealth inequality are even more sobering, with the Gini coefficient for wealth being 0.62, almost twice as high as income inequality. A report published by the ONS in February 2018 found that, while Britain is wealthier than it has ever been, most of the wealth – in property, savings, shares in companies and luxury possessions – is held by a small ruling class. Total net household wealth in Britain reached £12.8 trillion in June 2016. The richest 10% of households own almost half of this, with the top 1% of households each owning assets worth at least £3.2m – though many of them own considerably more. By contrast the poorest 50% own just 8.7% of Britain’s wealth. The poorest 20% of households actually saw their overall wealth decline in real terms during the two-year period the ONS studied.

What the wealth statistics reveal are deepening class divisions in British society, in a way that income only hints at. While the top 10% of households by income make 6.8 times as much as the bottom 10% in terms of pay, the wealthiest 10% own assets worth 290 times more than the wealth of the poorest 10%. Such stark inequality is not simply the result of greed; it is only made possible by class society, in which a small minority own the means of production and extract vast profits, not only from workers in Britain but from the dependent nations of the world through imperialist plunder, while the great majority toil for subsistence wages and have only a tiny amount of property and often significant debt. The British state, controlled by the ruling class, has made no effort to reduce the growing gulf between rich and poor through taxation. While the total amount of wealth has more than doubled compared to national income in half a century, revenues for the exchequer from wealth taxes have remained flat, showing that wealth has not been taxed progressively under any government, Labour or Tory.

Humankind divided

Levels of inequality in Britain reflect a global picture. We are returning to conditions resembling the US’ ‘gilded age’, before the world wars, when great capitalists such as the Carnegies and Rockefellers held colossal fortunes due to their monopoly control of the most profitable industries, living in conspicuous luxury while intense poverty afflicted the rest. These were followed by the unstable conditions of the early 20th century in which great crises erupted and revolutionary movements were organised to seize the moment.

In 2017, the world’s richest 500 people saw their wealth increase by 23%, or $1 trillion, taking their combined fortunes to $5.3 trillion. Jeff Bezos, the founder of Amazon, has now been recognised as the wealthiest man in modern history. It is predicted that, by the early 2040s, individuals such as Bezos and Microsoft founder Bill Gates will be among the first ever dollar trillionaires. How have such fortunes been amassed? Since the 1980s, the top 1% captured 28% of real income growth in the advanced capitalist nations of North America and Western Europe, while the bottom 50% in those countries captured just 9%. In North America specifically, the top 1% captured as much as the bottom 88%.⁵

On current trends, the wealthiest 1% of people are on track to own two-thirds of all private wealth by 2030. Writing in the Financial Times in December 2017, Martin Wolf warned that inequality is a ‘threat to our democracies’, as he suggested there are only two possible outcomes for capitalism if inequality continues to grow unchecked – either a dictatorship which keeps the masses from rising up, or a revolution which would expropriate the rich and create an equal society. To reach these dramatic conclusions he draws on the work of historian Walter Scheidel, who in his book The Great Leveler argues that elites have always been able to extract almost all the surplus value created in the economies they rule; the process of wealth accumulation has only ever been halted by great catastrophes or uprisings. This historic pattern was repeated in modern times: Wolf notes that global inequality fell in the early- and mid-20th century because of revolutions – in Russia and China – and two world wars, followed by post-war reconstruction. This period of falling inequality was an anomaly in the history of capitalism.

The only solution, revolution

There are many solutions to the ‘inequality question’ proposed by those who wish to keep capitalism, the underlying basis of wealth accumulation, intact. Philanthropists Bill Gates and Warren Buffett, the second and third richest people on Earth, created the ‘Giving Pledge’, a promise made by billionaires to give more than half of their wealth to charity. More than 180 of the world’s richest people have signed up, including David Rockefeller, Elon Musk and Richard Branson, their names and photographs proudly displayed on the Pledge’s website. To date they have pledged around $370bn; how much of this has been handed over yet is not publicised. Of course, voluntary charity can always be withdrawn, and the signatories choose individually which charitable causes they will support. This means that the fund will not be administered efficiently according to greatest need but parcelled out according to the whims of billionaires and their judgment of who or what is a deserving recipient of their charity money – which is surplus value exploited from workers in the first place.

More institutional measures to reduce inequality have been fielded. Among the authors of the World Inequality Report is Thomas Piketty, the French economist who has proposed a global wealth tax to rein in growing inequality. Despite Piketty’s advocacy, wealth taxes are far from the agenda of today’s governments; in fact, his native France abolished its wealth tax last year. Bill Gates once said to Piketty, ‘I care a lot about inequality but I don’t want to pay more taxes’. Governments are hardly inclined to impose greater taxation on capitalists such as Gates in an era in which they face declining profitability, and hence have little incentive to move their capital out of tax havens and invest it.⁶ The United Nations World Investment Report 2018 notes that global Foreign Direct Investment (FDI) fell by a dramatic 23% in 2017, with inward FDI flows to the developed economies falling especially sharply, by 37%. The authors explain this by a world-wide falling rate of profit: ‘The global average return on foreign investment is now at 6.7%, down from 8.1% in 2012. Return on investment is in decline across all regions’ (see table 1).⁷ Capitalism’s inherent tendency towards crisis, demonstrated by Marx, ensures that inequality will not be solved by tax burdens that only accelerate the crisis.

Table 1: Inward FDI rates of return, 2012-2017 (%)

No one can be sure what forms the crisis of capitalism will take in the coming decades, but the prospect of a peaceful resolution to growing class divisions is vanishing. If history is anything to go by, the growing imbalance of class society will lead to either great catastrophe or revolution by the oppressed classes. It is incumbent upon this generation to side with the oppressed and prepare to build a classless society.

Fight Racism! Fight Imperialism! 265 August/September 2018

1          See Walter Scheidel, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, 2017. London: Princeton University Press.

2          See the Resolution Foundation, ‘Unequal results: improving and reconciling the UK’s household income statistics’, 3 December 2017. https://tinyurl.com/ybe9pveb

3          See the Resolution Foundation, ‘The Living Standards Outlook 2018’, 22 February 2018, and ‘The Living Standards Audit 2018’, 24 July 2018. https://tinyurl.com/yd6dhxv3

4          See ‘Making ends meet: are households living beyond their means?’ ONS, 26 July 2018. https://tinyurl.com/ybcxhpf3

5          See World Inequality Lab, World Inequality Report 2018. https://tinyurl.com/y9ds9qjb

6          See ‘Panama Papers: when cheating becomes necessary’, FRFI 251 June/July 2015 and ‘Paradise Papers – the offshore magic circle’, FRFI 261 December 2017/January 2018.

7          See UNCTAD, World Investment Report 2018, 6 June 2018. https://tinyurl.com/yc42wmpz