Stewart Lansley offers a sharp and cogent analysis of the failings of our economic model and how, perhaps most worryingly, there seems to be very little being done about it, finds Daniel Sage. The book contains a well-told story about the failures of the neo-liberal model of capitalism, with some well-told solutions as well.

The Cost of Inequality: Why Economic Equality is Essential for Recovery. Stewart Lansley. Gibson Square Books. October 2011.

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Since the onset of the financial crisis in 2008, the subsequent economic inquest has often found inequality as one of the guilty players. The fact that rising inequality might be problematic was brought forcefully to wider public attention by the epidemiologists Richard Wilkinson and Kate Pickett in The Spirit Level, which argued – controversially to some – that higher levels of income inequality caused a wide range of health and social problems. The scale of inequality has also been rendered problematic by both David Cameron and Ed Miliband, while a recent debate at the LSE pondered whether a banker should really be paid more than a nurse. There is, it seems, a strong sense that something should be done about high inequality. It is certainly not fine to be intensely relaxed about the filthy rich anymore.

This is the context for Stewart Lansley’s The Cost of Inequality, a book that further advances the case against unequal financial rewards. Not only is inequality socially damaging, argues Lansley, but it is economically damaging too. In fact, it was rising inequality that was responsible for the 2008 crash; just as it was for the Great Depression of the 1930s.

The major argument of The Cost of Inequality is that there have been four mechanisms by which high inequality has increased economic instability. Together, these mechanisms make up what Lansley calls “the limit to inequality”The first of these is that inequality has led to a ‘shrinking global wage base’ amongst lower to middle earners. And, as increasing amounts of capital have been siphoned off by the super-rich, average earners have made up for stalling wages by increasing their levels of personal debt. This, argues Lansley, led to unsustainable levels of personal indebtedness that were ultimately “the trigger for the crisis”.

The second mechanism is the “steady divorce between the process of enrichment and the interests of the wider economy”. By this, Lansley means that the way to get rich became deeply separated from the broader processes of strengthening the wider economy. Further, not only did wealth accumulation within the financial sector fail to benefit the wider economy but it eventually caused it harm: making it “more fragile and less able to cope with external shocks”.

The third and fourth mechanisms are closely intertwined. First, as a consequence of mechanism one – falling wages – financial institutions found themselves with record levels of liquidity. Second, this process led to an intensified concentration of wealth that simultaneously concentrated political lobbying power. As a result, banks and other institutions “effectively came to write their own financial rules”; rules that were, unsurprisingly, designed to maximise short-term profit, not long-term economic stability.

Together, Lansley argues that these mechanisms have created an unsustainable economic model underpinned by unsustainably high levels of inequality. To redress the chaos, Lansley argues for a system built around stronger ‘pre-distribution’; or, in short, an economic system that is already structured in order to bring about higher equality without the need to use the mechanisms of the state to redistribute wealth and income. Tentatively, Lansley offers four policies that could bring about such pre-distribution: a reforming of the ‘single business goal of shareholder value’; a restructuring of the labour market, beyond ‘flexibility’ and towards the northern European model of ‘flexicurity’; a radical overhauling of the tax system to make it more progressive; and some finance-specific measures, such as new rules on the size of bank assets in relation to GDP or a ‘Robin Hood tax’.

The Cost of Inequality is certainly a well-written and well-researched study that draws upon an impressive range of research and data, with statistics that often shock in their description of economic inequalities. Yet there remains one niggling issue: that this book is not really about inequality at all. Rather, The Cost of Inequality is a book about the particular system of capitalism that the UK and the US have constructed over the past three decades. It is a critique about a system of finance, hedge funds, private equity firms, personal debt and huge profits; a system that inequality is a consequence of, but not necessarily a cause. Because of this, Lansley’s remedy is for a restructuring of capitalism, not a restructuring of inequality. This limitation is evident in Lansley’s conceptual treatment of inequality. Nowhere in The Cost of Inequality is there too much evidence that Lansley has thought in-depth about what inequality actually means and how it relates to relationships of status, social class and the nature of stratification and division in rich societies. Inequality is simply treated as how income is distributed within a society, a simplistic definition that has come under criticism from sociologists for its inadequacy.

Thus despite the lofty ambitions of the title, there is perhaps little that is original about The Cost of Inequality. It contains a well-told story about the failures of the neo-liberal model of capitalism, with some well-told solutions as well. Nevertheless, while readers will not necessarily be treated to an analysis of inequality, they will be treated to what Lansley really offers: a sharp and cogent analysis of the failings of our economic model and how, perhaps most worryingly, there seems to be very little being done about it.


Daniel Sage is a PhD student at the University of Stirling. His PhD thesis explores how welfare-to-work reforms have affected the experiences and interactions of benefit claimants with the welfare system. Additionally, he has academic interests in income inequality and social cohesion, public attitudes towards the welfare state and the politics and philosophy of social policy. He has a BA in History from University College London and an MSc in Social Policy from the LSE. He tweets at @djsage86 and blogs at http://knowledge-is-porridge.blogspot.comRead reviews by Daniel.

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