Britain’s model of corporate capitalism and the increasing private ownership of capital lie at the root of growing inequality, writes Stewart Lansley; and so despite the political rhetoric against inequality, the problem can only be tackled through a “deconcentration” of wealth. Here, and drawing on examples used in his new book, he sets out the case for social wealth funds, the returns of which can be evenly shared across society. Through this model of collectively-owned wealth, the government can directly address the source of the socio-economic divide.
In recent months, the term “sharing economy” has been used mostly to describe a “peer-to-peer economy“, one involving the sharing of private assets through bartering and the swapping of goods, time, and expertise. Among the most quoted examples are the global rental website Airbnb and Uber, the transport sharing platform. But this is a very narrow definition. The concept can instead be defined to describe an approach to policy-making, aimed at ensuring the proceeds of economic activity and of growing prosperity are more evenly shared across society. This definition (and goal) used to be central to the post-war construction of managed capitalism, a model in which living standards for all groups rose in line with economic prosperity.
Yet under market capitalism, the gains from growth have been heavily skewed in favour of a powerful elite: driving the pro-rich, anti-poor trends of the last three decades is the rising concentration of private capital ownership. This, in turn, has been fuelled by rolling privatisation, an antipathy to public ownership and collectivism, and a growing boardroom preference for securing growth through corporate mergers and acquisitions. As the World Bank economist, Branco Milanovic, has argued: ‘If one of the drivers of inequality are capital incomes… this is because they are heavily concentrated. “Deconcentration” of capital incomes, that is much wider ownership, is then a solution. But it is seldom mentioned.’
With the exception of the US, few other rich nations operate a model of such intense corporate capitalism, one dominated by the power of the giant private corporation. Co-operatives account for only 2 per cent of the British economy, much lower than, for example, in Germany, Italy and Switzerland, while other alternative business models, from mutuals to partnerships, are greatly under-used. Key sectors – from supermarkets and energy supply to food production and accountancy – are dominated by a handful of companies. Individuals today own 12 per cent of traded shares, down from 54 per cent in 1954. Shares are held much more transiently than in the past, increasingly by global asset management companies and high-frequency traders.
Outside of the UK, there is much less fixation with private ownership: countries as diverse as Germany and Singapore have higher levels of state ownership. Many rich nations that have gone down the privatisation route are now unwinding their privatisation programmes in response to the way utilities have been exploited for private gain. Outside of the UK there is also much wider use of social wealth funds – collectively held pools of wealth. Sovereign wealth funds have been established in a diversity of nations from Norway to New Zealand, and in a number of US states, mostly funded from natural resource exploitation. Although such funds are not all used for wider public benefit, the model of collectively-owned wealth offers a potentially powerful economic and social instrument, an alternative to both privatisation and traditional nationalisation.
Such funds can be used to spread the ownership of capital and its gains more widely, thus offering a direct attack on the roots of inequality. Having failed to establish its own fund from the proceeds of North Sea oil, widely accepted as a major policy error, Britain should seek alternative finance by cancelling the privatisation process and pooling all commercial public assets, from property and land to public companies, into a public ownership fund. Managed independently, such a fund could generate returns to be used for wider public benefit, prevent the shrinking of the nation’s asset-base and ensure that a higher proportion of the gains from economic activity are re-invested for productive use.
Political leaders, national and global, continue to declare verbal war on inequality. In the UK, an All-Party Parliamentary Group on Inclusive Growth was formed in 2014, while the Conservative Party is still selling – for £10 – its 2010 election poster “All In This Together”. But if the anti-inequality rhetoric and the search for “inclusive growth” is to be given substance, it needs much more than policy tinkering, a nudge in the minimum wage rate here or modest reforms to corporate governance there. Creating a “sharing economy” in which the gains from growth are more evenly shared needs to tackle the source of inequality: the growing concentration of capital ownership and the unyielding power of corporate capitalism.
__
Stewart Lansley is a visiting fellow at the University of Bristol. He is the author of A Sharing Economy: How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016, the co-author ( with Joanna Mack ) of Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015, and the author of the Cost of Inequality, Gibson Square, 2011.
Image credit: C!… CC BY
Sharing in economic benefits can never arise without sharing in the political power which allocates those benefits.
And that is wholly incompatible with the inadequate system of “elective” government.
As economics Nobel laureate James Buchanan described the problem:
“[S]uppose that a monopoly right is to be auctioned; whom will we predict to be the highest bidder? Surely we can presume that the person who intends to exploit the monopoly power most fully, the one for whom the expected profit is highest, will be among the highest bidders for the franchise. In the same way, positions of political power will tend to attract those persons who place higher values on the possession of such power. These persons will tend to be the highest bidders in the allocation of political offices. . . . Is there any presumption that political rent seeking will ultimately allocate offices to the ‘best’ persons? Is there not the overwhelming presumption that offices will be secured by those who value power most highly and who seek to use such power of discretion in the furtherance of their personal projects, be these moral or otherwise? Genuine public-interest motivations may exist and may even be widespread, but are these motivations sufficiently passionate to stimulate people to fight for political office, to compete with those whose passions include the desire to wield power over others?” (James Buchanan and Geoffrey Brennan, “The Reason of Rules”, Cambridge University Press, 1987)
Under such conditions (and in the absence of true Democracy) it is perfectly reasonable to expect that:
a) the system will adversely select aggressively narcissistic, machiavellian, and psychopathic political agents whose true motivation is to act in their own interests with minimal regard for the subjects they rule;
b) such politicians will deliberately misrepresents the state of affairs to the public and make unsustainable promises in their desperate attempts to secure votes; and
c) such politicians will engage in grubby auctions, buying off special interest groups and powerful lobbies piecemeal with gifts from the public purse . . . and look to receive favours in return, either in the form of support in government or employment in later life.
Elective government is “government by powerful minorities” and those minorities are typically rich ones. Power confers wealth. Wealth buys power. It is a reinforcing cycle.
It is naive to imagine that any of this is going to change unless there is first institutional change to remove the conditions which allow it. Indeed, there is every reason to expect that things are set to get far, far worse.
Viewed in historical terms the minor concessions made by elites in the 19th and 20th centuries were an anomaly. The historically “normal” pattern of social organisation has always been unquestioned elite rule.
It was only the advent of the industrial economy – which required LARGE NUMBERS of subjects to be trained to operate complex but not fully automated machinery – that gave those subjects a temporary negotiating advantage over their elite rulers. Having had so much invested in their training, those subject/workers had the ability to withhold their labour and bring the expensive machinery of the industrial state to a halt. For a time at least, it was advantageous for the elite to make some concessions – as few concessions as possible – to keep the system working.
But there was never anything to say that such conditions – and such concessions – would go on forever. And they haven’t!
The new technological economy requires tiny numbers of technicians trained to a much higher degree. They can easily be bought off. For everyone else, it is the “”Uber Economy” of savage competition, with the profits going to whoever controls the monopolistic market technology. This is the brutual technological fact which lies behind the much-cited “hollowing out of the middle class”.
With AI and robotics marching on relentlessly, the mass of citizens must act quickly if they are not to be pushed back into a state of renewed serfdom . . . or worse!
And that means using whatever negotiating power they still have left to push for the permanent institutional reform of real Democracy.
The almost worthless “right” to vote for a party politician every few years is a wholly inadequate protection against the approaching holocaust. The people need to secure far more direct control over their government before it is too late.
Time is running out.
Makes sense, and hopefully this is a continuation of the rise of the left that is occurring in many places in the world. Economic schools of thought from the 70’s have governed the world economy for far too long. It’s definitely time to reexamine how their policies have caused unfair wealth distribution.