The Super-rich and us. My thoughts on the BBC's latest offering.
I missed this program when it was first aired, but thanks to the Iplayer I caught up after it was recommended to me by several friends.
The premise is that the super rich have actually been bad for Britain. It claims that the 'trickle down' theory of wealth distribution has become a 'trickle up' where the rich are getting richer and everyone else poorer. It suggests remedies along the lines of taxing assets and not income, and predicts that there will be civil unrest if things continue along the current trajectory. Using examples of how foreign buyers in London (both individuals and investment groups) have forced local people out of the area due to inflated prices, it predicts a society developing composed of home owners and renters. Throughout this program we are also treated to rather beside the point viewings of the super rich and what they, apparently, enjoy (let's just say that wealth doesn't buy taste). It ends up by claiming that politicians like the super rich as they add a few percentage points to GDP, which masks the true fact that our traditional economy is actually shrinking/stagnating.
I have problems with this program on a number of levels. And I would like to offer my thoughts on Part 1 of the program and a possible solution to the problems we do genuinely face as a society and economy.
The first thing is this insistence that trickle down is dead. It isn't. Not at all. But what has changed in this era of globalisation is that it has simply emigrated to those countries that are producing things. No one can deny that China has seen huge increases in living standards for a great many of its people over the last two decades. Why? Because that is where the trickle down is occurring. And we face a double whammy here too. A lot of China's growth and trickle down has been facilitated by western money, be it from companies investing in overseas labour (and also moving UK factories offshore. So they have got richer at our expense). Secondly, those made wealthy due to the new trickle down in the wild east have moved a lot of their wealth back into the UK in the form of property and to protect it from expropriation by their governments. (We should be proud that English Law prevents our government from seizing assets on a whim or under trumped up charges, but the BBC won't dare to highlight a positive fact about the UK). The combination of this means that the wealth is created offshore (so the middle classes and working classes don't feel its benefit), and then the recipients of this wealth are moving into Blighty and spending it in ostentatious ways (so the middle classes and working classes only perceive the negative impact of it in their daily lives, e.g. with massive hikes in the price of property).
The second thing to remember is that we have just come through the worse recession in nearly a century, with private and government debt both far too high. It is going to take another five years to work this out of the system - in 2008 anyone with any kind of insight recognised that we were in for a lost decade. We are a little over half way now and, whilst things are looking slightly better, we are certainly not out of the woods yet. My point here is that the knee-jerk reactions against the super rich are probably too short-term focused, made at a time when we are (hopefully) in the thickest part of the wood. And it is only natural that, approaching the end of recession, those with wealth to invest will see their returns increase quicker than those who live on a fixed salary. For these people have the ability to deploy their wealth to higher performing and profitable sectors of the economy and are tuned into the networks of people who can identify these (accountants and lawyers and business networks). But your average Joe, working for a widget manufacturer in the Midlands, can not. We and the super rich are competing in two different races. But if the super rich are getting richer, then at least it means that some sectors of the economy are growing.
The root cause of this problem is globalisation. It hasn't been good for middle classes in rich countries when the process really took off after the year 2000. Firstly, we were seduced by the cheap products that Chinese factories provided to western retailers. Then, seeking bigger profits, ever more production was closed in the UK and shipped off elsewhere. Only now is the truth of globalisation coming home for us to see it for what it is: a rich country that signed up to it will see its people made poorer. This is the side of the story that politicians haven't told us. Globalisation was sold to voters on the grounds that 'a world connected by trade should make major conflict impossible.' All it has done is lead to a collapse in productivity and wealth amongst the middle class in western countries, shattered dreams for our next generation as they see what their parents had and what they themselves won't have, and government and private debt ballooning as we try to keep our standards of living at the level we've become accustomed to (and which the next generation will have to pay for!). The loss of cultural identity and our unconscious sleep-walking into supranational and undemocratic political structures (with the real loss of decision making and its effectiveness in Westminster leading to a disillusionment about our MPs), is just another symptom of this.
So what is the solution to this many-fangled problem? I believe that efforts have to be made to address growing inequality and to pacify growing anxiety about uncertain futures amongst Britain's population (and amongst other western nations too). The program suggests a tax on assets. This is by far and away one of the most stupid things that can be suggested to deal with this problem. Firstly, it won't work (the super rich will move both themselves and their assets elsewhere - how many of the 1% who pay 30% of our income tax revenues would that include and what impact would that have on tax revenues?) Secondly, it is, genuinely, a very unfair tax - assets are purchased out of income that has (or should have been) taxed already. It is therefore a double tax. Thirdly, it sets a vile precedent for future governments to push ever further down the income and asset scale. In 2030, when it is predicted that most people will rent and not own and thus the vote winners will be policies aimed at the renters, what's to stop a government coming in and saying 'we're going to take your property as it's an asset - to make society fairer you will not be allowed to own your own home.'
When governments have power, they almost always want more of it. Very rare are governments that want less of it, be it in democracies or dictatorships. And yet that is what we need.
My solution is more simple. On the program, an American billionaire (Nick Hanauer - who runs a venture capitalist company that was started by his father), believed that the middle classes are vital for a healthy economy (he states that 'I might be worth as much as X thousands of Americans, but I don't buy X thousands of shoes). He's right here - consumption patterns for the super rich are far more concentrated in single and more expensive purchases that might not lead to thousands of people being employed along a supply chain. (This is what some people use to illustrate that trickle down is dead). There is truth in this, but rather than have a tax on assets that would only go to government, the super rich should be made to invest in local companies that employ local people. This would help swell the middle classes (and tax revenues) and be important to keeping our economy, as well as our democracy and the rule of law, sustainable.