Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.

×

The Cost of Inequality: A chronicle of capitalist catastrophe

The Cost of Inequality: Three Decades of the Super-Rich and the Economy, by Stewart Lansley, reviewed by Christopher Hird

April 10, 2012
5 min read

This book chronicles the catastrophe of the capitalism of the last 30 years. It is the story of what happened when what Stewart Lansley terms the ‘managed capitalism’ of the post-war period was replaced by the ideology of free-market capitalism espoused by Margaret Thatcher and Ronald Reagan and continued by New Labour. The theory was that self‑regulating free markets and the pursuit of profit would deliver economic prosperity for all. This book shows what a disaster this has been.

I use the word ‘story’ because the book is not an argument, not a point of view – it records what actually happened.

Milton Friedman really did say that the basis of a free society is companies making as much money for their shareholders as possible. Thatcher adviser Brian Griffiths really did say inequality would ‘achieve greater prosperity for all’.

And it was nonsense. Economic growth has slowed – just over 2 per cent per annum between 1980 and 2009 in the UK, compared with 3 per cent between 1950 and 1973. Productivity growth is lower and real wages have fallen for the vast majority of the population. Wages now account for 45 per cent of GDP compared with 60 per cent in 1979.

While the majority have got poorer, the rich have got richer. In the US, for example, in 1976 the top 1 per cent of the population accounted for 8.6 per cent of income; today it is over 23 per cent. The trend has been the same in the UK and even though it has not been as marked, it has ensured that the UK has moved from one of the most equal societies to one of the most unequal.

In other words, free-market capitalism does not work – it has not delivered on its promise. Whole industries have been sacrificed in the pursuit of ‘shareholder value’ – free‑market capitalism’s corporate creed. Lansley reminds us of the destruction of two of Britain’s successful businesses – Marconi and ICI – in a period in which finance capital was allowed to rule.

But it is even worse than that. As Lansley shows, free‑market capitalism creates instability and economic crises. Indeed, it is the root cause of the 2007/08 crisis.

As the rich got richer, their bank accounts bulged and there were ready customers to borrow this money – the majority of the population, whose living standards were falling. In the words of the American economist Louis Hyman in The Flaw, a Dartmouth Films documentary about the financial crash: ‘Whilst the rich weren’t willing to pay more wages, they were willing to lend them the money.’ Of course the mechanism by which this takes place is complex, making money for the many financial intermediaries – but the key dynamic is inescapable: money in the hands of wage earners, who need it, will be more productively spent than money in the hands of the rich, who don’t need it.

What is striking about this insight is that it is now widely accepted. The IMF thinks that wages’ share of GDP should rise, stating that the increase in inequality ‘is the most serious challenge facing the world’; the Bank of England thinks the banking sector is too large. And hardly an economist disagrees.

Despite this, nothing much has changed since the crisis, and Lansley’s got the facts – productivity up, profits up, wages down, inequality on the rise. Governments might have saved us from a second depression but they have done nothing to solve the underlying problems of current-day capitalism.

Lansley’s solution is to increase taxes (including an international crackdown on tax avoidance), weaken shareholder power through a ‘new contract’ with labour that introduces ‘flexicurity’ to the labour market, and rebalance the economy from finance to productive industries through taxation, regulation and the establishment of a national investment bank committed to social entrepreneurship and building a green infrastructure.

There is not much to disagree with in this programme. Indeed, Lansley typically manages to find support from unlikely quarters. The question is one of implementation: how is this to be made a part of the political debate and then adopted by a government committed to a decidedly ‘unmanaged’ capitalism?

The period of managed capitalism described in the book is one in which there was also progressive taxation and an inclusive welfare state. Both these and the idea of ‘capitalism controlled’ were the products of a powerful social movement: organised labour.

Yet, as Lansley recounts, this has also been virtually demolished in the past 30 years – a quarter of the labour force is unionised in the UK today, compared with half in 1979. For a number of reasons it is not possible (nor desirable) to re-create the union movement of the 1950s and 1960s but, as this book shows, there is a pressing need to create the 21st-century equivalent.

Crammed with data and evidence, with this book in your hand you never need go into an argument unarmed.

Red Pepper is an independent, non-profit magazine that puts left politics and culture at the heart of its stories. We think publications should embrace the values of a movement that is unafraid to take a stand, radical yet not dogmatic, and focus on amplifying the voices of the people and activists that make up our movement. If you think so too, please support Red Pepper in continuing our work by becoming a subscriber today.
Why not try our new pay as you feel subscription? You decide how much to pay.
Share this article  
  share on facebook     share on twitter  

Acid Corbynism’s next steps: building a socialist dance culture
Matt Phull and Will Stronge share more thoughts about the postcapitalist potential of the Acid Corbynist project

Flooding the cradle of civilisation: A 12,000 year old town in Kurdistan battles for survival
It’s one of the oldest continually inhabited places on earth, but a new dam has put Hasankeyf under threat, write Eliza Egret and Tom Anderson

New model activism: Putting Labour in office and the people in power
Hilary Wainwright examines how the ‘new politics’ needs to be about both winning electoral power and building transformative power

What is ‘free movement plus’?
A new report proposes an approach that can push back against the tide of anti-immigrant sentiment. Luke Cooper explains

The World Transformed: Red Pepper’s pick of the festival
Red Pepper is proud to be part of organising The World Transformed, in Brighton from 23-26 September. Here are our highlights from the programme

Working class theatre: Save Our Steel takes the stage
A new play inspired by Port Talbot’s ‘Save Our Steel’ campaign asks questions about the working class leaders of today. Adam Johannes talks to co-director Rhiannon White about the project, the people and the politics behind it

The dawn of commons politics
As supporters of the new 'commons politics' win office in a variety of European cities, Stacco Troncoso and Ann Marie Utratel chart where this movement came from – and where it may be going

A very social economist
Hilary Wainwright says the ideas of Robin Murray, who died in June, offer a practical alternative to neoliberalism

Art the Arms Fair: making art not war
Amy Corcoran on organising artistic resistance to the weapons dealers’ London showcase

Beware the automated landlord
Tenants of the automated landlord are effectively paying two rents: one in money, the other in information for data harvesting, writes Desiree Fields

Black Journalism Fund – Open Editorial Meeting
3-5pm Saturday 23rd September at The World Transformed in Brighton

Immigration detention: How the government is breaking its own rules
Detention is being used to punish ex-prisoners all over again, writes Annahita Moradi

A better way to regenerate a community
Gilbert Jassey describes a pioneering project that is bringing migrants and local people together to repopulate a village in rural Spain

Fast food workers stand up for themselves and #McStrike – we’re loving it!
McDonald's workers are striking for the first time ever in Britain, reports Michael Calderbank

Two years of broken promises: how the UK has failed refugees
Stefan Schmid investigates the ways Syrian refugees have been treated since the media spotlight faded

West Papua’s silent genocide
The brutal occupation of West Papua is under-reported - but UK and US corporations are profiting from the violence, write Eliza Egret and Tom Anderson

Activate, the new ‘Tory Momentum’, is 100% astroturf
The Conservatives’ effort at a grassroots youth movement is embarrassingly inept, writes Samantha Stevens

Peer-to-peer production and the partner state
Michel Bauwens and Vasilis Kostakis argue that we need to move to a commons-centric society – with a state fit for the digital age

Imagining a future free of oppression
Writer, artist and organiser Ama Josephine Budge says holding on to our imagination of tomorrow helps create a different understanding today

The ‘alt-right’ is an unstable coalition – with one thing holding it together
Mike Isaacson argues that efforts to define the alt-right are in danger of missing its central component: eugenics

Fighting for Peace: the battles that inspired generations of anti-war campaigners
Now the threat of nuclear war looms nearer again, we share the experience of eighty-year-old activist Ernest Rodker, whose work is displayed at The Imperial War Museum. With Jane Shallice and Jenny Nelson he discussed a recent history of the anti-war movement.

Put public purpose at the heart of government
Victoria Chick stresses the need to restore the public good to economic decision-making

Don’t let the world’s biggest arms fair turn 20
Eliza Egret talks to activists involved in almost two decades of protest against London’s DSEI arms show

The new municipalism is part of a proud radical history
Molly Conisbee reflects on the history of citizens taking collective control of local services

With the rise of Corbyn, is there still a place for the Green Party?
Former Green principal speaker Derek Wall says the party may struggle in the battle for votes, but can still be important in the battle of ideas

Fearless Cities: the new urban movements
A wave of new municipalist movements has been experimenting with how to take – and transform – power in cities large and small. Bertie Russell and Oscar Reyes report on the growing success of radical urban politics around the world

A musical fightback against school arts cuts
Elliot Clay on why his new musical turns the spotlight on the damage austerity has done to arts education, through the story of one school band's battle

Neoliberalism: the break-up tour
Sarah Woods and Andrew Simms ask why, given the trail of destruction it has left, we are still dancing to the neoliberal tune

Cat Smith MP: ‘Jeremy Corbyn has authenticity. You can’t fake that’
Cat Smith, shadow minister for voter engagement and youth affairs and one of the original parliamentary backers of Corbyn’s leadership, speaks to Ashish Ghadiali

To stop the BBC interviewing climate deniers, we need to make climate change less boring
To stop cranks like Lord Lawson getting airtime, we need to provoke more interesting debates around climate change than whether it's real or not, writes Leo Barasi


28