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.


✹ Try our new pay-as-you-feel subscription — you choose how much to pay.

On the narcissism of small differences
In an interview with the TNI's Nick Buxton, social scientist and activist Susan George reflects on the French Presidential Elections.

Why Corbyn’s ‘unpopularity’ is exaggerated: Polls show he’s more popular than most other parties’ leaders – and on the up
Headlines about Jeremy Corbyn’s poor approval ratings in polls don’t tell the whole story, writes Alex Nunns

The media wants to demoralise Corbyn’s supporters – don’t let them succeed
Michael Calderbank looks at the results of yesterday's local elections

In light of Dunkirk: What have we learned from the (lack of) response in Calais?
Amy Corcoran and Sam Walton ask who helps refugees when it matters – and who stands on the sidelines

Osborne’s first day at work – activists to pulp Evening Standards for renewable energy
This isn’t just a stunt. A new worker’s cooperative is set to employ people on a real living wage in a recycling scheme that is heavily trolling George Osborne. Jenny Nelson writes

Red Pepper’s race section: open editorial meeting 24 May
On May 24th, we’ll be holding the third of Red Pepper’s Race Section Open Editorial Meetings.

Our activism will be intersectional, or it will be bullshit…
Reflecting on a year in the environmental and anti-racist movements, Plane Stupid activist, Ali Tamlit, calls for a renewed focus on the dangers of power and privilege and the means to overcome them.

West Yorkshire calls for devolution of politics
When communities feel that power is exercised by a remote elite, anger and alienation will grow. But genuine regional democracy offers a positive alternative, argue the Same Skies Collective

How to resist the exploitation of digital gig workers
For the first time in history, we have a mass migration of labour without an actual migration of workers. Mark Graham and Alex Wood explore the consequences

The Digital Liberties cross-party campaign
Access to the internet should be considered as vital as access to power and water writes Sophia Drakopoulou

#AndABlackWomanAtThat – part III: a discussion of power and privilege
In the final article of a three-part series, Sheri Carr gives a few pointers on how to be a good ally

Event: Take Back Control Croydon
Ken Loach, Dawn Foster & Soweto Kinch to speak in Croydon at the first event of a UK-wide series organised by The World Transformed and local activists

Red Pepper’s race section: open editorial meeting 19 April
On April 19th, we’ll be holding the second of Red Pepper’s Race Section Open Editorial Meetings.

Changing our attitude to Climate Change
Paul Allen of the Centre for Alternative Technology spells out what we need to do to break through the inaction over climate change

Introducing Trump’s Inner Circle
Donald Trump’s key allies are as alarming as the man himself

#AndABlackWomanAtThat – part II: a discussion of power and privilege
In the second article of a three-part series, Sheri Carr reflects on the silencing of black women and the flaws in safe spaces

Joint statement on George Osborne’s appointment to the Evening Standard
'We have come together to denounce this brazen conflict of interest and to champion the growing need for independent, truthful and representative media'

Confronting Brexit
Paul O’Connell and Michael Calderbank consider the conditions that led to the Brexit vote, and how the left in Britain should respond

On the right side of history: an interview with Mijente
Marienna Pope-Weidemann speaks to Reyna Wences, co-founder of Mijente, a radical Latinx and Chincanx organising network

Disrupting the City of London Corporation elections
The City of London Corporation is one of the most secretive and least understood institutions in the world, writes Luke Walter

#AndABlackWomanAtThat: a discussion of power and privilege
In the first article of a three-part series, Sheri Carr reflects on the oppression of her early life and how we must fight it, even in our own movement

Corbyn understands the needs of our communities
Ian Hodson reflects on the Copeland by-election and explains why Corbyn has the full support of The Bakers Food and Allied Workers Union

Red Pepper’s race section: open editorial meeting 15 March
On 15 March, we’ll be holding the first of Red Pepper’s Race Section open editorial meetings.

Social Workers Without Borders
Jenny Nelson speaks to Lauren Wroe about a group combining activism and social work with refugees

Growing up married
Laura Nicholson interviews Dr Eylem Atakav about her new film, Growing Up Married, which tells the stories of Turkey’s child brides

The Migrant Connections Festival: solidarity needs meaningful relationships
On March 4 & 5 Bethnal Green will host a migrant-led festival fostering community and solidarity for people of all backgrounds, writes Sohail Jannesari

Reclaiming Holloway Homes
The government is closing old, inner-city jails. Rebecca Roberts looks at what happens next

Intensification of state violence in the Kurdish provinces of Turkey
Oppression increases in the run up to Turkey’s constitutional referendum, writes Mehmet Ugur from Academics for Peace

Pass the domestic violence bill
Emma Snaith reports on the significance of the new anti-domestic violence bill

Report from the second Citizen’s Assembly of Podemos
Sol Trumbo Vila says the mandate from the Podemos Assembly is to go forwards in unity and with humility


28