Response to The Economist special report on inequality

Posted on February 1, 2011

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In January The Economist ran a special issue looking at growing inequality and the rise of the global elite, the main conclusions of which were summarised in the article ‘The rich and the rest: What to do (and not do) about inequality’ (link here: http://www.economist.com/node/17959590.) In typical Economist style the report engages openly with the arguments about inequality but then uses every trick in the book (obfuscation, omission, misrepresentation and clumsy wordplay) to present this evidence as though it naturally leads to a laissez-faire policy response. In fact the evidence quite clearly points to the need for an assertive and co-ordinated approach by governments that can: (1) recapture tax revenues; (2) reduce the market volatility created by transnational speculators; and (3) reverse the corrosion of democracy by transnational corporate lobbies and the global financial cartel.

In this response which I sent to The Economist (no reply yet!) I argue that if they feel that confronting global inequality is impossible then should just say so, and allow electorates and policy makers to see whether they agree – feasibility in this case being essentially a matter of political will. Instead they cynically dress up what is basically a fatalistic argument as an idealistic affirmation of the defunct neoliberal model. This system has has shown itself unable to deliver on any of its promises, including even the weak version of ‘equality of opportunity’ (which was the refuge of confused politicians long before Nick Clegg’s dad started opening doors for him,) let alone greater equality of outcome…

This article is fascinating. In your first four paragraphs you successfully identify the key issues pertaining to national and global inequality. You then proceed to deploy the most tenuous of justifications in advocating a course that will quite clearly exacerbate the problem you claim to be addressing. There are so many flaws in the logic of this piece that it is hard to know where to start:

Paragraphs 6-7 – You rightly identify the unequal pattern across different regions and countries. It is reasonable to say that depending on current level of development and several other factors countries may only be capable of growing at a given rate and disproportionately in certain sectors, and that this might have unavoidable consequences for inequality. What you don’t point out is that countries which reject any serious distribution of the dividends of growth – in both rich and developing countries – have grown far more unequal far more quickly.

For example you compare the USA and Germany to argue that all rich countries have become more unequal, but fail to acknowledge how much more – and more quickly – inequality has grown in the US. There may have been a general tendency towards rising inequality in the rich world, but Germany, by maintaining its social safety net and investing in existing and new industries has remained far more equal. Any redistribution carried out in the US – as your article ‘The Beautiful and the Damned’ acknowledges – was in the form of cheap credit, which turned out not to exist (and after the bailouts ultimately benefitted the lenders at the expense of the borrowers).

You also mention China and Brazil in an apparent attempt to depoliticise the discussion of inequality in developing countries. However the differences of approach and outcomes in these two countries (which are certainly not representative of the developing world as a whole – being continental powers with large domestic workforces and markets, economies of scale and a strong industrial base) are huge. In Brazil an expanding social safety net has accompanied growth to bring down that country’s extremely high levels of inequality. China is moving in the opposite direction as huge swathes of the population have been literally locked out from its growth.

It is not unfair to point out that The Economist has consistently ridiculed the German and Brazilian models which have proven far more resilient to recession than the Anglo-Saxon model and far more democratic than the Chinese model. (Even now you are very limited in your praise of these countries, but I expect you would not hesitate to hail the triumph of American capitalism if the US had emerged in better shape than the others.)

Paragraph 7 – You seem to suggest that because inequality in the USA increased first between the bottom and the middle and then between the middle and the top that this makes it less significant. This seems to rely on the assumption that the effects of inequality are only formed by an income decile group’s proximity to neighbouring income deciles. In fact there is no reason why an evenly distributed increase in inequality should be any more corrosive than an uneven one.

You vaguely engage with – and are unable to discredit – the central ‘social status’ aspect of inequality in your article ‘Unbottled Gini’. The distance of a significant proportion of a population (even if only the bottom 10%) from the median and top is enough to increase social dysfunction within that group and those near to it. This has knock on effects right up the scale as trust and social cohesion are eroded and a politics of victimisation – as is so common in the US and UK – emerges (characterised by animosity towards welfare claimants, higher levels of imprisonment, etc.)

Equally a growing distance between the top and the rest creates consumer aspirations that cannot be satisfied except through cheap credit, the attainment of ‘celebrity status’ or crime. It also creates a sense of resignation about the ability of outsiders to either enter this elite group, or combat its distorting effects on democratic institutions.

You also fail to discuss the possibility that the stagnation first of low incomes and then middle incomes is part of a longer thirty-year transfer of wealth towards the top, sealed by the bank bailouts and, in this country, the austerity programme. (Also on this point – in paragraph 8 you claim that inequality cannot explain the financial crisis, which seems to flatly contradict the broad conclusion of your article ‘The Beautiful and the Damned’. In typical Economist style that article lays out the arguments you disagree with first in order to elevate the favoured explanation which follows. However – probably sensing that these are insufficient to disprove the original thesis – you backtrack and fall back on the fudge of ‘multiple causes’, which largely support the original argument in any case. Not very good really!)

Paragraph 8 – You completely misrepresent the Spirit Level debate, which is unforgivable seeing as you covered this in considerable depth last year. Wilkinson and Pickett showed that as long as all outliers are removed (rather than removing them selectively as Snowden and Saunders had done to try and undermine the correlation) the link between inequality and these social indicators remains. The argument that gun laws play a role in murder rates is nothing more a straw man. The Spirit Level does not claim that every element of every problem can be directly traced to inequality. However, evidence of the underlying influence of inequality across indicators with a social gradient has been subjected to intense academic scrutiny and vicious politicised attacks and emerged stronger than ever.

Paragraph 9-10 – Here we get to the crux of the matter. Even after the battering it has taken in the past three years, The Economist cannot let go of its free market obsession. You argue that there is a largely meritocratic global elite which needs to be left alone to generate wealth – except on the ‘one in a trillion’ occasion that it causes a global financial meltdown. When this happens it is the ‘distortion’ of banks that are ‘too big to fail’ (though I don’t remember you complaining about this much before the crisis) and other more ‘subtle’ distortions like teachers unions that are the problem. It is not the fact that those elites use their influence to bypass national rules and impede any possibility of creating international rules. It has nothing to do with the way they are thus able to use their inside knowledge to achieve ever quicker and more spectacular returns through their engineering of now frankly meaningless financial instruments. No, it is the ‘distorting’ rules and institutions themselves that are the problem, and gargantuan, wealth destroying, anti-social banks are no more to blame than teachers’ unions.

Paragraph 11 – This is where the contortions reach their spectacular finale. First a completely unjustified assertion that “the right way to combat inequality and increase mobility is clear” (it is, but it has nothing to do with anything you have said up until now – for a start an unwillingness to tackle inequality at the top impedes any progress on social mobility, because the most unequal countries are also the least mobile.) Then a call for investing more in education and social support for the poor, presumably using the taxes of the middle, as we wouldn’t want to do anything to drag down the top would we? But we should also remove barriers that help those at the bottom and in the middle from getting ahead – like paying taxes, and having to attend less desirable publicly funded schools perhaps? Hmmm, I’m starting to wonder where this investment is going to come from. We are also told that no country, rich or developing, should support industries that would not survive in the global free market – countries like Germany and Brazil presumably, who have weathered the recession and are using growth to keep inequality to a minimum (in Germany’s case) or try and bring it down (in Brazil’s).

Reading this week’s Economist has been a lesson in the power of self-delusion. What makes it so tragic is your admirable willingness – unlike many other publications – to engage with the debates that so powerfully discredit your ideology. The widespread damage caused by unregulated global free trade, rising inequality and the emergence of the global elite have become impossible to deny. Your brand of idealistic, utilitarian neoliberalism is dead. The only brand left is the ‘there is no alternative’ neoliberalism of coalition austerity. It is time for The Economist to decide whether to accept the arguments you continue to resist, and their obvious implications of global regulation and national redistribution, or to accept a brutal, stripped down neoliberalism that cannot promise to share its wealth. Or you can just keep tying yourself in knots.

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Posted in: Elites, Inequality