The route to a more equal society – Dr Martin O’Neill

The route to a more equal society – Dr Martin O’Neill


Right. I’d like to talk
about inequality. And I’d like to
talk about what can be done to deal with the
problems of inequality that we have in our society. Now, as won’t have escaped
anyone’s attention, this is a deeply unequal
society that we now live in. Many young people
find it very difficult to become property owners,
to get on the housing market. It’s very different in
terms of opportunities to become property owners to
how things were in Britain 40 or 50 years ago. Here are some very
nondescript flats in London. They’ve got a nice view, but
nothing particularly special. And yet anything like
that would be well out of the reach of
most regular couples who even had fairly nice jobs,
unless they had a lot of help from the bank of mom and dad. A recent report showed
that last year in London, where these problems
are especially bad, there were twice as
many two bedroom flats sold in a band that goes from
700,000 to 1 million pounds as there were two bedroom flats
sold in the band that straddles the 350,000 pound mark. So even with the
government’s new scheme to help first time buyers to
buy affordable properties, where affordable, now, in 2016, in
London, by the government’s definition, means up
to 400,000 pounds, there aren’t actually
the properties for people to buy at that price level. So something’s
happened whereby we’ve become a very unequal
society, and it’s very difficult for people to
get the kind of start in life that once they could. Things used to be rather
different in Britain, as some of you may remember. 50 years ago it was much
easier for people starting out to become property owners. And 50 years ago
two things happened. More than two things happened. But two particular things. The Beatles went to America. Here they are arriving at JFK. And James Meade, the Nobel
Prize winning economist, wrote his classic but
unfortunately neglected book, Efficiency, Equality,
and the Ownership of Property. So Meade is a very
interesting figure. He lived from 1907 to 1995,
a leading British economist of the 20th century. Won the Nobel Prize for his
technical work in the theory of international trade. But his interests,
for my purposes, is a book he wrote
about what he thought would be future
trends in inequality and how one could
deal with them. And he was basically wizard
like in his predictive powers. In 1964, at a time
where, by his measure, the share of national
income that went to labor was 85%, at a time where this
was a relatively egalitarian society, Meade was worried about
what the long term developments of economic processes that
he thought had already begun would turn out to be. And he thought that processes
of technological innovation, of increasingly capital
intensive production, would mean that in the
long run there would be deep problems of inequality. And so Meade wrote,
even at that time, he said looking
forward we’re going to reach a point where as
returns to capital increase, as the share of national income
going to capital increases, we’re going to end
up at what he called the brave new
capitalist paradise. So he sat on his arm chair
in Cambridge in 1964, and he’s imagining the future. And this is what he thought
the future would look like. There would be a limited number
of exceedingly wealthy property owners. The proportion of the
working population required to man the extremely
profitable automated industries would be small. Wage rates would
thus be depressed. There would have to be a large
expansion of the production of the labor intensive
goods and services, which were in demand by the few
multi-multi-multi-millionaires. We would be back
in a super world of an miserias proletariat,
and of butlers, footmen, kitchen maids,
and other hangers-on. That’s fairly accurate. Right? It may not be fully as
bad as Meade thought. But there’s much more
employment opportunities for you if you’re a butler
now in 2015 than there was 20, or 30, or 40 years ago. Meade was definitely
on to something. And the proportion
of national income that goes to labor as
opposed to returns to capital is now under 50%. In quarter three of 2015 the
Office of National Statistics had that figure at 49%. So returns to capital are high. Returns to labor are low. Inequality of wealth is
accelerating in the way that Meade thought it would do. Now, if that’s something
to be worried about, I think it wouldn’t be
much to worry about, or we wouldn’t be as
worried if the rich, if those with a lot
of wealth, if those that benefited from these
economic processes, just spent their money on Damien
Hirst sharks, or yachts, or old wine, or fripperies
like Chelsea Football Club. But unfortunately that’s not
what all of the wealthy do. So here’s Donald
Trump, someone who benefited from a
large inheritance from his own father. And he spends his money,
or at least part of it, on trying to convert his
wealth into political power. And another thing Trump does
is transmit economic advantage to the Trump dynasty. So if you look at Trump’s
various companies, three of them are
run by his children. And these two things
that the very wealthy do, one, try to buy
political power, and two, try to buy dynastic
economic opportunities for their families to
the exclusion of others, I think those are
deep worries that aren’t to do with some
objection to inequality per se, but they’re to do
with objections to what large
inequalities of wealth do in terms of either political
fairness or economic fairness. Here’s an example
closer to home. Mr. Murdoch is about three
times as wealthy as Mr. Trump. But one might think, with his
three children running three subsidiary companies,
that he’s someone just as interested in
dynastic succession of economic advantage. And, for anyone who might
have read about Mr. Murdoch’s Christmas party, which half
of the cabinet attended, including chancellor, the
prime minister, and the culture secretary, who’s in charge
of regulating newspapers and television, you
might come to the view that Mr. Murdoch is as
interested as Mr. Trump is in converting large
agglomerations of wealth into agglomerations
of political power. So my modest claim
is that we need to think very hard
about how to deal with large
inequalities of wealth, both if we’re interested
on one side of this issue about the chances that
regular people might have in order to become property
owners, to kind of get on the ladder of
property ownership, and, if we’re worried at the
very top end of this effect, about the sorts of
special advantages that the very wealthy have. So James Meade had four
suggestions, four strategies, for what you could do. He thought you could have what
he called a trade union state. He thought you
could try and arrest this process that brought
higher returns to capital rather than to labor, and try to raise
wages as much as you could do. But Meade thought you
shouldn’t do that. He thought actually we
should welcome processes of technological
innovation that allow more capital intensive production. It would be Luddite
to try to kind of roll back to a state where
we didn’t have that. And it would be economically
inefficient to make employment more expensive
than it should be. Instead what we
needed to do was find a way of having more of a
separation between wage rates and people’s total income. We needed to find ways in
which regular people could get some benefit
from capital returns, as well as just from
returns to labor. He also thought
about what one might do to extend the welfare state. What could you do to
tax more, and then have more transfers or
more public spending. And Meade thought that while
those sorts of functions of government are
very important, they can’t get you that far. If the very deep mechanisms
of economic inequality are about the
distribution of wealth, then the small
things that you can do in terms of either
taxation of current income or current spending are
just not fundamental enough to undertake any kind
of deeper reorientation of those processes
of inequality. So you don’t just go in for
redistribution, Meade thought. You have to worry
about pre-distribution. You have to worry
about the underlying allocation of
ownership and control over property and resources. So he had two
strategies that fall under that
pre-distributive heading. What he called a property
owning democracy, which was about
the broad dispersal of private holdings of wealth. And what we called a socialist
state, which was finding a way to have public, or state run,
or collective forms of ownership over capital and wealth that
could bring collective returns. And he didn’t think that
these were exclusive options. He thought that what a society,
what a government, what a state that was interested
in fighting against some of these forces of
inequality ought to do is it should pursue a mixture of
property owning democracy and these sorts of more
socialist or collective mechanisms. Now, I think there’s one
British politician who took very seriously the
lesson of at least half of Meade’s thinking. Well, at most half
of Meade’s thinking. Which is this
British politician, well known to many of you. Mrs. Thatcher’s policy of
selling off council housing was exactly the kind
of thing that Meade had in mind when he talked about
a property owning democracy, when we talked about
finding mechanisms whereby the government could
sort of subsidize, or kind of create conditions whereby
individuals who might not have been able to become
meaningful property owners got the chance to
become property owners. Unfortunately I
think Mrs. Thatcher didn’t do it in exactly the
way Meade might have done it. What Meade was interested
in was ongoing mechanisms that would have allowed the
broad dispersal of property generation after generation. Where it’s obviously what
we had with Mrs. Thatcher was a one shot operation that
benefited one generation, often to the detriment of those
who came afterwards. There wasn’t sort of
reinvestment of those receipts. And actually the
majority of properties sold under that scheme are now
owned by private landlords, rather than by
individual homeowners. And it won’t surprise you that
Mrs. Thatcher didn’t so much pursue the second collectivist
or socialist strand in what Meade thought was necessarily a
two pronged strategy for a more egalitarian society. In fact, she was doing the
opposite at the same time. The returns from
council housing were being used to fund tax cuts and
to fund current expenditure. We see the same
with North Sea Oil. So the returns that Britain
had from North Sea Oil were folded into current
expenditure, allowed the Lawson tax cuts of the mid ’80s. There wasn’t a sort of
structural view taken about what could be done
in terms of the long run benefits of the wealth
that that created. If we look across the North
Sea to our neighbors in Norway, they’d read the other
half of Meade to the half that Mrs. Thatcher might
have been influenced by. And the Norwegians, what they
did with some of their receipts from North Sea Oil, was
invest in exactly the kind of public assets, the kind
of sovereign wealth fund that Meade thought
a country that was interested in socializing
and collectivizing returns to capital ought to invest in. And the Norwegians
have managed to create, through their [NORWEGIAN], and
apologies to any Norwegians if my pronunciation
isn’t quite right, a sovereign wealth fund
that holds $857 billion, or 1% of global equities. If you take all the shares in
all the companies in the world, Norway own 1%. The Norwegian citizen,
every man, woman, and child in Norway, has a
claim on the returns from 1% of global equities. So a strategy that
tried to think about collective forms
of investment in wealth is not just a kind of
theoretical proposal that someone like
Meade might have had, but it’s something that actually
a neighboring country, that in some ways faced
some similar decisions in the last generation and
made very different decisions to the ones that we made, have
actually been able to realize. So having had a picture of
one ideologically committed politician, here’s a picture
of another British politician of similarly firm
ideological commitments, who I won’t say much about other
than to say that what’s perhaps most interesting about,
I think, the as yet undeveloped economic thinking
of the current labor party is at least they’re speaking to
some people who have thought about these deep problems
about inequalities of wealth, rather than
inequalities of income. And people like
Thomas Piketty, who I think of in some ways as a
kind of intellectual grandson of James Meade,
and whose proposals about how one copes
with wealth inequalities actually make some
proposals that are as radical as
the kinds of things that Mrs. Thatcher
did in the ’80s, albeit with a
different kind of goal, and with a more
egalitarian orientation. So my very modest
aim with this talk really is to say
kind of two things. One, that this
50-year-old classic book that opens up the space
for thinking about wealth inequality and how
we deal with it is one that more people
should be reading. And two, sort of
following from that, we need to think
about a much broader set of possible
policies about how we deal with the very deep
problem of wealth inequality. And if we don’t deal
with it, we see a future where increasingly
our children aren’t going to be able
to become property owners in a meaningful way. And our politics is
very likely to be dominated by the whims
of eccentric plutocrats. And I don’t think any
of us really want that. So thank you very much. [CLAPPING]

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