Winner of the New Statesman SPERI Prize in Political Economy 2016

Sunday, 9 March 2014

Inequality and the media

Kathleen Geier asks why there is not more outrage about growing inequality. Her starting point is an excellent piece by Justin Fox, in which he recounts the history of class warfare in the U.S. To quote:

“What’s been unique, or at least highly unusual, has been the environment in which entrepreneurs and business executives were able to operate from the late 1970s through the early 2000s. Taxes dropped, high-end incomes exploded, and hardly anybody complained at all. Far from complaining, in fact, the news media for the most part celebrated the recipients of those exploding incomes for their boldness, creativity, and economic importance.”

On this side of the pond there may be more awareness of past class conflict. Yet I suspect there is even less outrage in the UK than in the US, and there is just as much to be outraged about. Anyone who thinks what has happened over the last few decades to executive pay just represent increasing marginal products should read Will Hutton today on recent pay deals at the Co-op. As those in the UK will know, this company has not been doing too well of late, which means no performance related bonuses. So instead the Co-op’s executives are to receive ‘retention payments’ equal to their base salary. This ‘retention bonus’ is also being paid to a director who is leaving the company!

Remuneration committees, who fix these salaries, always say that they are just aligning pay ‘to the market’. But this is a market without supply and demand! What these committees invariably do is fix pay to somewhere in the upper half of ‘market rates’, because their particular company faces ‘unusually difficult challenges’ and wants to retain the ‘best talent’. It does not take an economist to see that this process will generate over time steady increases in executive pay relative to the pay of everyone else, which is of course exactly what we have seen. (For one possible story of why this process goes on at some times and countries but not others, see here.) Even David Cameron calls this market failure.

So why no outrage? Geier gives two explanations. The first is the welfare state, which reduces poverty and therefore takes the edge off outrage. I’m not sure I buy this. In the UK a third of a million people received a minimum of three days emergency food from Trussell Trust food banks in 2012-13, compared to 26,000 in 2008-09. Plenty of potential scope for outrage there. The second is the media, which I certainly do buy. But what I found interesting was how she ended her piece. She felt that the media could only “explain a part of the public’s eerie underreaction to the skyrocketing economic inequality we’ve seen over the past several decades. There’s got to be more to the voters’ lack of outrage.”

I’m sure there are other potential explanations, such as the decline of trade union influence. I know that Geier is not alone in feeling that any explanation that focuses on the role of the media is somehow inadequate. Yet why is this? We know that the public significantly underestimates the extent of inequality in both the US and UK. The image that most people have of the super rich is movie stars or the likes of Bill Gates, not common or garden executives doing managerial jobs. How can people be outraged, when they do not have the outrageous information? I think the decline of trade unionism in the US and UK is important partly because unions provided an alternative source of information from the mass media, and because they were a resource which - once upon a time - media that wanted to be unbiased felt they should draw upon.

So why are many on the left reluctant to put an analysis of the media at the centre of any discussion of political beliefs and attitudes? The mechanisms by which power of various kinds can influence the media are hardly mysterious. (Here is an example of how this can be modelled, and here is a case study.) Perhaps it is hard for those obsessed by politics and adept at obtaining information to imagine the position of the majority who have other priorities. Perhaps it is a reaction to how some abused Engels’ idea of false consciousness as a means of overriding democracy. Perhaps arguing that people’s attitudes depend on the information they receive can too easily be portrayed as paternalism. But when it comes to understanding the lack of outrage about inequality, I’m not sure there has got to be more than the media.

Two earlier but related posts:

Inequality and the Left

Is UKIP the UK's Tea Party?


 

12 comments:

  1. This is more than a scandal. In particular, since the Coop has members not shareholders there is presumably no 'countervailing force' that could block the proposal - not that shareholders are any better of course.

    Many solutions to the general problem could be worked out, mainly focusing on the difference between lowest, or median, pay and top salaries, perhaps by linking tax rates on salaries over £200,000 per year to the differential in salaries. This would benefit the model entrepreneur who is profiting on the back of a well-paid, rather than ground-down, work force.

    But nothing will be done because those with the power to do something are much closer in every sense to the beneficiaries of this system. Even full publicity would certainly result only in camouflaging the phenomenon because the interests of the politicians are too close to the interests of the richest of the rich (see current earnings of the last Prime Minister but one).

    ReplyDelete
  2. It does seem odd to bid against the growing outrage directed against the rolling disenfranchisement (not to mention the degeneration of public policy into government by a secretive executive fiat) that has been enabled and engineered by the EU in order to bid up the outrage against rent seeking executives in the private sector.

    These are the same managerialist fallacies - you are too stupid to have a say in how your country is run - EU experts must do it for you. They must concentrate power and evade accountability even though their policy product is a manifest disaster. Management "experts" must be massively overcompensated despite the complete commercial failure of the business they are paid to manage. This is the same rent seeking behaviour and exactly the same evasion of accountability. The policy & commercial failures we have witnessed are the direct consequence of that lack of accountability.

    The fact that the media is not doing its job by attacking the corporate capture by rent seekers does not sit well next to a denunciation of the media because it has attacked the capture of public policy by EU rent seekers.

    To paraphrase Orwell...some things are still true even if it is Nigel Farage or Rupert Murdoch who say so.

    For what its worth here's my bid - I'll see your denunciation of corporate rent seekers and I'll raise you a denunciation of political rent seekers.....

    ReplyDelete
    Replies
    1. As for your earlier article on the left’s disappointing reaction to growing inequality.

      Again this is because the social democrat left have bought into a fallacious & destructive managerialist ideology which they share with the right (the go to man on all this is Chris Dillow).

      The political managerialism of Blair/ Brown is absolutely indistinguishable from that of Cameron/ Osborn. The political managerialism embedded in the EU construct has also hollowed out meaningful & passionate policy dispute between the contending parties for national power. But managerialism is extremely vulnerable to capture by lobbyists with the most financial clout – which is to say that its product is invariably (and sometimes extremely) right wing.

      After all it was Hollande (a nominal French socialist) who recently treated us all to a revival of Say’s macabre law. We have even witnessed the absolute lunacy of specific (and regressive) debt and deficit levels being incorporated into the constitution of Germany and imposed elsewhere via a German sponsored “special” European treaty. Now a specifically right wing economic shibboleth has been consecrated in the constitution! Future elected governments will have to petition the courts if they want to run a Keynesian stimulus policy. The electorate has been permanently disenfranchised by a collusive club of ostensible opponents who behave like actual colleagues. Politics has become a branch of management and it has ceased to be an argument between contending philosophies & policies that is intermittently resolved by the public. We are told that this is the era of post modern politics but it exhibits a startling resemblance to pre modern politics – a shifting oligarchy implementing a permanent (& repressive) policy set.

      Recently, Kevin O’Rourke (of your academic parish) has stated that the European left has been decimated. He quotes Ambrose Evans-Pritchard (the eurosceptics sceptic) who said that Europe’s left is “so compromised by ideological defence of monetary union – a Right-wing project, or ‘bankers’ ramp’ as the Old Left used to say – that it cannot muster any articulate policy”. O’Rourke’s worries that Europeans who have been let down by both the political left and the right will turn to the extreme.

      I’d say the evidence is on O’Rourke’s side …wouldn’t you?.

      Delete
  3. What do we know about the profile of potentially outraged people?

    That they use food banks. I've also been assuming that they're often working but only part-time, may well have accumulated debts such as credit card debt, or be slowly increasing their debt to the utilities companies. Many will be fully unemployed. Some will have mortgages they can't afford.

    Assuming that they're moderately rational people, what is the peg on which they would hang their outrage? I'm struggling to imagine them blaming top executives or other one-percenters for their plight.

    If I was in their position, I wouldn't be blaming the super-rich. Is that just a lack of imagination on my part? The trouble is, I can't see any practical purpose in getting worked up about the rich. What would it achieve?

    ReplyDelete
  4. Doesn't the failure of the Co-op banking to resist broader trends in that area show up how necessary it is to think in terms of shadow banking rather than casino banking?

    ReplyDelete
  5. I am a little surprised that the original writer and the follow-up posts don't understand why there is not more outrage about inequality. Either 70% or more of affected people have to be outraged or none can be. In the age of Facebook and Linkedin and internet search engines potential employees are monitored by potential employers. Potential employees are told in career programs that they can't be outraged. They have to be pleasant and compliant, to volunteer, to network, to be the best person that they can be. The people who can afford to be outraged are either self-supporting or don't care about being marginalized.

    ReplyDelete
  6. This piece runs together too many different issues.

    1. Absolute Poverty
    In a country as rich as the UK there is simply no excuse for a welfare system so badly run that it leads to the increase in the use of foodbanks we have seen. The government deserves to be ejected at the next election for this alone.

    2. Executive Pay
    There is clear market failure here, and the problem is an Anglo-Saxon one. The reason for Anglo-Saxon peculiarity is possibly down to our different corporate structures compared with continental europe. Really hard to change, save with anything other than blunt regulation. Increased openness, public shaming are not doing the trick. Shareholders are powerless.

    The opposite of capitalism. Management capture.

    3. Inequality of Income
    Yes, executive pay has continued to increase apace, but my understanding of the data was that UK inequality as such has declined since 2008.

    http://www.ifs.org.uk/comms/comm124.pdf


    http://www.theguardian.com/uk-news/2013/jul/10/income-gap-narrowest-margin-25-years

    With our gini coefficient now lower than it was in 2008?

    The big increase in (gini coefficient) inequality occurred 1979-1990. Since then it has not really moved significantly.

    We can't just cherrypick one group of the well paid (CEOs, Premiership footballers) show that their salaries have increased, and conclude that that shows inequality is on the rise.

    4. The Co-Op Group pay
    This doesn't look justifiable, but in the context of the recent failure of the Co-Op Bank may be explicable.

    The Co-Op bank infamously paid its chairman and executives far less than anyone else in equivalent jobs in the banking sector.

    So, the Reverand Flowers (Chairman) was on £130,000. Which may seem like lots of money, but for a bank chairman is next to nothing.

    Neville Richardson (CEO) was in under £500,000. Most bank CEOs wouldn't get out of bed for that

    So, the recent disaster of the Co-Op Bank may have persuaded the Co-Op Group to pay its execs rather more.

    5. Public outrage
    The press is far weaker than in 2000, 1980, 1930 or 1920. The mailonline is completely different animal from the Daily Mail (it is mainly gossip). The era of Beaverbroook, Northcliffe and Maxwell is over. It is easier to get at commentary and data than at any time in human history. Nobody under 30 would today think of blaming 'the press' for public attitudes.

    So why no outrage?

    Because it is not in the personal interests of most people as individuals to bother worrying about this stuff unless personally adversely affected. This has always been the case. Most of us are ignorant and ill informed, and it is not in our personal interests to become better informed. This is the central objection to democratic government since the time of Plato. Which is why he proposed governance by philosopher kings.

    A truly maddening situation if you happen to be a philosopher king.

    ReplyDelete
  7. A supposedly serious economist pointing us to.... Will Hutton? Inequality hurts most the middle-class leftie, who is the only person who notices.

    ReplyDelete
  8. There is a little more to it. I suggest reading Robert E. Lane's book, Political Ideology, particularly Chapter 4, Fear of Equality and section H of that chapter, 'Some Theoretical Implications'. The book is based on interviews with lower middle class and working class Americans in a housing development. It was published in 1962 but the observations and analysis remains valid today.

    ReplyDelete
  9. Interesting article and one which thinking Leftists / Centre Leftists/ progressives (including Lib Dems) have to urgently confront. Firstly however a quick point: note Labour continue to lead the polls and suggest a majority next year.Outside M25 bubble the London-centric media has less influence.

    From my many years of sociology study I prefer Gramsci/ Prof. Stuart Hall's analysis ( now sadly passed away) namely that the people have a 'dual consciousness' of what's going on. For example the banker's bonuses/ Tory reduced tax rates on high income groups etc., / reduced welfare support for disadvantaged and so on. However counter balanced is the typical 'hate' D/Mail/Sun/Express 'daily' drip drip propaganda demonizing Labour, public sector, unions, benefit recipients, EU, migrants - a Neo-Liberal ideology. Unfortunately this has leaked into BBC coverage lately so we have a simplistic BBC leading on Romanian migrants over new year, sex scandals recently etc., PM at 5 O' clock is typical of a Tabliod approach. Sky News and C4 news is mature , analytic & more balanced.

    Labour is beginning to change its narrative and 'One Nation' is good as it exposes Tory divisiveness. When Labour is bold it does well. I did believe in New Labour but when I hear that Blair and the top executive at Murdoch's empire were sending emails I really wonder where we ended up. No matter Ed has to keep up the narrative of an unequal Britain being changed by the same old Neo-Liberal Tories...

    ReplyDelete
  10. Suppose, for the sake of arguement, I was outraged by the growth of inequality. How would I express that outrage in a way that was visible? In Scotland this is one of the themes of the referendum campaign. But outside Scotland, what vehicle is there to express outrage? Traditionally there was the Labour Party, but as Tony Maher explains eloquently above that avenue has been closed. So maybe lots of people are really outraged but inable to express it. Which might be interesting, if an opportunity ever arose.

    ReplyDelete
  11. Growing inequality is not the main issue, it is the decline of living standard for ordinary people in many Western countries that is the key problem.
    Economists are partly to blame because they focus too much on GDP growth instead of living standard. As recent history has shown, wages are not following growth of GDP, economists claiming that the economies of the UK and USA are back on track are therefore sending out the wrong message to the media and politicians.

    ReplyDelete

Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time.