Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 7 February 2015

Inequality, business leaders and more delusions on the left

Those who think current levels of inequality are not a problem can skip this one

The Blair governments did a lot to fight poverty, but were famously relaxed about inequality, or more specifically the earnings of the 1%. For many in those governments this reflected their own views, but it also reflected a political calculation. The calculation went as follows. To win, Labour needed to be seen as competent to run the economy. The media all too often look to business leaders to answer that question. So Labour needed to be business friendly. Now being business friendly should mean creating an environment that business can thrive in. However to get the approval of business leaders you also need to create an environment where business leaders can thrive personally, and they are very much part of the 1%. QED.

Labour today is not following this strategy. First, Miliband has said quite clearly that he sees tackling inequality as a major issue: "Now I have heard some people say they don’t know what we stand for. So let me take the opportunity today to spell it out in the simplest of terms. It is what I stood for when I won the leadership of this party. And it is what I stand for today. This country is too unequal. And we need to change it." Second, it has two policies that directly impinge on the 1%: the mansion tax and restoring the 50p income tax band.

There are some on the left who dismiss these measures as marginal. One of the comments on my earlier post said that “When it comes to the broad trend of ever greater inequality there really is no meaningful difference between the main parties.” This seems to me a colossal tactical error. To see why, you only have to note what has happened over the last week in the UK. Various business leaders have proclaimed that a Labour government would be a disaster. Stefano Pessina, who among other things runs the Boots chain, declined to elaborate on why exactly Labour would be a disaster. In contrast, he was quite clear that the UK leaving the EU would be a big mistake, which of course is much more likely to happen under a Conservative government!

There is an obvious inference. Labour would not so much be bad for business, but bad for business leaders personally. [1] They, unlike some on the left, recognise that Miliband is not Blair, and that there has been a key shift in the direction of Labour policy. So they will do what they can to stop Labour winning. Labour in turn has responded by attacking the tax avoidance practiced by many of these companies. This is the beginnings of a major battle.

There are at least two important implications. First, the non-partisan media need to understand what is going on. Getting business leaders to comment on the relative merits of the two main parties programmes is no longer a neutral decision - it is giving additional airtime to one side. Second, everyone who cares about inequality needs to realise the importance of this election. Inequality is a key election issue, and there is a very meaningful difference between the two main sides. Certain business leaders clearly understand that.


[1] Another possibility is that they think Labour would be much tougher on business tax avoidance than the Conservatives, but saying this in public would be embarrassing.  

28 comments:

  1. I think many columnists and (all?) newspaper editors receive salaries far above £150,000 a year that would put them into the higher income tax bracket, and so many are exhibiting a culture of special pleading and so we don't need to cite 'business' as their rationale.

    Secondly, I heard Digby Jones this week say that Ed Miliband is personalising attacks on the wealth creators : one of the most acidic and personal take-downs I heard against Digby Jones was by Alan Sugar on radio 5live, in which Sugar questioned the abilities of a lawyer to ever understand business.

    And if you've heard Sugar's solution to the economic crisis, that's Andrew Mellon redux.

    Liquidate bad arguments, I say.

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  2. The difference between Labour and Tory would be that Labour would actually be a government whereas the Tories haven't chosen not to be a government and have preferred to be just a conduit for public money into a small number of private grasping hands. However, Labour are still a capitalist party. This country needs a socialist government.

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    1. And in the meantime, while the public is coming round to your view, would you prefer Labour or the Conservatives?

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    2. Which is why I will be voting Labour in May. With reservations just like a range of people from Polly Toynbee to Julie Walters.

      Great Blog by the way and an education for non economists like me

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  3. I think with the rise of Syrisa some on the far left think that something similar can happen in Britain. There was a Socialist or Social Democratic Party in Greece headed by Papendreous. I take it it would be equivalent to the British Labour Party or not much different. It lost out badly to the far left. So rubbishing, if you excuse the crudeness of expression, of Labour, is just an attempt to discredit and build a farther left type party in Britain which would replace Labour. It is an attempt to create a new left movement. Only thoughts.

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    1. Maybe, but it is probably much more difficult to successfully do so under the UK's First Past the Post electoral system than it is under Greece's semi-proportional system.

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  4. I think you are spot on with this. The economic policies of Miliband are very different to New Labour. And I think a willingness to tackle inequality is the most fundamental.

    I also wonder if he is considering prices and incomes policies. Krugman is wrong when he says these are an abject failure. This view for me comes out of the US-centric nature of modern economics. We know in Britain that such policies are widely used on the continent and have been used successfully in places like Australia (where the Accord was very successful in tackling inflation). It is far from true to say these were an uncategorical failure. Quite to the contrary actually. This is a complex issue in which it is not proper to make such generalisations. Tobin was not a quack either for raising their usefulness.

    Another difference with Blair would be that Miliband is not as enamoured with the City and sees the financialisation of the UK economy as a problem, not progress.

    I am disappointed with Balls. I do not think he has properly been clear enough about the stupidity of reducing deficits during a recession. But I think here economists have to take a lot of the blame. During the Asian crisis Fischer, Dornbusch and (I think also Krugman) were saying that these country's problems were related to cronyism and they needed to restructure their economies and balance their books through austerity programmes. I remember Mahathir, heterodox economists and a few exceptions, namely the late and wonderful Alice Amsden and Joe Stiglitz saying that that would be like asking a mortally wounded patients in need of resuscitation to take exercise.

    Now these people do not sound so crazy now do they? The MIT-economist led IMF now endorses capital controls. How do you explain their conversion (and lack of apology)? Interesting how leopards can change their spots!

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  5. Come on Professor, you're guilty here of allowing your desires to colour your analysis. You cannot switch from fact to fiction when it suits your point and not expect us to notice. Just as you cannot veer-away from uncomfortable conclusions without their absence being obvious.

    The initial 'political science' truism you walk us through (a wide appreciation of competence in running the economy comes from media macro's portrayal of business leaders' endorsement, bought by generous tax regimes for the wealthy) is perfectly valid in most cases and certainly explains much of the success Blair achieved in getting elected then re-elected. But you can't then tell us that Milibands strategy is not to do this and fail to conclude that it is a poor strategy, calibrated as it is for damage limitation rather than positive adoption. Either show us where the truism no longer holds or admit that the strategy as deliberately crafted is alienating many of their natural supporters on the ground.

    And in your rush to counter the damaging accusation that there is no real difference between the main Westminster-centric parties you make the mistake of switching from solid ground to, well there's no other word for it, vapour when you assert that business leaders 'recognise that Miliband is not Blair' with regards to their personal prospects of looting as usual. I suggest to you that the assessments of the vast majority of the electorate are accurate in this case when they judge that the last four years has seen an endless succession of statements and policy positions from Mr Miliband and Mr Balls that are a continuation of the Blair years not a departure from them. This fact is not easily to be swept aside by a couple of counters, the main picture is robust.

    At local level I may well hold my nose and support Labour because the alternatives, pace the Liberal Democrats, still do not have an effective organisation on the ground, which need to exist to present a real opposition to the Westminster-centric main parties. However I may well use my national vote to register my disgust at the serial failures of successive governments to address worsening inequality and our need for a sustainable future.

    However they spin it afterwards, that is not a vote for the current Labour vision of austerity-lite and business as usual.

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    1. It may well turn out to be a poor strategy, but where is your evidence that it has been adopted for damage limitation rather than positive adoption? And how would you explain the rush of business leaders to condemn Miliband when objectively the biggest threat to most UK business comes from a EU referendum. What I particularly fail to understand is the idea that worsening inequality happened equally under Labour and Conservatives - this is just not correct.

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    2. Thank you for accepting my post in the spirit in which it was intended.

      SW-L; "where is your evidence that it has been adopted for damage limitation rather than positive adoption?"

      That comes from the extensive discussions I've had with members of the Labour party who attended the various events at their party conference towards the end of last year at which this strategy was discussed and finally adopted. Many just shook their heads at the uninspiring result achieved, many tried to use heroic doses of statistical and polling data to rationalise the result and merely failed to convince themselves let alone me. The end result was a strategy 'that might possibly deliver a majority but should get us a coalition so at least we'll have ministerial jobs'. Sad, isn't it?

      SW-L"how would you explain the rush of business leaders to condemn Miliband"

      Hardly a rush .... Let's see whether this remains the dominant message over the next month before deciding if it's a consistent attack worthy of address or just this weeks flavour.

      SW-L; "What I particularly fail to understand is the idea that worsening inequality happened equally under Labour and Conservatives"

      Whoever said equally?

      Yet the outcomes of the last thirty years are stark; a consistent and worsening inequality that is blighting the life prospects of millions. You rightly agree that the evidence shows this to be true. And it has remained unsuccessfully countered by governments of either main flavour up to this moment. This is the main reason for the democratic deficit we all experience; our elected representatives have continually failed to deliver adequate conditions in which it is possible for the vast majority of us to lead improving lives. It really is all about the economy.

      Mr Miliband and Mr Balls cannot distance themselves from their part in what has led us to this point.

      I'll add one comment in addition. My assessment of the current morass of views and intentions on the ground is that a tide-change has already happened; the waters are now running towards people and from corporates, to localism away from centralised government, in favour of sustainability and away from extraction. It may not be strong enough yet to sweep all before it at this election but I'm now more confidant than I've been since the global financial catastrophe that long term solutions are possible rather than not. I worry that some things of value in our current circumstances will be swept away when the waters bring change but on the whole that many things that we know now are pernicious and awful will be removed.

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    3. 1) damage limitation would not have produced that quite clear quote from Miliband on inequality.

      2 and 3) I still think you are missing a key difference between L & C. If you look at the 1%, UK inequality increased dramatically from 79 to 97. Since then there has been no clear trend. L tolerated the increase, but the previous C government encouraged it. (Who cut the top tax rate?) Now L are pledged to reverse it.

      4) I hope you are right, but it will happen because L get elected. Under the C party it will not. Talk of waters sweeping is fantasy.

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    4. You are most kind to continue.

      1
      SW-L;"damage limitation would not have produced that quite clear quote from Miliband on inequality."

      So long as it is real and not electioneering; I (along with many, many others) remain to be convinced. We'll need a little more than this ...

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      SW-L; "L tolerated the increase" and " Now L are pledged to reverse it."
      So you can appreciate why so many people are reluctant to proclaim a new dawn. But hang on, where's the reversal coming from? Is it a soundbite uttered in the last week or is it from the costed and detailed policy pronouncements that contain no such thing?

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      SW-L; "Talk of waters sweeping is fantasy".
      Not from what I'm seeing at every public meeting, lecture, political rally and social grouping that's happening in the north at the moment. You can only be surprised if you fail to recognise a burgeoning movement. I'll stick with the cautiously-held reality I see in front of me, thanks.

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  6. Isn't there a good deal of empirical evidence that inequality results from periods of higher unemployment so that full employment policies should be central issues?

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  7. Another propaganda post by SWL. Is that necessary?

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    1. Yes, although it would be better if it was top of the political new agenda.a la Stefano Pessina...."Influential Oxford Economics Professor warns of danger posed by Tory government spending cuts..."

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    2. Only because of a deluded idea (to borrow from the title of the post) about monetary policy being mostly useless (sorry, "too uncertain") at the ZLB, when it so clearly isn't.

      And anyway, no-one is really interested in the views of such a blatantly socialist academic as SWL, who only isn't in the SWP because of a disagreement about tactics, as this post shows.

      Mainstream economics in the UK is worthless now it's so dominated by the views of people who think it is "all about market failure". It used to be about wealth creation, but that is just a given these days and it is all about the "taking" instead. On the one hand it's so depressing, on the other hand most economics students I meet who come out of universities at the moment seem to have paid no attention to their socialist lecturers - and have concentrated their efforts on the business studies elements instead. Small mercy.

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    3. It's become very annoying to have every post by SWL with a political slant be declared "propaganda" in the comments. Making a political judgment isn't the same thing as being a propagandist.

      James, for someone so uninterested in SWL's views you sure do comment on his posts a lot

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    4. Sam10 February 2015 at 02:20

      SWL deserves contradiction. James in London seems quite to the point.

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    5. His point can be summarised as "boo to lefties". It isn't an argument.

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    6. Sam10 February 2015 at 16:22

      Quite fitting the way this blog has evolved.

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  8. In the US, if the top 1% income continues to receive all the economic growth (95% currently), then, by the time the output per person expands 50% (25-30 years?) the top 1% income will “earn” half of a half-larger economy (25% + 50% = 75% of 150%). By the time output per person doubles (typically 40-50 years) the equation will read 25% + 100% out of 200% = 62.5% of a twice-as-large economy.

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  9. US politics, and I'm American, is a sewer. When you mention inequality the wingbats cry Class Warfare. It is a political, economic, psychological, and social problem. It profoundly affects education and race. Many solutions, but my fav is a microtax on equity transactions. All my savings are stocks but like Buffet Ijust hold. The guys using super computers to game markets are not inestors. They ae crooks who got us in this mess.

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  10. I always wonder what people imagine "income equality" would look like, as the reality doesn't seem very desirable in North Korea. Are there alternative idealized income distributions under consideration?

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    1. That's a strawman, only hardcore communists want complete income equality. The actual problem right now is that there seems to be no limit to how far income inequality will grow. If we could sustainably freeze income inequality at the current level then that would already be an important breakthrough.

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  11. The pattern seems to be the same in every country: taxes on high incomes are raised, but not on income from dividends capital gains. A handful of popstars and professional athletes gets hurt, but that's it. Every CEO is smart enough to have much of his or her salary paid out in stocks and no billionaire makes a significant part of his or her income through labor. These measures barely tackle real inequality and end up on the shoulders of the poorest of the rich who are also more likely to be among those rich who actually work for a living. Concentrated wealth is the real threat, the inequality among the 1% matters a lot, and measures that tax high incomes from labor but not from dividends and capital gains actually encourage more inequality among the 1%.

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  12. No mention of land value being concentrated in a few hands that is created by the community.
    The "99% vs 1%" is othering.

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  13. That would be the Blair government that ran up a huge housing bubble and where there was unlimited immigration, yes?

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  14. "Inequality is a key election issue, and there is a very meaningful difference between the two main sides."

    I cherish your blog but like many centrist left liberals you are politically naive. The neoliberal revolution was successful not at least because of Blair and Clinton, they gave legitimacy to the projects of Thatcher and Reagan. In Germany it was even a social democratic chancellor who initiated neoliberal changes during the naughties!

    Believing that the party program of the contemporary centre-left in the Western world is even correlated to what this party will do once it gains power is not merely naive but believing in big, Orwellian lies. Just check the other large Anglo-Saxon country in which a president ran as progressive and turned out to be, in some respects (drone wars, whisteblower persecution) even worse than the previous, conservative administration.

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