Friday, 28 June 2019

Our Pikettian Universe

Earlier this month, in announcing plans to replace the David Cameron-created Social Mobility Commission with a new Social Justice Commission, Jeremy Corbyn made a telling, though seemingly unremarkable, observation: “Social mobility has failed, even on its own terms,” he said “… the greater inequality has become, the more entrenched it has become”.

The evidence is all around. According to the aforementioned Social Mobility Commission, social mobility in the UK “has stagnated over the last four years at virtually all life stages”. Last year the OECD reported that, internationally, social mobility was a “reality” for people born before 1975 but has stalled for those reaching adulthood in the 1990s and after. In the UK, according to the OECD, only around a fifth of children of low income families go on to become high earners and only a quarter of children of parents with manual jobs get managerial positions.

These are the results achieved by the unstinting efforts of successive British governments over decades to raise social mobility and achieve a genuine meritocracy. The Conservative-Lib Dem coalition had its ‘social mobility strategy', before then the Blair government vowed to achieve social inclusion, and before then John Major had entered Downing Street promising to create a “classless society”.

Growth and  meritocracy

In Britain, social mobility has all the hallmarks of a secular faith – for people in power at all levels of society a belief in the virtues of social mobility – whatever the evidence – is compulsory, and if it forever seems out of reach, a few policy tweaks, such as adult education or free childcare, will set things on the right course again.

In fact the social mobility faith is remarkably similar to another secular creed – the conviction of the virtues of economic growth. The affinity is most apparent in the fact that belief in them is unshaken by the slight problem that they don’t actually achieve their aims – intergenerational meritocracy in the one case and healthy GDP growth in the other.

LSE anthropologist Jason Hickel, in his book The Divide, correctly observes that “almost the entire economic profession and nearly all politicians” are obsessively focused on raising GDP growth. What he doesn’t go on to note is that this obsession has conspicuously failed to bear fruit. GDP has unquestioningly increased over time, but, as pointed out by the Geopolitical Economy Research Group, the rate of growth, for the world’s industrialised countries, has been trending downwards since at least the mid-1960s.

Since the financial crisis a decade ago, this decline has intensified. For the UK, GDP growth has averaged a mere 1.87% per year since 2010, and for the European Union, the average is even more modest: 1.6%. This is below the 2-3% thought to be essential for profits to be made in the economy and a pale shadow of the 5 or 6% annual growth rates achieved in the 1950s and ‘60s.

Piketty and capitalism

There are several ramifications of low-growth capitalism, one being that debt – corporate, personal and governmental – skyrockets across the board. Another – less noted perhaps – is that low social mobility inevitably follows. In 2014, French economist Thomas Piketty published an almighty tome, Capital in the 21st Century, to general applause and fanfare. Piketty’s central finding was that when returns to capital are greater than economic growth (when r > g), then inequality is bound to intensify. This is what happened, Piketty asserts, during much of the 19th century and has occurred over the last 40 years in industrialised countries. It will also be the default state of affairs, he predicts, during the rest of this century.

What are returns to capital? They are income streams that stem from the ownership of assets, such as share dividends, profits, capital gains, rents, royalties and interest. When economic growth is high, Piketty contends, income from labour – which is the only way those without assets can get richer – can outpace these capital returns. When it isn’t, the opposite is the case.

It is fairly apparent, therefore, to see why, in Piketty’s eyes, inequality should increase in an era of low-growth capitalism, such as this one. But it is also the case that returns to capital, should they increase faster than economic growth, also hamstring social mobility. This is because once these assets are amassed, they are almost always passed on to the asset-holder’s children and also because they become concentrated in fewer and fewer hands over time. Essentially they guarantee wealth immobility and ensure that those who are already rich, not only stay rich, but become much richer.

For Piketty, the decades between 1914 and 1973 were unusual because the rate of economic growth was higher than returns to capital.  Coincidentally, this period – certainly the post-WW2 years when economic growth was conspicuously high – was one in which, according to the OECD, social mobility was a ‘reality’.

It is also true that – contra Piketty – in the last decade income from labour in the UK has risen even more slowly than economic growth, reversing the historical norm. In fact wage levels have, in real terms, contracted, while the economy as whole has grown, albeit weakly. Moreover, overall wage levels hide enormous inequality in remuneration. Corporate chief executives have seen vast increases, while earning levels in the lowest income groups have barely moved at all since the 1990s.

But that does not detract from the fact that income from capital has outpaced economic growth, with all the consequences that that entails.

No more Thatcherism

This ‘Pikettian’ problem explains much about the current travails of the Conservative party. The Conservatives simply cannot bring themselves to accept that Thatcherism doesn’t work anymore. The promise of Thatcherism was that assets – such as shares and council houses – would be distributed throughout society, leading to a genuinely popular capitalism. Privatisation, said Thatcher, represented “the greatest shift of ownership and power away from the state to individuals and their families in any country outside the former communist bloc”. The creation of a ‘share-owning democracy’ was the clarion call of the age.

Unfortunately for the Conservatives, the shift was transitory if it occurred at all. Before Thatcher entered Number 10, individuals owned almost 40% of the shares in British companies. When she died in 2013, that figure had shrunk to under 12%. In reality, large companies are now owned by other large companies – frequently banks – in an interlocking system which the small shareholder has no influence over.

Council houses were swiftly transferred from the people who had bought them under the ‘Right to Buy’ scheme to a small coterie of private landlords. Home ownership in general has been in decline since 2003 accompanied by soaring rates of private renting. Governments of all stripes have since the 1980s tried to stoke a perpetual property price boom, mainly by restricting supply and not allowing council or social housing to be built. In these conditions of low-growth capitalism, the main hope of becoming wealthier lay not in a lifetime’s labour but in realising the capital gains (one of Piketty’s returns to capital) from selling your property, possibly numerous times. A route millions took.

The dilemma for the Conservatives (and Blairites) is that high property prices prevent young people from buying homes in the first place, thus ensuring that home ownership becomes more concentrated over time. And because their original promises have proven so hollow, the Conservatives – to save their electoral skin – have resorted to the zero sum game of fuelling a ‘culture war’ and overseeing a no deal Brexit, even at the cost of completely alienating the sector of society – big business – whose interests they exist to protect. ‘Fuck business’ was a retort that came out of Boris Johnson’s mouth, not Jeremy Corbyn’s.

21st century wage slavery

What our Pikettian universe means is that for many millions of people employment is not – as it was for many decades after the Second World War, even up to the 1990s – an escalator out of their current economic situation and into a better one. As the figures on in-work poverty show, it is merely a means of week to week survival and sometimes, given the fact that many people who show up a food banks also have jobs, not even that.

Naturally, it can be pointed out that most people don’t live in poverty and most people have mortgages rather renting their homes from landlords (and given the fact that interest rates are so low have benefitted from the last decade or so). However, even ignoring the fact that more precarious forms of work are mushrooming, the trend is not in favour of those who clearly gain materially from capitalism. Piketty’s prediction of a low growth future seems quite solid, and in those circumstances, the asset poor will slowly but surely close the gap on the asset rich.

This has ramifications for how work is perceived, although ones that Piketty, who dismisses ‘the lazy rhetoric of anti-capitalism’, does not make. If work no longer comes attached with an ulterior motive – that it represents a way to personally progress – then it will increasingly be seen in terms of its bare essentials: that is, the granting of wages in exchange for obedience. In the 19th century (the original epoch, Piketty contends, when returns to capital exceeded economic growth and wages were flat), the concept of wage slavery – the idea that the employee is forced by the pressure of need to rent themselves out to employers and endures, in effect, a form of slavery during their time at work – was common on the Left, even the non-socialist Left (see Henry George). If the 21st century replicates the economic conditions of the 19th (not literally, mass outbreaks of cholera are unlikely), then the idea of wage slavery will grow in popularity because it will reflect most people’s experience.

This situation also means the traditional ameliorative solution of the social democratic Left – redistribution of income through taxation – will no longer have the effect it once did. If income is primarily secured by the ownership of assets, then redistribution has to focus on ownership. This is why the UK Labour party moves in favour of ‘alternative models of ownership’ – such as cooperatives, municipal ownership and democratic forms of national ownership – are significant. These may be too limited  and too slow  – John McDonnell’s ‘inclusive ownership fund’ would see companies transferring shares to their workforce every year but it would take 50 years for these to constitute a majority – and in essence a policy fix for a systemic problem. But at least they presage a necessary change of thinking.

However, there is a larger problem. Piketty’s central assertion is that low growth capitalism will inevitably lead to inequality intensifying over time. But low growth capitalism is the condition we are told is essential if climate change is to be seriously mitigated. The question is therefore: does averting ecological catastrophe mean entrenching the power of an oligarchy?  I will attempt to provide an answer in a future post.