The subject of raising taxes on the super-rich, having long being promoted by organisations such as Tax Justice UK and Patriotic Millionaires, has risen sharply in the public discourse in recent weeks. However the discussion has focussed (naturally, in the country’s present situation) on raising funds – ideally by a method not squeezing further the living standards of the struggling majority of the population.
The question of whether there should indeed be any super-rich, or whether the enormous gulf in incomes and wealth, especially, is unfair, unhealthy, unjustifiable or even dangerous to society is not raised. This is the problem of inequality, and the question arises (particularly as the degree of inequality seems to be steadily growing) does it matter, and if so is there anything that can be done about it anyway?
These questions are answered by the distinguished American economist Joseph Stiglitz in ‘The Price of Inequality’ (2012). (The short answers are Yes, and Yes – if we have the will). The first way in which it matters is that, according to Stiglitz, “High inequality makes for a less efficient and productive economy”.
There are a number of reasons for this, including the resistance of the rich to public investment, needed for a well-functioning economy, and the preference of the rich for ‘rent-seeking’ – i.e. gaining wealth purely by owning wealth – assets such as land, property, investments, etc. These are not wealth-creating activities but ways of redistributing wealth, from the many to the very few, the very rich.
Another way in which it matters is the threat to democracy. At first sight it seems odd that the political (and economic) system rewards the very rich (‘the 1%’ in his simplified model) so much more than the rest, the vast majority (‘the 99%’). Stiglitz gives many ways in which the rich influence the system – by making voting more difficult or more costly, by discouraging the poor from voting via disillusionment and distrust that the system could help them, by shaping the views in society (for example the belief that the disparity in wealth is much less than it actually is, that the system is fair, that the 1% somehow deserve their huge wealth).
To help with this shaping of views the rich have great influence, or even control and ownership, in various forms of news and communications media. The result is that we see less ‘one person one vote’ and more ‘one dollar one vote’. In summary, the rich, in gradually gaining influence and control of the political process, then write the rules in their favour, which consolidates their position. The danger is that government becomes less democratic and more a plutocratic oligarchy – government by the few and by the rich. We have seen this in Russia since the 1990s and we are seeing something of this in the US at the present time.
The next consequence of great inequality that he considers is the erosion of the rule of law. Again he stresses how the power of wealth, whether of corporations or individuals, moves the rules in favour of the wealthy – diluting regulations against pollution or safety, for example. The wealthy can also afford to string out judicial processes, while ‘the poor can’t bear the cost of delay as well as the rich’. He says in today’s America ‘justice for all’ is being replaced by ‘justice for those who can afford it’.
In his final chapter he turns from analysing the various ways that great inequality is bad for society – both economically and in more general social and cultural ways – and presents his ideas on how we can retrieve the situation. He insists ‘another world is possible’. His suggestions, including personal and corporate tax reform, and wealth taxation, are not revolutionary, or even very radical: they are what many would regard as sensible, even obvious, and have been applied to some degree in various countries at various times. The difference is that such a distinguished ecnoomist can make the case with authority and conviction, backed up with great practical research-based knowledge.
Throughout the text, on virtually every page, he makes points, both economic and political, that many will recognise as very valid. His arguments are strongly evidence-based, with many references to articles in economic journals, often ones of which he is an author or co-author.
Although, as an American, Stiglitz writes particularly about inequality in the US, where its consequences are most evident, his analyses and concerns apply to other economically advanced countries. He makes many references to Europe, comparing the situation there favourably with the US. However, we should not be complacent – the UK is often among the lowest of the various measures of social benefits (life expectancy, peri- and neo-natal mortality, for example) rather nearer to the American performances than the European average. Europe is going in the direction America has taken, and this needs to change.
It is well known and documented, for example in The Spirit Level (Wilkinson and Pickett, 2009) and Inequality and the 1% (Dorling, 2019) that more equal societies have better outcomes in a wide variety of social measures, such as life expectancy, perinatal mortality, child poverty, various health outcomes, etc.). It is also the case that such societies are consistently around the top of the World Happiness Report rankings. (Finland, with a strong welfare state, has been top for the last eight years.)
The Price of Inequality, Joseph E. Stiglitz, 2012