The toxic politics of wealth inequality
Wealth inequality is now so bad, it's threatening the basic nostrums of democracy. And it could be about to get much worse
‘Hard work is the way to get on.’
It’s one of the oldest tropes in life. And politics. As Michael Sandel argued in his superb book, The Rhetoric of Rising, variations of the phrase were a favourite of Ronald Reagan, Bill Clinton and Barack Obama who used the words ‘you can make if you try’ more than 140 times in speeches and statements.
In Britain, politicians from Margaret Thatcher to Tony Blair echoed the theme. Mrs Thatcher used to declare ‘I do not know anyone who has got to the top without hard work. That is the recipe’ while Tony Blair would often say “My vision is and will remain a country…where you get on in life depending on hard work not birth or background.”
But here is the problem.
Wealth inequality is now so bad that people simply don’t believe it anymore. In fact, according to polling that we (at the APPG on Inclusive Growth) carried out with the Policy Institute at King’s College, people now think that success in life depends on the family you’re born into. Or your networks. Or your education.
Hard work comes merely fourth on the list.
I think that is problem for our society. And it creates (at least) three big problems for our politics.
When political leaders palpably fail to deliver an economy where hard work does have its due reward, voters are bound to lose confidence in democracy as a system. Maybe that’s one reason why confidence in democracy is at such a low ebb. Especially amongst young people. Indeed, Cambridge University’s Dr Roberto Foa recently reported that Millennials are
“the first generation in living memory to have a global majority who are dissatisfied with the way democracy works while in their twenties and thirties.”
Satisfaction with democracy is in steepest decline among 18–34-year-olds almost everywhere - but young people were most positive about democracy when a populist leader (of either left and right) was in charge.
But is anyone surprised? ‘Since the advent of the welfare state,’ says Mark Franks, Director of Welfare at the Nuffield Foundation,
‘what could be described as an implicit social contract has existed between generations. Younger people would work and pay taxes, which would help to support the older population, with the expectation that they themselves would experience… the prospect of a comfortable later life.’
There’s not much of that bargain left.
Second, the toxicity of wealth inequality is now so severe that people don’t actually think national governments hold the most power any longer.
In fact, people think that the top 1% now wield more power than national governments. And when we ask people what they fear about this, the answer is: unfair influence and rising levels corruption. That is unlikely to be good for trust in politics, just at a time when we need to entrust politicians with making major decisions about the future of our society.
But third, research from Oxford University now shows that those countries where gains in wealth have not been shared throughout society – are far more likely to vote for Brexit, or Trump or Le Pen – or the far right in Scandinavia. Wealth inequality it seems is very bad for moderate politics.
In a remarkable bit of political science, Professor Ben Ansell and his colleagues revealed how in the UK those left out of the wealth boom are far more likely to vote for populists. Unhappy citizens are scrappy citizens, offering rich pickings for populists, keen to milk the bitter wrath.
Studying the Brexit vote, Ben’s research found that
‘Poorer, traditionally Labour, areas had stagnating housing markets, reinforcing community support for leaving the European Union.’
In more detailed, recent studies, looking at Scandinavian trends, Ben and his colleagues found that when house prices rose, people were driven away from populist parties – but equally, ‘when prices decline, they’re driven towards them.’
One blunt interpretation of this is simple: it appears that whether or not your wealth keeps up with others is a significant contributor to the likelihood that you’ll support a populist cause.
Now, think of what is about to happen. Nothing is forever. And as the baby boomers die, they’ll bequeath to their heirs an extraordinary £5.5 trillion in what is already being christened the Great Wealth Transfer. The luckiest will inherit a fortune. But the unlucky will inherit only care bills.
One of the people who has thought about this most is the incredible young economist, Arun Advani at Warwick University. He pointed me to his calculations for the IFS:
While inheritances will remain small for those with the least wealthy fifth of parents, for those with the wealthiest fifth of parents they are set to rise from averaging 17% of lifetime income for those born in the 1960s, to… 30% of lifetime income for those born in the 1980s.’
We are indeed set to become what the FT’s John Burn-Murdoch and others have called a great inheritocracy. Inherited wealth is growing – and set to continue to grow – compared with earned incomes. It will have an increasing impact on inequalities by parental background – and Gen Z may be set to become the most unequal generation for half a century.
Few people have thought about this more than Conservative peer and former minister, Lord David Willetts. David has done more than anyone else in Parliament to highlight the challenge of intergenerational fairness, penning a book on the topic in 2010 and today chairing the best think-tank on living standards, the Resolution Foundation.
When we met to chat, he underlined for me that today
‘inheritance matters more and what you earn matters less.’
Ironically, he went on, this is the opposite of what Mrs Thatcher would have hoped for. She wanted a nation where the path to wealth was earned or saved and not inherited.
It was the great Roman writer, Sallust, who once penned a line that could be found on the walls of Renaissance council chambers: ‘small states grow with concord; discord causes great ones to dissolve.’
Our polling reveals that not only do over 70% of people now feel that the gap between the richest and the rest is too big but a clear majority now think that wealth inequality should be reduced. And, what the political science appears to reveal, is that if we think political instability is bad now – well, it could be about to get much worse.
Unless we fix the inequality of wealth.