The richest 85 people in the world hold the same wealth as the bottom 3.5 billion people. This is the headline grabbing statistic from a new Oxfam report about extreme economic inequality in the world today. The paper was launched last week ahead of the annual World Economic Forum in Davos – a meeting of big business, the most wealthy individuals and the most powerful politicians. Oxfam’s paper argues that not only is this extreme inequality morally questionable, it also undermines economic growth and democratic decision making.
The Victorian age, when the Fabian Society was founded 130 years ago, is often our immediate reference point for poverty, inequality and the abuse of power. It was an age of great wealth, Empire and industrialisation juxtaposed with the reality of poverty, squalor and disease for many ordinary people.
In response to these conditions, a movement which pushed for better conditions for the poorest emerged – championing the provision of education, housing, welfare and healthcare through principles of progressive general taxation. The Fabian Society, and the thinking it espoused, formed a central pillar in this movement. Poverty and suffering declined, as did inequality.
But today, we risk again seeing Victorian levels of inequality both at home in modern Britain, and around the world. Since the 1970s income inequality among people of working age in the UK has risen faster than in any other OECD country.
So why should we care about inequality? For many who support the founding values of the Fabians, the call to address extreme inequality seems obvious and frankly overdue. But the rise of ever greater extreme inequality also matters because it undermines the drivers of our economy. It is true that some economic inequality acts as an incentive to work hard, driving growth, and most agree that it is only fair that those that work hard and have skills society needs are justly rewarded.
But, crucially, the levels of inequality seen today are sending this into reverse. Oxfam’s report talks about ‘opportunity capture’ where an individual’s opportunities are determined by their wealth, rather than their skills or endeavour. This concern is also reflected in a recent OECD report on social mobility. In America, President Obama has raised similar concerns for the way inequality in the US is eroding the American dream of social mobility through hard work.
Beyond the economic impacts, extreme wealth and inequality may also undermine the democratic principles on which political legitimacy is based. The idea of the ‘capture of policy making’, bending rules, laws and decisions to benefit the richest, increasingly chimes with the public’s frustration with the political establishment. Recent polling in the UK showed that two-thirds of people thought ‘the rich had too much influence over the direction the country is headed’. Only one in ten disagreed. Oxfam’s report draws on examples from around the world – from the strength of the financial lobby in the United States, which spent more than $1bn on lobbyists to weaken and delay regulation intended to protect the economy from another financial crash, to the relationship between billionaires, business and government in India. The influence of extreme wealth on policymaking in Britain is a topic of constant debate – whether it’s paid lobbyists, cash for questions or party donations for peerages.
The solution, in many ways, is a case of going ‘back to the future’. There is a need to rediscover the policies that tackle extreme wealth and spread opportunities for all – along with the social movements that drove them in the first place. Oxfam’s report recommends more progressive taxation systems, greater public investment in the universal healthcare, education and social protection that levels economic opportunity, as well as including a goal to end extreme economic inequality in every country as part of the framework that will replace the Millennium Development Goals (MDG) in 2015.
There is now an opportunity in Britain to act on these recommendations – as we emerge from recession, as the future of welfare reform and public services are in the balance, and as the UK is seen as a leading voice in the international ‘post-MDG’ debate. With all political parties fixing their attention on the next election, they should consider how to narrow the gaps between the richest and the poorest to build an economy and society with opportunity for all.