The second crisis of capitalism

As previewed last week, this is the first in a series of blogs in which I will attempt to pull together various strands from my blogs of the past few years. Let me start by recapping where I had got to previously with thoughts on the economy, on politics and on the growing inequality of wealth.  

* Economic growth is low everywhere in Europe, and shows no signs of improving. Brexit may well make this situation worse in Britain. Living standards for most people are stagnant. The material improvements that several generations have taken as a right are no longer being delivered. Neither are improvements in healthcare and education.

* It would appear that the wealthiest 10% in Britain have borne a greater burden during the period of austerity than anyone else. However, this claim relates to income, not to wealth. Asset prices (both houses and the stock market) have been rising constantly. For those who possess assets, their wealth has been increasing, even if their living standards have not. As a result, the gap between the haves and the have-nots is widening. (But, I wondered, how relevant was it to talk of the top 10%? What about the top 1%?)

* The private wealth of some individuals has increased out of all proportion to economic performance. Executive pay has reached astronomical levels and no one seems able or willing to check it. (But how much, I wondered, was this simply a moral affront, and how much a problem for the wider economy?)

* Many of these individuals, and also many corporations, organise their affairs so they pay little if any tax. The globalisation of finance has made this possible. A network of lawyers, tax specialists and shady banks in assorted tax havens has finagled it. (But what was the scale of this problem? How much tax was annually denied to governments? In any case, what could practically be done about it?)

* Governments, in Britain and elsewhere, seem powerless to affect this situation. At any rate, they haven’t affected it. This in turn raises the question of whether democracy itself is becoming a spent force, incapable of creating enforceable tax regimes and of protecting the economic interests of its own citizens.

* Finally (and this was the thrust of the blog series The Road to Revolution), this invites two questions. How long will people continue to accept a growing inequality? What alternatives to the (historically) centrist governments of Europe and the USA might emerge, and how democratic will they be?

Those of us who grew up in the post-war years grew up with the post-war consensus. Its central tenets were that steady economic growth (3% a year?) was both essential and possible, and that the nation should share its fruits in an equitable way. This consensus was broken in the 1980s and, as it has turned out, so were its aspirations. Growth has slowed across all developed economies. Even allowing for the fact that ‘equitable’ is a word capable of elastic definition, no one but a committed neo-liberal could say that the fruits of growth have been shared equitably. At the same time, changes to the nature of work have greatly reduced job security.

We now have five tiers of society. At the top is a tiny elite, no longer hereditary for the most part, which possesses phenomenal wealth, whether in income or capital (usually both), and which manages to be lightly taxed and largely unaccountable.

Beneath them is a prosperous sub-elite, who own capital assets, who may or may not have rising income or living standards, but who are certainly becoming more wealthy, at least on paper.

Beneath them is a large, static middle class. Probably with some capital assets, usually a house, and usually mortgaged. They have reasonable security, but increasingly without the expectation that their living standards will get much better, or those of their children.

The penultimate level is what Theresa May has called the JAMs – those who are just about managing. They are mostly in work (if of working age), but that work is increasingly insecure. Much of it is short term, part-time or based on zero-hour contracts. Levels of employment appear to be healthy, but the work itself has changed. It is a permanent struggle for many of this group to get by and – even if they manage it for the moment – their circumstances may change for the worse overnight and without warning.

And then, as always, there is a non-working, heavily subsidised underclass, with few prospects. Since the 1980s, much of this group has become a hereditary underclass.

To some extent, perhaps the population could always have been divided into these five groups, even though it was commonly divided into three. But, either way, the characteristics of all the groups have changed markedly in recent decades. And – more important than that – the degree of mobility between them would, on the face of it, appear to have reduced dramatically.

This analysis was broadly where I had got to over recent months. It has now been illuminated by reading two books, both of which should be required reading for anyone interested in these issues. They are: Capital in the 21st Century by Thomas Piketty, and Reckless Opportunists: Elites at the end of the Establishment by Aeron Davis. (In addition, I have read and can recommend a third – Capitalism Without Capital by Jonathan Haskel and Stian Westlake – but that is tangential to the main argument.)

In the blogs over the next few weeks, I will look at how both books contribute to the debate. Aeron Davis’s book is an illuminating polemic, short, piercingly presented, but without seeking to offer an all-embracing analysis. Thomas Piketty’s book is in a different class altogether. And that will be the subject of the blogs of the next two weeks.