Rip-off Britain?

The struggle between capital and labour over their shares of the national pie have become more overt recently. This is inevitable given that the environmental crisis has made it clear that the strategy of increasing the size of the pie has run up against the stops. In the Northern Rock fiasco the shareholders, who controlled around 1 per cent of the bank, attempted to extort money from the poor and middle-earners who pay taxes. The temporary nationalisation strategy represents a truce - since the ultimate decision about how much public subsidy will be given to the hedge funds is only delayed.

My recent visit to Portugal made clear the consequence in the transport sector of this commitment to business interests rather than people's interests - or a policy where the 'customer' (passenger) pays more of the costs of travel than the taxpayer, as the government prefers to phrase it. This is the explanation for a four-stop trip on the London tube costing £4 while a journey three times the length on the Paris Metro costs only E1.50. Meanwhile my trip from Irun to Lisbon, lasting 13 hours and including a bed and breakfast in the dining car, cost £99, while my 1.5-hour trip to London from Stroud was £108.

This is one of many examples of the way in which the poor subsidise the rich in a world where all the political parties have abandoned the interests of labour, or working people. Motorists are given huge subsidies in the form of free roads paid for from taxes which grow ever more regressive. Meanwhile bus and train companies are forced to fend for themselves - and pass the consequence on to passengers in the form of increasing prices and worsening service.


We see a similar picture in the world of energy - another key sector for price rises as oil supplies dwindle and competition for them increases. People who have run into arrears with electricity bills are put onto meters and then pay up to 45% more, subsiding the rich who can afford the cheap deals that come when you pay by direct debit. Save the Children identified that in most of the key consumption areas the poor are paying more than the rich.

The same applies in the debt/credit market, where small-time risk is penalised by high charges, whereas high-level risk is condoned. Years ago I wrote to my bank complaining that the £20 fine they had extracted for a £5 sally into the red was unreasonable. The letter justifying this extraction of money from the poor to be sent to the rich was signed by a 'Ms Swindell'. I intend to put this in a frame as a moral lesson. Tweet

Inequality is bad for your health

A recent report from the UN University shows that, on a global basis, the richest 2% of people in the world own half of the world’s wealth. Now only a little experience of economics tells you that the first thing you need to do on hearing a statistic like that is to ask exactly what they were measuring. It appears that in this case they were making a fairly sensible assessment. The measure of wealth is based on assets, always a more important indicator than income, and deducts from these what people owe as debts. So for most UK ‘home owners’ their apparent wealth would be considerably diminished before it was included in the measurement. The study is also wide-ranging, including all the countries of the world. The report, from the World Institute for Development Economics Research based at the UN University, finds that the poorer half of the world’s population own barely 1% of global wealth and that most of the wealth is concentrated, you won’t be surprised to learn, in North American, Europe, Japan and Australia. This is shown in the graphic.

The report gives an interesting perspective on inequality, showing that the concentration of wealth varies markedly between different societies as measured by the Gini coefficient.[1] Two high wealth economies, Japan and the United States, show very different patterns of wealth inequality, with Japan having a wealth Gini value of 0.55 and compared with that of around 0.8 for the USA. Wealth inequality for the world as a whole is higher still. The study estimates that the global wealth Gini coefficient for adults is 0.89. The same degree of inequality would be obtained if one person in a group of ten took 99% of the total pie and the other nine shared the remaining 1%.

The loss of concern with inequality has coincided with the abandonment by the major political parties of any attempt to oppose or even constrain the capitalist economic system which is its cause. Even parties which still call themselves ‘socialist’ will now argue that it is the overall size of the pie that counts, not how much of it you are able to get your hands on. The capitalist system requires inequality for its operation, so that any theorist who suggests that once there is enough money it can be shared with the poor is either a deceiver or has not understood the system. Capitalism operates like a pump, where the energy of those who have least pushes them upwards to become those who have most; inequality is the motor that drives this pump. It causes the capitalist machine to function to its maximum, but caught up in that machine are human lives and the costs of inequality on those lives is very great.

US researchers have found that inequality is bad for the life expectancy of all in a society, rich and poor alike. In a study which compared Gini coefficients for different US states with the life expectancy in the states they found a positive relationship. What surprised them was that the relationship persisted after they had controlled for poverty. So it isn’t being poor that makes you die sooner, but living in an unfair society.

It is a shame that the conclusions from such a substantial piece of work are so weak. While taking debt into account as a negative when measuring assets the authors none the less conclude that the solution to the problem is—more debt! Yes, Professor Anthony Shorrocks is quoted as saying that it draws attention to the importance of enhancing banking systems in developing countries to help generate the funds for business investment. And since banks generate these funds by imposing debts on those who really need assets this is hardly likely to improve the situation.

He also tells us that ‘The report is not about policy recommendations’, which makes me wonder why we invested so much of the UN budget in paying for the findings. Anybody know my favourite word? Could be pusillanimous.

To find out more visit the UNU website link:

http://www.wider.unu.edu/research/2006-2007/2006-2007-1/wider-wdhw-launch-5-12-2006/wider-wdhw-press-release-5-12-2006.htm

[1] The Gini coefficient is a measure wealth inequality where 0 corresponds to perfect equality (i.e. everyone has the same wealth) and 1 corresponds to perfect inequality (i.e. one person has all the wealth, while everyone else has zero).
http://en.wikipedia.org/wiki/Gini_coefficient

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