A rising tide does not lift all boats: why we need to declare war on inequality

We need to restructure the economy so that growth is driven by investment in infrastructure, creating the well-paid jobs we need to ensure working people get a fair deal.

We need to restructure the economy so that growth is driven by investment in infrastructure, creating the well-paid jobs we need to ensure working people get a fair deal

‘A rising tide lifts all boats’ has long been the free market fundamentalists’ favoured line, peddled to assuage fears of growing inequality.

Just as the child who discovers the presents hidden in mum’s wardrobe on Christmas Eve may have a hard time letting go of their belief in the existence of Santa Claus, so belief in the ‘trickle-down fairy’ remains, despite strong evidence to the contrary.

Armed with a wealth of data, a report published this week by the transatlantic Commission on Inclusive Prosperity, co-chaired by shadow chancellor Ed Balls, convincingly dispels the myth of trickle down.

It concludes that the free market can no longer deliver for low and middle earners in developed economies and that major reform of our social and political institutions is necessary to make 21st century capitalism work for the many and not just the few.

Even in the boom years, those on average incomes were not benefitting from economic growth. Wages in the UK have remained stagnant since 2003 – well before the crash of 2008. And while the average wage has remained flat at around £27,000 a year, executive pay rose from £2.6m to £4.3m in the decade to 2012.

The UK is the only G7 country to have grown consistently more unequal this century.

Inequality is damaging to both society and the economy. As Wilkinson Pickett’s landmark book ‘The Spirit Level’ shows, it is associated with a range of negative health and social outcomes.

Unequal societies are more likely to suffer from lower life expectancy, poorer educational attainment, higher crime rates, and lower levels of social mobility and community cohesion than more equal societies.

Inequality is also an economic problem. When wages fail to cover the bills, families are forced to turn to debt to keep a roof over their head and put food on the table.

And it was consumer debt that brought the global economy to its knees in 2008; high levels of inequality make it much harder to achieve economic stability.

As the Commission on Inclusive Prosperity argue, we need to move to a high-wage, high-productivity economy. The current recovery is being fuelled by consumption and debt, and the private sector job creation we have seen has been concentrated in low-wage sectors.

We need to restructure the economy so that growth is driven by investment in infrastructure, which will create the well-paid jobs we need to ensure working people get a fair slice of the pie.

Corporations must stop focusing on short-term share prices at the expense of investment, innovation and wage growth. And shifting the burden of taxation from income to wealth and assets, by introducing a land value tax, for instance, could also make a huge contribution to reducing levels of inequality.

Encouragingly, inequality has moved up the political agenda since the financial crisis. Express concern about the vast disparities in income and wealth and you’re no longer as likely to be dismissed as a tree-hugging, sandal-wearing lefty. Inequality has gone mainstream.

In the summer, Barack Obama labelled inequality ‘the defining challenge of our time’, and over the past couple of years the Pope, the IMF and the OECD have all identified inequality as one of the greatest threats to future prosperity.

Even David Cameron has occasionally jumped on the bandwagon, saying in 2009 that more unequal societies do worse ‘according to almost every quality-of-life indicator’.

But he has since gone on to lead a government that has implemented a cut in income tax benefitting those earning over £150,000, while those at the bottom have endured poverty pay, a rise in VAT and cuts to the social security safety net. Actions tend to speak louder than words.

The Commission on Inclusive Prosperity’s report shows that laissez-faire economics of the kind pursued by the Tories has no answer to rising inequality and the problem of stagnating incomes. Only a progressive policy agenda can ensure that working people once again benefit from economic growth.

In 1964, President Lyndon Johnson told the US Congress: “administration today, here and now, declares unconditional war on poverty in America.” Half a century on, it’s time we declared a war of our own – on inequality.”

Matthew Whittley is a recent graduate and Labour party member and works as a researcher for a Midlands-based housing association. Follow him on Twitter

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