Guest posts: This Saturday, let’s fight inequality with direct action!

Bill Kerry, co-director of the Equality Trust and author and economist Stewart Lansley explain why the UK has such high levels of inequality, what measures we can take to close the gap between rich and poor and how we can build a fairer society.

This blog and interview are published here in support of UK Uncut’s Great British Street Party on Saturday 26th May. On that day people in towns and cities around the country will be coming out onto the streets to show they are ready to be disobedient and disruptive in order to demand a future where they- not big business or a cabinet of millionaires- call the shots.

Inequality in the UK: an interview with Bill Kerry, Co-Director of the Equality Trust

Find out more about the Equality Trust’s work and check out their new film ‘The Spirit Level’ here!

Image credit: False Economy

Why economic inequality leads to collapse, by Stewart Lansley

During the past 30 years, a growing share of the global economic pie has been taken by the world’s wealthiest people. In the UK and the US, the share of national income going to the top 1% has almost tripled, setting workforces adrift from economic progress.

Today, the world’s 1,200 billionaires hold economic firepower that is equivalent to a third of the size of the American economy. It is this concentration of income – at levels not seen since the 1920s – that is the real cause of the present crisis.

In the UK, the upward transfer of income from wage-earners to business and the mega-wealthy is the equivalent of 7% of the economy. The workforce has around £100bn – roughly equivalent to the size of the nation’s health budget – less to spend than if the cake was shared as it was in the late 1970s.

In the US, the sum stands at £500bn. There a typical worker would be more than £3,000 better off if the distribution of output had been held at its 1979 level. In the UK, they would earn £2,000 more.

It is this consolidation of economic power that is preventing recovery. While consumer demand – the oxygen that makes economies work – has been choked off, the winners from the process of upward redistribution – big business and the top 1% – are on strike.

Britain’s richest 1,000 have accumulated fortunes that are collectively worth £250bn more than a decade ago. The biggest global corporations are sitting on near-record levels of cash. If this money had stayed with the bulk of wage-earners, we would now be out of this crisis. Instead we have paralysis.

The economic orthodoxy of the past 30 years holds that a stiff dose of inequality brings more efficient and faster-growing economies. It is a theory that has been proved badly wrong. While the wealth gap has soared, UK growth and productivity rates since 1980 have been a third lower and unemployment five times higher than in the postwar era of ‘regulated capitalism’. The three post-1980 recessions have been deeper and longer than those of the 1950s and 1960s, culminating in the current prolonged crisis.

The outcome of the post-1980 experiment has been an economy that is much more polarised and much more prone to crisis. History shows a clear link between inequality and instability. The two most damaging crises of the last century – the Great Depression of the 1930s and the Great Crash of 2008 – were both preceded by sharp rises in the income gap.

There are two key reasons why excessive concentrations of income end in economic collapse. First, allowing wages to lag seriously behind output growth dilutes purchasing power. Consumer societies lose the capacity to consume and eventually seize up. The political solution to mass deflation over the last two decades has been to pump in debt.

This kept the global economy going for a while, but it was a time bomb with a slow fuse. It merely delayed the inevitable meltdown. Secondly, extreme levels of concentration create bubble economies. In the build-up to 2008, rising corporate surpluses and burgeoning personal wealth led to a giant mountain of footloose global capital. The cash sums held by the world’s rich (those with cash of more than $1m) doubled in the decade to 2008 to a massive $39 trillion – three times the output of the US economy.

Only a tiny proportion of this sum ended up in productive investment. Far from creating new wealth, a tsunami of ‘hot money’ raced around the world in search of faster and faster returns, creating bubbles – in property, commodities and business – lowering economic resilience and amplifying the risk of financial breakdown.

The central lesson of the crisis is that a widening income gap and a more productive economy do not go hand in hand. An economic model that allows the richest members of society to accumulate a larger and larger share of the cake will eventually self-destruct. In contrast, more equal societies generate a much smoother economic cycle. Greater equality is not just a matter of social justice. It is also the key to economic health.

Please join with those taking action on Saturday 26th May to call for a fairer and more equal society.

Stewart Lansley is the author of The Cost of Inequality: Why Economic Equality is Essential for Recovery, Gibson Square, 2012.