The 970 pages of Thomas Picketty’s Capital in the Twentieth Century have been summarised in the three characters: r > g.
Expanded, this means, in recent years, the rate of return on the capital of the wealthy (r) has been greater than the rate of growth of the economy (g); the proportion of wealth owned by the richest becomes greater and inequality grows.
But Picketty had little to say about how this rate of return, and thus inequality, might be reduced. His main proposal is for a global wealth tax; but that is, in his own words, utopian. Tony Atkinson attempts to provide an answer to inequality. It is resolutely on the centre ground of politics; he is, after all, Sir Tony and a long time member of government, parliamentary and EU advisory bodies.
But Atkinson is well-placed to advise. He has spent his life studying the economics of inequality and income distribution, his earliest publication, Poverty in Britain and the Reform of Social Security, came out in 1969. In the past he has collaborated with Picketty, on whom he has been a major influence. His latest work has three sections: the nature of inequality; proposals to mitigate it; and an assessment of whether these policies are practicable. The focus is largely on the UK.
The section on the nature of inequality draws on Picketty. Atkinson argues that when inequality fell — from the 1930s to the 1970s — it was the result of a number of factors including trade unions being able to increase the working-class share of the social product and social-democratic policies at the level of the state redistributing some resources. The growth of inequality from the 1970s has been associated with systematic attacks on the unions and the welfare state.
This is a strongly-grounded analysis. Atkinson is highly critical of mainstream economic theory, particularly its more overtly neo-liberal varients, which largely ignore issues of inequality. Atkinson continues to assert, as he has for nearly fifty years, that economics should have a greater focus on inequality. He argues neo-liberal ideas about how the market should determine wage levels are to blame.
Atkinson remains in the mainstream, although his neo-Keynesian and redistributive views makes his is a minority voice. There is no criticism of the market economy as such. Rather, two things are taken as axiomatic.
First, that it is human intervention through government economic policy and the norms of corporate governance that shape the economy. Just as neo-liberalism is at heart a political choice the benefits the owners of property so alternative choices that create greater social justice could be made. Second, Atkinson takes it for granted that policies which redistribute wealth and create greater equality are best. It is telling that the basis for this view is the work of the liberal philosopher John Rawls, whose Theory of Justice was first published in 1971. There is a strong “back to the seventies” feel about many of Atkinson’s proposals; but that was the last time mainstream policy sought to any degree to promote social justice, rather than the free market.
But the second part of the book, on proposals for decreasing inequality, is weak.
None fundamentally challenge the power of capital; they attempt to work against the unequal outcomes that private ownership of much of the productive forces of society creates. Atkinson is clear that inequality in contemporary Britain is underpinned by there being a group of people who either receive large incomes from the capital that they hold or from multi-million pound salary packages (and, as he notes, the two are increasingly the same people), but has no policy for correcting this other than through taxation.
Many of the policies are desirable, for example, raising the level of child benefit and increasing the minimum wage. But others are much more questionable. Thus, the proposal to replace inheritance tax on estates, with a life-time capital receipts allowance for anyone receiving an inheritance or equivalent gifts from the living is a recipe to cushion the richer sections of the middle class from inheritance tax. The proposal to establish a corporatist governmental body, the Social and Economic Council, in which various social “stakeholders”, including the trade unions, look at issues such as wage rates, is reminiscent of many tripartite institutions that were created in Britain between 1962 and 1979. Those were much more a way of co-opting the trade union bureaucracy than empowering the working class.
Such proposals seek to roll back the film of British politics to a point somewhere between the Labour government’s move away from Keynesian policy at the time of the 1976 IMF crisis and the Conservatives 1981 budget. This was when the British state moved from moderate accommodation with the organised working class to an attack on it. In effect, Atkinson proposes that state policy should return to that point and to capitalism with a human face. It is a plea for a more European social market economy.
There are two problems with this.
The first is a poverty of ambition. By his own admission, Atkinson’s proposals hope to do no more than turning Britain from one of the more unequal European states to one with middling inequality. When it comes to policies that might constitute real restraint on capital, such as higher corporation tax or a wealth tax on individuals, Atkinson is ambivalent, believing that they may be impracticable.
The second problem is one of agency. What force is going to wind the clock back to the 1970s and march capital down a different path? Atkinson’s answer is that this will be a combination of the European Union and the force of his own arguments.
The third part of Atkinson’s book deals with the possibility that these policies are not practicable, that the state will be unable to raise revenues in a globalised economy while retaining growth. Although Atkinson’s arguments are persuasive, the logic is dangerous: this approach makes policies to address inequality conditional on the ability of the capitalist system to be pliant enough to deliver them.
For example, Atkinson accepts the logic of the Laffer Curve. Arthur Laffer suggested that there is a rate of tax that maximises income, arguing that if tax were 100 per cent receipts would be nil (no one would have a motivation to work), and if tax were nil then tax receipts would also be nil. Therefore there had to be a single point between these two extremes that maximises tax revenues, particularly for the highest earners; he argued this point was a tax rate of around 40 per cent.
Atkinson thinks the rate might be somewhat higher, 65 per cent, but the truth is that no-one knows. Even in this most central policy, the degree of equality that might be obtained is limited by the marginal rate of taxation that is consistent with the super-rich getting out of bed to exploit the working class.
There is a saying, often attributed to the social democratic theoretician RH Tawney, that you may peel an onion a layer at a time, but you cannot skin a tiger claw by claw. Atkinson seeks to do the latter without a social force strong enough to counter the power of the capitalist tiger.
We need to work on developing our claws and teeth to fight that tiger and overcome it. Only then will the battle for equality be won.