Inequality, poverty and riots

I have argued before that the cause of capitalist crises (slumps and recessions) does not lie with rising inequality in the advanced capitalist economies over the last 30 years or more (see my post, 1% versus the 99%, 21 October 2011).  But it is certainly one of the more grotesque features of modern capitalism.  A new report from the OECD called, rather startingly, Divided we stand ( on inequality in 18 leading capitalist economies, finds that in the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries.

As the report concluded, this put the final burial rites on the mainstream economics’ idea prevalent in the 1990s that if the rich got richer, their income and wealth would ‘trickle down’ the income scale so that a rising tide lifted all the boats.  That idea was best summed up by that leading ideologist of the New Labour government in the UK, Lord Mandelson, who said “we are intensely relaxed about people getting filthy rich, as long they pay their taxes”.  Well paying their taxes, which they didn’t in many cases, made not a blind bit of difference, such was the largesse the ‘filthy rich’ earned and such was the reduction in the effective tax burden for the rich over the last 30 years.

The OECD report finds that, in all the major capitalist economies, the rich getting richer just meant that they got further away from the rest of us and it did not matter if you lived in a so-called ‘free market’ Anglo Saxon country, such as the US and the UK, or supposedly in more egalitarian countries such as Denmark, Sweden and Germany.  The pay gap between rich and poor just widened: from five to one in the 1980s to six to one today.  In so-called BRICs ( Brazil, Russia, India and China), the ratio is an alarming 50 to one.

It is not just that the top 10% of the income distribution that has moved away from the bottom 10%.  The top 1%, and even the top 0.1%, has accelerated away from everybody else.  Income inequality has risen faster in Britain than in any other rich nation since the mid-1970s.  The annual average income in the UK of the top 10% in 2008 was just under £55,000, about 12 times higher than that of the bottom 10%, who had an average income of £4,700. The share of the top 1% of income earners increased from 7.1% in 1970 to 14.3% in 2005.  The very top of British society – the 0.1% of highest earners – accounted for a remarkable 5% of total pre-tax income, a level of wealth hoarding not seen since the 1920s.

Some economists have argued, and that includes the OECD report, that inequality has risen because of technological change as low-paid manufacturing jobs were moved to developing countries and craft and non-craft jobs were replaced by machines while computers do the work of filing clerks.  Other arguments are that it is due to the lack of education skills.  But the evidence reveals that the real reason is the power of capital.  The growth of an elite in finance capital has been the result of the expansion of that sector in modern capitalism.  And this financial services elite have concentrated wealth into the hands of a tiny minority.

It brings into focus the truly grotesque set of figures revealed by the UK’s High Pay Commission.  The commission found that chief executives  of large companies are often paid 70, 80 or over 100 times the salary of their average worker, when three decades ago the ratio usually stood at 13 to 1. According to the UK’s Financial Services Authority, 1800 bankers in the City still earn more than £1m a year after the banking collapse. So income rewards are not related to performance, but to the power of capital.  The UK’s Institute of Fiscal Studies found that bankers’ bonuses had played a large part in creating this divide. “If you look at who is racing away, then half the top 1% of high earners work in financial services,” said the IFS researcher.  Mark Stewart, a professor of economics at Warwick University, has shown that “almost all the increase in inequality has come from financial services” in the past 12 years.

This rise in inequality worries the OECD.   “The social contract is unravelling,” said Angel Gurría, OECD secretary-general.  The OECD warned of sweeping consequences for rich societies and pointed to the rash of occupations and protests, especially by young people, around the world. “Youths who see no future for themselves feel increasingly disenfranchised. They have now been joined by protesters who believe they are bearing the brunt of a crisis for which they have no responsibility, while people on higher incomes appeared to be spared,” the OECD said.

To rebalance society “for the 99%”, the report calls for a series of measures focusing on job creation, “increased redistributive effects” and “freely accessible and high-quality public services in education, health and family care”.  That’s a rather sick joke when the British government plans is cutting public sector jobs by 710,000 and hiking university fees.  The report urged governments “not to cut social investments”.  And yet that is exactly what the economists of OECD are proposing that governments in the major capitalist economies do in order to get public sector deficits and debt under control – cut public spending and services.

The level of youth unemployment is now at record highs in most capitalist economies.  That means millions of disaffected youth with no future and ready to lash out at the system.  Last summer’s riots in the UK demonstrated that (see my post Criminality – pure and simple, 8 August 2011). So a comprehensive report on the UK riots is opportune.

In a detailed survey of the riots, the London School of Economics found that four out of five participants in summer unrest think there will be a repeat, with most believing poverty to be a factor. Of the 270 questioned in the Reading the Riots study (, 81% said they believed the disturbances that spread across England in August “would happen again”.Two-thirds predicted there would be more riots before the end of 2014. Despite more than 4,000 riot-related arrests, and harsher than average sentences in the courts, many of those interviewed said they did not regret their actions. The research found they were predominantly from the country’s most deprived areas, with many complaining of falling living standards and worsening employment prospects.

Those questioned as part of the study were pessimistic about the future, with 29% disagreeing with the statement “life is full of opportunities” – compared with 13% among the population at large. Eighty-five percent said povertywas an “important” or “very important” factor in causing the riots.  An independent panel set up prime minister David Cameron also concluded that poverty was an important factor.  It found that more than half of those who had appeared in court proceedings relating to the riots had come from the most deprived 20% of areas in Britain.  Many said they were angry about perceived social and economic injustice, complaining about lack of jobs, benefits cuts and the closure of youth services.   Overall, the rioters questioned had lower levels of educational attainment, with a third of adults educated to GCSE level and one-fifth having no educational qualifications at all.Government data reveals that two-fifths of the young people who have appeared in court in connection with the riots were receiving free school meals – a key indicator of deprivation.  Two-thirds have been identified as having special education needs – a proportion three times higher than for the population as whole.  For many of those not in education, unemployment was the norm among the rioters who were interviewed.  They repeatedly complained about their struggle to find work – with some even saying they sought out and looted shops that had rejected their job applications. Fifty-nine percent of the rioters interviewed in the study who were of working age and not in education were unemployed.

Rising  inequality and  joblessness, increasing social unrest and riots.  That’s modern capitalism in 2011.

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