Empowerment = Equality

The British Prime Minister made the startlingly frank admission in Parliament last week that “income equality had gone down” during his time in power. It was a slip of the tongue, of course, but the merciless hordes on social media were quick to pounce especially after David Cameron’s own party tweeted his comment uncorrected. The error even secured news coverage.

The fact that such a tiny mistake can provoke any comment at all says much about the way inequality has risen up the political agenda. Just as the Wall Street Crash of 1929 and the ensuing Depression stimulated years of public debate about the problem, so the 2008 Crash and Long Recession has done the same.

And the concern is not misplaced. Inequality has indeed grown in the developed world over the last fifty years. The share of total income earned by the top 1% of families in the USA now stands at 20% but forty years ago it was 10%. The change in the share of wealth is even more striking with 0.1% of households now owning 22% of the value of all US assets up from just 7% in the early 1970s. Similar, if less marked, trends can be observed in the UK and Europe.

There is, however, a fundamental difference between the debate after 1929 and today’s soul-searching.

Eighty years ago public opinion was moving towards the idea that the solution to inequality was big government. Intellectuals of both left and right had a growing faith in the power of bureaucratic elites to plan economies and solve social problems. As the economist Ludwig Lachmann ruefully reflected, everybody at the London Schools of Economics in the early 1930s was a follower of that fervent proponent of the small state, Friedrich Hayek. By the end of that decade, however, there were only two Hayekians left: Lachmann and Hayek Himself. The public followed the intellectuals’ lead in the post-war period as European social democratic parties and the US Democrats’ Great Society programme attracted popular support.

The result was the establishment of large welfare states which sought to address inequality by transferring tax funds directly to the less well-off through social security payments and enlarged health and education programmes.

However, this world has gone. As the political scientist, Ronald Inglehart, has rigorously charted over the last forty years, far greater numbers today want to be empowered. They want the freedom and resources to choose how to live their lives on their own terms rather than being dictated to by officials, politicians or experts. It is not difficult to see how solutions which rely on the hierarchy and intervention of the big state will struggle in the face of such changing values.

So, public opinion faces an intellectual quandary. The desire to reduce economic inequality has grown but the appetite for the conventional methods used to achieve this has declined. The solution will surely only be found by recognising that changes designed to address the problem must now run with rather than against the spirit of our new age of empowerment.

In practice, this implies at least three major changes to the way the economy and the state works.

Corporate ownership needs to be rethought. The old hierarchical model which puts all the power and financial returns in the hands of directors and investors not only hard wires inequality into the economy but runs counter to empowerment values. A concerted shift towards company models which share returns and ownership with employees is required.

Governments could encourage this by providing corporate tax breaks to firms that employ such mutual models. But trade unions and grassroots campaign movements also have a big role to play in shifting the cultural and legal frameworks that uphold the conventional model.

The way states tax needs to change. As the growth in self-employment and micro-businesses reveals, good, old-fashioned free market trading is increasingly embraced as a route to the self-determination and creativity so many now crave. But the way the tax burden falls so heavily on trade and income means it is a positive obstacle to this form of empowerment. Instead, governments should follow the example set by President Obama and strike a blow for both empowerment and equality by shifting the burden as much as possible towards high concentrations of personal and corporate wealth while reducing income and sales taxes.

Finally, the most important long-term empowerment solution to inequality is not economic at all. As the work of Martin Gilens and Benjamin Page shows, political decision-making is heavily skewed in favour of the wealthy. Hardly surprising when party elites are so reliant on approval by media firms owned by some of the richest individuals as well as on well-off donors.

The solution is to undercut that elite power by empowering ordinary citizens to have much greater say over political decisions. This means a shift away from representative systems which place political power in the hands of party leaders and the whips. Greater equality over the long term requires more direct, deliberative systems where parliamentarians’ duty above all else is to aggregate and represent the views of their constituents.

My book ‘Small is Powerful: why we must end the era of big business, big government and big culture’ is published later this year. Follow @adamjlent