Finding a consensus on wealth inequality

Ten years after the publication of Thomas Piketty's 'Capital in the Twenty-First Century', what is the status of the debate about wealth inequality in the UK?

Today marks the 10th anniversary of the English publication of Capital in the Twenty-First Century, the magnum opus of the French economist Thomas Piketty. The book was a publishing sensation, and popularised Piketty’s argument that the ratio of wealth to income is rising in developed countries, driven by the fact that the rate of return on capital (r) tends to be higher than the overall rate of economic growth (g). The result is that wealth begets more wealth, leading to an economy dominated by those with inherited wealth rather than earned income.

These arguments swept through academia and policy circles, but have largely failed to influence UK political debate, with a few exceptions (such as the publication of Labour MP Liam Byrne’s The Inequality of Wealth earlier this year). There’s an echo of John Rawls, whose ideas dominated academic political philosophy for decades but have never really cut through to politics (an idea discussed in the book Free and Equal by Daniel Chandler, which came out in paperback last week).

However, wealth inequality is belatedly getting some political attention in the UK. Last month the centre-right think tank Bright Blue published A wealth of opportunities, an essay collection on the why and how of “help[ing] people on modest incomes build up and pass on wealth”. The debate about taxing wealth has assumed a prominence in recent months that few would have predicted two or three years ago. And there is increasing awareness of the extent to which the 'great wealth transfer’ will magnify wealth inequality over the coming decades as some inherit much more than others.

So there is a degree of political consensus about the need to ‘level up’ wealth - to ensure that everyone in the UK, wherever they live and whatever level of wealth they were born into, has the ability to accumulate enough wealth to enable them to live a full life and to access a range of opportunities. But this comes with two big caveats.

The first is that there is no consensus about making the radical policy changes - spanning housing, social security, employment rights, to name but a few areas - that would be needed to deliver on even this relatively modest aspiration.

The second is that there remains a fundamental disagreement about the underlying causal mechanisms at play, and about whether the concentration of wealth at the top of society is a problem, alongside the absence of wealth at the bottom.

There are other factors that have limited the extent to which Piketty’s analysis has influenced mainstream politics in the UK, such as criticisms of his data and methodology, the challenges of publishing the book during a temporary period of benign economic conditions, and the fact that the book arguably naturalised inequality through its analysis rather than outlining the ways in which it can be tackled (an issue addressed in Piketty’s subsequent work).

But, looking back after ten years, it’s hard to avoid the conclusion that the key factors that limited the spread of his ideas beyond progressive circles are that we don’t agree on what causes wealth inequality, and we don’t agree on whether the concentration of wealth among the wealthy is as problematic as the lack of wealth among the poor.

At its core, this is a clash between two different ways of understanding how our society and economy works. There’s a fundamental divergence that Ben Ansell refers to in Why Politics Fails as the ‘equality trap’, the inherent tension between equal rights and equal outcomes. This plays out as the division between people who think that life outcomes are mostly driven by individual merit and those who emphasise the influence of systemic or structural drivers (even if many people recognise both). We’ll soon be publishing some research looking at people’s attitudes to the role of luck in influencing life outcomes, which underscores this point.

Building a societal consensus on this issue is a long and lonely road, albeit one worth travelling. The danger is that progress is too slow to avert calamity - whether we are talking about environmental breakdown, the erosion of democracy and social cohesion, or the failure to deliver sustainable and inclusive economic growth.

But it is these risks that, paradoxically, might hold the key to unlocking the consensus that we need. It is becoming increasingly clear that inequality - in particular of wealth - is undermining our society, democracy and economy, as well as holding back progress on net zero. To give just a few, very obvious examples:

• Wealth inequality undermines opportunity by depriving people from modest backgrounds of the chance to achieve social mobility and security (especially due to the uneven spread of housing wealth across social groups, regions and generations); the OECD has shown that higher levels of economic inequality directly undermine social mobility.
• The OECD and IMF have shown that rising inequality has significantly slowed long-term growth, because it undermines education and skills, because many people lack the financial security, choice and freedom to provide for themselves and contribute to the economy, and because the wealthy are less likely to spend their money than the poor.
• Meanwhile, poor living standards, low social mobility and a sense that hard work and talent are not fairly rewarded breed resentment and distrust in mainstream politics and institutions, with potentially serious consequences for social cohesion and political stability.

Increasing awareness of the risks and impacts of inequality on these ‘first order’ issues could help to galvanise action to tackle it, if we can agree on the policy levers that need to be pulled (a challenge, given differing opinions about causation).

We’ll be publishing some research this summer on the risks and impacts of wealth inequality, on the solutions to it, and on public attitudes to both of the above. Let’s see where it takes us.

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