We are intensely relaxed about people getting filthy rich. Peter Mandelson. Apparently, he did add, “as long as they pay their taxes.”
When Adam delved and Eve span, who was then the gentleman? John Ball, a fourteenth century British Lollard priest, social agitator and a key player in the Peasants’ Revolt of 1381.
From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. F.A. Hayek.
America, based on the premise of absolute equality, has one of the most extremely unequal divisions of wealth in the world. Japan, based on the premise of inequality, is one of the most egalitarian societies of all. Alan Macfarlane, anthropologist.
For most of human existence we lived in relative equality. Among hunter-gatherers there was a more egalitarian framework; by their very nature prehistoric societies tended to be fairly equal — there just wasn’t enough wealth to make anybody very rich. What sparked the dramatic change in our economic relations was the invention of agriculture, which made it possible to feed greater and greater numbers of people, allowing the possibility of specialisation and the control of the access to food. This revolution has been a double-edged sword, producing wealth that the first humans could never possibly have imagined but at the cost of vast economic differences. There does seem to be a very real trade-off between wealth creation and equality.
The American philosopher John Rawls created a famous thought experiment about how to design a fair society. Philosophers like Hobbes, Locke and Rousseau had all referred to a state of nature, although from different ideological perspectives. Rawls used a different term – what he described as the starting position. People should imagine themselves without any government and rationally discuss what sort of structures could be supported by a social contract and would be able to deliver justice. You immediately come up against a problem – people act out of self-interest and they would thus design a society based on what suits their social situation and their intellectual and physical abilities. To counter this Rawls came up with the veil of ignorance, the idea that you have no idea who you are in the real world. Specifically, you do not know your:
- class position or social status
- natural talents, abilities, intelligence or strength
- plan for what makes a good life
The idea is that because of these constraints the participants will design a society that will be fair to everyone because they would be terrified of ending up at the bottom of the pile.
The interpretation of inequality is very different for the Right and Left. For the Right if people have freedom to choose and markets are competitive then any outcomes will be perfectly acceptable, even if they don’t produce equality. You want to favour innovation, risk-taking, hard work etc. They do not like the term income distribution because that implies income is being distributed according to some kind of plan. If you accept that markets are the best way to organise an economy, then you have to accept the results you get. For the Left the market is not some morally neutral institution – it is a social construct. Therefore the outcomes are important. While for the Right success is due to your own actions the Left is due to factors beyond the individual’s control (where you were born, your parents etc) thus you cannot consider the market’s outcomes as having any moral justification.
Over the last 30 years there has been a return to growing levels of inequality. This is not the result of some vast right-wing conspiracy but is probably better explained by what economists call a skill premium. That is that technology has created great rewards with those skills that are highly valued in the marketplace. For example all the technology of the music recording industry has enabled some people to become international superstars. The microprocessor has played a similar role for people like Bill Gates, Steve Jobs and Sergei Brin. At the same time factors such as technology and immigration have caused some downward pressures on low-skilled jobs.
This controversy is often centred on the question of executive pay – golden parachutes, golden handshakes and stock options often create great resentment. Personally, I would have to declare myself incapable of deciding what pay a CEO should receive. For me that is something that the owners of the company have to decide – it’s their money. But it has always surprised me that shareholders will put up with these excesses. Of course it gets more complicated when you start receiving public funds. And I do feel they should be responsible for their actions, we need compensation based on long-term performance objectives. However, I am somewhat sceptical of attempts to rein in executive pay. Attempts in the past have not proved very successful. Dennis Healey, a Labour politician with a different perspective from Mandelson said of his budget that “It will squeeze the rich until the pips squeak.” This kind of policy is untenable in our globalised world
What is my conclusion? I can see some of the arguments by the Left but I feel they do not take into account that the cake can be made bigger. When Reagan cut taxes for the rich in the eighties tax revenues actually went up. We cannot ignore the importance of creating wealth – systems where you do not have the incentive to better yourself are notoriously bad at doing this. There is, however, something unsatisfying about some of the Right’s arguments. How much social mobility is there really in society? The role of family inheritance and the unequal access to good schools are worrying areas. A sense of fairness is an important part of our psychological make-up – the relative can sometimes be more important than the absolute position to us – and these disparities in incomes could present grave social and political problems in the future. Having said that, what we really crave is equality with those above us. So we concentrate on trying to climb the greasy pole, as does everyone else, and the system perpetuates itself. I think we will be debating these questions for many years to come.