Today we face a problem of riches. We remain the fifth (or sixth) richest nation on the planet. But these riches are shared more unequally than at any time for the past 70 years.
The first problem of wealth is that it is actually surprisingly hard to see and to count. People are exceptionally good at hiding their wealth – not least from Governments, who might then want to tax it. But there is no reason to think that inequalities of wealth are any less than inequalities of income.
Does this matter?
Some think not, including the banker interviewed by Polly Toynbee for her book, Unjust Rewards ‘It’s a fact of modern life that there is disparity and ‘is it fair or unfair?’ is not a valid question. It’s just the way it is and you have to get on with it.’
We are told that ‘wealth’ is good for us. We are told that we should be grateful that so many ‘wealth creators’ have come to live in the capital. We are told that the City of London is one of the nation’s ‘crown jewels.’ But wealth we can now see in London – and many other so-called ‘global cities’ is hugely distorting; hugely damaging; and in some significant ways generated at the expense of making others poor.
The distortions of wealth
The most obvious and dramatic way in which wealth exacerbates the gap between rich and poor, in the capital and across the country, is in relation to housing. As Anthony Hilton of the Evening Standard wrote earlier this month, in an article whose title really says it all: “The super-rich are pushing workers out of the capital.”
And the simple message of the bestselling book The Spirit Level by Richard Wilkinson and Kate Pickett is clear: Inequality hurts us all. More unequal societies have higher levels – not just of poverty – but of crime, mental ill health, drug use, higher infant mortality, lower life expectancy, lower levels of trust and lower social mobility. And on the other side, more equal societies do better – in virtually every case – on all these counts – not just for their poorest members, but for society as a whole.
Rich yet making many poor: The extraction of value
But wealth is not only hugely damaging in terms of its ability to distort the economy, and damage the fabric of society. Some of the processes by which wealth is accumulated create not just riches for some, but poverty for others. Wealth is not so much ‘created’ by many of the institutions of the City of London, as ‘extracted.’ I want to highlight four ways in which this happens.
The history of the past thirty years of global economic development, and a key component of modern management theory, has been the relentless pressure to drive down labour costs. Some of this has been through the introduction of new technology, but much of it has also been driven by the introduction of what is euphemistically described as ‘labour market flexibility.’
For ‘labour market flexibility’ read replacing permanent salaried staff with temporary, casual and ‘outsourced’ labour. Why employ staff directly, with all the bother of paying them pensions, maternity leave, sickness and other benefits – when you can buy in staff by the day from employment agencies?
In Hard Work Polly Toynbee tells the stories of a range of folk who suffer the consequences. Agency workers in food processing warehouses, working alongside full-time permanent staff, doing exactly the same work, but for far less pay – with no holiday entitlement, no pension entitlements, and no guarantee from day to day whether they will have work on the next day.
Stuart Lansley, in The Cost of Inequality argues that there is a direct link between the vast increases in wealth for some, and the fact that the average incomes of workers in the UK and US have stagnated over the past decade.
So the new face of poverty in the UK is that of the so-called ‘working poor.’ 60% of families below the poverty line now have someone in work. Poor, yet making many rich.
In tandem with the deregulation of financial markets since the early 1980s we have seen the growth of Tax Havens. The two facts are not unrelated. Deregulation, and the removal on the barriers to moving capital across the globe, has facilitated a new industry in tax dodging. As Nicholas Shaxston has shown in his book Treasure Islands, the City of London has been at the heart of the process, eagerly facilitated by the big four accountancy firms.
Tax dodging is big business, and tax havens lie at the heart of the global economy. 98 of the UK’s top 10 largest corporations operate subsidiary companies in ‘offshore’ tax havens, potentially allowing the companies and their clients to avoid huge sums in tax.
More than half of world trade – at least on paper – passes through tax havens. More than half of all banking assets and a third of multinational company investments are routed via tax havens. In 2010 the International Monetary Fund estimated that the money on the balance sheets of small island tax havens alone amounted to US$18tn – about a third of the world’s financial wealth.
But as we now know, tax dodging is not a victimless crime. Tax dodging hurts the poor.
Corporate tax dodging, mainly by big business, costs the UK taxpayer anything between £35 and £100 billion per annum. And Christian Aid estimate that US$160bn of revenue is being denied to developing countries every year by unscrupulous multinational corporations that use tax haven secrecy to dodge taxes.
Thirdly, creative accounting
‘Creative accounting’ sounds like a fun thing to do, but creative accounting is key to the process of ‘value extraction’ – and the City of London is very good at it. As Adair Turner now famously said, much of the financial and investment activities of the City of London over the past few years have been ‘socially useless.’
Its purpose has been to ‘extract’ huge sums of money for predatory investors and over-paid investment bankers: Money extracted from the ‘real economy’ with real and devastating consequences.
How has this been achieved?
Misselling of mortgages, cranking up an over-inflated housing bubble by offering crazy loans of 100 and 120% of the supposed market ‘value’ of properties – many bought ‘off-plan’ before they were even built. Misselling of payment protection insurance.
But these are only the most visible manifestations of the socially useless economy.
Much of the activity, and much of the wealth to be made in the trading rooms of the City goes nowhere near the likes of you and me. It is made from selling credit default swaps, trading on futures, derivatives and many other products, real or imaginary, whose sole purpose is to boost the bonus pots of the bankers, traders, the advisors, accountants, and legal eagles who have literally made millions – conjured seemingly out of thin air.
But when the whole pack of cards came crashing down in 2007/8, the consequences for the real economy, and the likes of you and me were very real and very damaging. But by then it was too late. We had all been persuaded to mortgage up to the hilt. We had all (or at least most of us) maxed out on our credit cards. But not just us. Government and business too. We’ve had it drilled into us now for the past three years just how much the Government owes. But actually, the private sector wasn’t fantastic either, with countless debt-fuelled company acquisitions over recent years, by shadowy private equity firms. And the irony? The debts are tax-deductible from any future profits the companies make. So we, the taxpayer help to fund the deal.
Fourthly, the corruption of the democratic process itself.
Underlying all the other inequalities in the UK is a Power Gap: Big business exercising too much power, whilst local communities feel that the have little or no say in decisions that affect them. Banks and financial institutions seem to wield enormous and entirely unaccountable power over the fate of whole nations. Soft power: The threat to move your business abroad; the power to play off Governments against each other to reduce tax rates or become ‘uncompetitive’
But much more subtle still is the capture of public institutions. A revolving door between banks and regulators. A revolving door between accountants and tax collectors.
Margaret Hodge, chair of the Public Accounts Committee is singlehandedly and highly successful exposing not just the tax dodging antics of Starbucks, Google and the like, but the way in which the big corporations and the big four accountancy firms are actually involved in writing the rules which enable them to get away with it all.
So is this just the way it is and you have to get on with it?
The fact that wealth is increasingly being amassed by a small number of global corporations is not an act of God. It is the result of deliberate and calculated behaviour by the immoral (or at the very least amoral) people who run them.
So what is the alternative?
To be clear, I’m not against wealth per se. I’m not even coming to this argument as an ‘anti-capitalist.’ All I am arguing is that wealth must be the servant of the common good, and not its master.
As the Catholic Bishops Conference concluded as far back as 1997: “There may come a point at which the scale of the gap between the very wealthy and those at the bottom of the range of income begins to undermine the common good. This is the point at which society starts to be run for the benefit of the rich not for all its members.”
The purpose of economy activity must be to promote the well-being of the Oikumene: The whole inhabited earth.
Is it not time to rethink, remoralise and remodel our approach to wealth creation, to ensure that it is genuinely the servant of the common good? Not seeking to ‘extract’ wealth but to create genuine wealth and well-being.
Paying fair wages; charging fair prices; paying fair taxes; ensuring a fair say for all in the running of the economy – with no special privileges or access to power for those with wealth or money.
Is this just a pipe dream? Well, actually no. It is perfectly possible for businesses to function, and to generate wealth, without exploiting their customers, their workers or the environment.
One of my favourite companies is Ebico: A small independent energy supply company, set up by a couple of Christians who were disillusioned with the practices of the big energy providers. Ebico is a not for profit business, and unlike virtually all other energy providers, aims to provide gas and electricity to all its customers at the same price without discrimination. It generates wealth, and is growing fast – but on transparently ethical grounds.
But does this only work for niche ‘ethical’ businesses?
Yesterday, until snow intervened, I was due to meet the Vice-Chair of one of the wealthiest businesses in the UK. A highly efficient group of companies, offering banking and insurance; running a network of shops and supermarkets across the country; a funeral business; a travel agency. A company with millions of customers, and which has grown through the recession because it is a trusted business and a trusted brand. Run, as far as possible, with a strong ethical basis. Owned and run by its members, it generates great wealth, and that wealth too is shared out with its members. That company is the Cooperative Group, and its vice-chair is one of its ordinary members, a Methodist Minister, Rev Paul Flowers.
So do we believe another world is possible? And if so, what are we going to do about it?
People power brought an end to segregation in the US. People power brought an end to apartheid in South Africa. To a very real extent, Barclays Bank has closed down its tax dodging department today in response to people power. To the actions of Margaret Hodge, and UK Uncut and Christian Aid and Church Action on Poverty’s Tax Justice Bus Tour last autumn – to the message that tax dodging will no longer be tolerated.
If we are passionate about wanting to see healthier communities, or more socially and ethically just business practices, we must surely also want the power to bring these things about. Can we inspire belief that change is possible? Can we, in the churches and in other faith communities, build a powerful movement for change?
Yes we can.
This is an edited version of the Hugh Price Hughes lecture delivered on Tuesday 12 February 2013.