Friday, 24 July 2009

Bringing ownership back in

So far this year we have had no fewer than three major reviews into issues around equality of opportunity and social mobility. There was the government's own White Paper, New Opportunities: Fair Chances for the Future, which more or less coincided with the report of the Lib Dem-initiated Narey Commission on Social Mobility. And just this week we have had the report of the Panel on Fair Access to the Professions, Unleashing Aspiration.

A striking feature of all three reviews is how little attention they give to one issue which would seem to be highly relevant to their subject matter: the distribution of wealth.

The neglect of this topic is all the more striking given the trends in, and extent of, wealth inequality.

As of 2003, the wealthiest 1% owned 21% of marketable wealth, the least wealthy 50% owned 7% of marketable wealth. As of 2005/6, 35% of UK families had no savings, another 21% had less than £1,500 in savings (Social Trends, 2008, Table 5.21, p.76). Over the past couple of decades, wealth inequality has been rising. If we look at the Gini coefficient measure of inequality, averaging for 5 year periods since 1982, we get the following picture:

1982-86: 0.644
1987-91: 0.648
1992-96: 0.664
1997-2001: 0.694
2002-03: 0.690

The three recent reports, whatever their merits, together reflect a worrying contraction of the social democratic imagination.

Social democrats would once unhesitatingly have said that changes in the ownership and control of wealth are fundamental to creating a just society. But over time social democracy has become increasingly a project to defend the welfare state and public services, taking the distribution of wealth and the ownership structures of capitalist society as largely given.

In a thinkpiece in the latest issue of the Fabian Review, I argue that one feature of left renewal (in and beyond the Labour party) must be to bring questions about the distribution and control of wealth more explicitly and systematically onto the table. The ProgCons have, of course, picked up on this problem and have been developing their own proposals to address it. The left can and should do better.

Wealth matters because the ownership of financial assets is important both to freedom and to equality of opportunity.

Assets are important to freedom, firstly, because they give individuals material independence - the power to walk away from from abusive employers or spouses because one has some resources of one’s own. Assets are also important, second, in enabling people to approach life in a creative spirit. Those who hold assets are able to ask themselves ‘What do I want to do with my life?’ in a way that many of those without assets simply are not.

Related to this, assets confer all kinds of opportunity, e.g., to set up a business, to move, undertake new training or simply to take time out from the labour market so that one can maintain one’s vitality. A society is unlikely to achieve equality of opportunity unless it achieves a modicum of equality in asset ownership, particularly in early adult life when so many important life-shaping decisions are made.

So, if wealth inequality matters, what can we do about it?

A credible strategy must work at the problem from 'both ends' as it were, adopting ambitious initiatives to build assets amongst the asset-poor, while also targeting undeserved wealth accumulation for taxation, and possibly linking the two together, earmarking the taxes for the asset-building initiatives as part of a conscious project of genuine asset redistribution.

So far as asset-building initiatives are concerned, Labour has of course taken a first crucial step in this direction by introducing the Child Trust Fund (CTF). The state gives all citizens a small sum at birth (and a further sum at age seven) which is invested and accumulates as they grow up. Families may also contribute into the fund.

Labour has also introduced the Saving Gateway. This provides matching subsidies to poor households who save into special accounts (the proposed match rate is 50%, i.e., the government will put 50p into the account for every £1 saved by the household).

A first priority is to defend these existing policies. The Liberal Democrats remain committed to abolishing the CTF, disparaging it as a ‘gimmick’, apparently oblivious of how the policy coheres with their own philosophy and historic commitments. So far as the Conservatives are concerned, although the ProgCons endorse the CTF and Saving Gateway, one wonders how vulnerable these programs might be to an incoming Conservative government looking for ways to cut public spending.

However, defence of present policies is by no means enough. If, for example, the CTF is to become the basis for an effective citizen’s inheritance, at least two further measures seem necessary. First, it is important to increase the initial state endowments into the CTF from the current rather low sum of £250 (rising to £500 for children in poorer families). Second, it is important to help low-income households save more into their children’s accounts so as to prevent substantial inequalities at age 18. (So far as I can see, the recent ProgCon report from Demos does not endorse this idea of adding a matched savings component to the CTF - a massive but missed opportunity to try and establish some genuine progressive credentials.)

What about the taxation of wealth and wealth transfers?

One obvious anomaly here at present is the lower rate of tax on capital gains relative to income, a standing invitation to the high-paid to take their pay in the form of wealth, e.g., shares, rather than wages.

It is also vital to defend inheritance tax.

However, there is also a strong case for reforming the tax. At present, the tax is based on the size of the taxable estate at death. In principle, it seems much fairer to base the tax on how much a person receives (and on how much they have already received in this way): a capital receipts tax. It is certainly more complex and expensive to administer than the present tax. But experience from the Republic of Ireland, which has operated such a tax since the 1970s, suggests these problems are not insuperable.

Ownership was once central to social democratic politics. Over time it has been radically downgraded. This has left social democrats too reliant on other policies and institutions, such as public services, to deliver their ideal of a society of free and equal citizens. The time has come to bring ownership back in.

Of course, the above are only some ideas. They only scratch the surface of thinking through a new left politics of ownership.

What else should we be thinking about? What role can co-operation and mutualism play in such a politics? Should big institutional investors be brought under more democratic control? If so, by what means?

I'm sure I don't know the answers to these questions, but I am confident they are questions we need to ask.


John said...

What about progressive interest rates? The government could increase interest rates on high wealth, in order to cut interest rates and even have negative interest rates for citizens with low wealth.

This would help reverse the rising wealth inequalities and stimulate the economy from the bottom-up.

John said...

Doh, I mean higher interest rates for the poor and lower interest rates for the rich.