Why inequality is such an obsession

Since this is my last blog post for Fundweb allow me to indulge a little. I want to try to unravel a debate that has increasingly preoccupied policymakers, as well as myself, in recent years. That is the discussion of excessive inequality.

The arguments on the subject can be incredibly frustrating because they are often at cross-purposes. Few take the trouble to listen carefully to what others are saying.

Anyone who has read some of the key discussions on the topic should first of all be clear that no influential voices are calling for equality. They certainly do not advocate the removal of material inequalities or the abolition of social classes. On the contrary, they often make the point explicitly that they are not calling for an equal society.

Instead the near universal call is for the allegedly damaging implications of extreme inequalities to be contained in some way. This is the thrust of the argument made by leading politicians (such as Barack Obama), religious leaders (including the Pope and Justin Welby), central bankers (Mark Carney and Janet Yellen), influential economists (James Heckman, Thomas Piketty and Joseph Stiglitz), international organisations (including the IMF and the OECD), philosophers (such as Michael Sandel and the late John Rawls) and the billionaires who attend the World Economic Forum at Davos.

It should be clear from this glittering roll call that this argument is thoroughly mainstream. Although some may favour a limited degree of redistribution there is nothing inherently radical about their obsession with inequality. On the contrary, it could reasonably be described as an elite preoccupation.

The primary concern is about what is sometimes called social cohesion. That is a fear that the super-rich at the top of the hierarchy (rather than the merely rich) and the socially excluded at the bottom could between them pull society apart. There is also a secondary and related worry that high levels of inequality could damage economic growth.

Although I disagree with the conclusions drawn by Mark Carney, the governor of the Bank of England, he succinctly expressed the mainstream view in a speech to last year’s Conference on Inclusive Capitalism in London. Using sociological jargon he argued the debate was really about “social capital” which he defined as “the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.” (For those who are interested, he took the concept from Robert Putnam, a Harvard sociologist).

Carney then went on to say: “My core point is that, just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. To counteract this tendency, individuals and their firms must have a sense of their responsibilities for the broader system.” He therefore introduced a limited form of anti-capitalism – in the sense of opposition to an unconstrained free market – into his scheme.

Although Carney was careful not to call openly for state regulation of people’s lives, that is where this fearful outlook inevitably leads. That is why it embodies a potent drive to restrict individual freedom. But the premise on which the argument is built is false. The anxiety about social disintegration is greatly overdone. It reflects the outsize insecurities of a technocratic elite rather than the realities among the bulk of the population.

On that note, I would like to wish the best to all my readers.