11 April 2014

Addressing the gap between rich and poor has been on the political agenda for decades, though its sense of urgency is likely to soar after Oxfam’s latest report on Britain’s growing wealth divide. The report, which has calculated that the UK’s five richest families hold the same amount of wealth as the bottom 20% of the population, has already generated plenty of media coverage.

To understand the nature of this inequality, though, one must look back to the roots of modern-day socio-economic thought in the UK, and the way in which the divide between rich and poor was allowed to widen.

Since the fall of the Labour Party and 70% top rate of tax in the 1970s, the theory of trickle-down economics was heavily promoted in the mainstream media; a notion that Reagan-Thatcher style tax cuts for the wealthiest in society would eventually lead to job creation. As the rich became richer, and were taxed less, they would spread their untaxed wealth by creating jobs. By spending more on the expansion of their businesses, they could create vacancies for qualified workers, both skilled and unskilled, across a breadth of industries. 

Or so the theory would have had you believe.

This oft-quoted theory was found to be - on the whole at least – based on false presumptions. [1] Most research found that the role of wealth distributors had been left to other economically active groups in society. The two best examples were those bracketed in the lower and middle classes, who tended to spend their disposable income rather than to save it, and the entrepreneur classes (small businesses), who employed skilled workers at the fastest rates of any business size. In paying wages to their employees, small businesses contributed to a natural, market-led distribution of wealth across a broader range of demographics, and aided with the dispersion of wealth away from centralisation.

That is not to say that Oxfam International’s report is without criticism, and several commentators on The Guardian [2] article covering the report have raised their concerns with the study. Many have suggested that the report focuses too strongly on the numerical, rather than real-world, significance of this distinction between the richest and poorest of British society. One particular commentator raises the realities of such an accumulation of wealth, making a clear distinction between wealth generated, and wealth stolen:

“The Hinduja brothers are only one of Britain's richest families because they made a fortune in India, in the steel business…not because they stole from Britain's poor.

“The Reuben brothers made the basis of their fortune in Russian aluminum [sic], not by rummaging through your pockets.

“Mike Ashley made his fortune after setting up his own clothing business, not by mugging your gran.”

Nonetheless, as courts of public opinion have pressured governments around the world in recent years, public anger at the wealthy has been fuelled by an increasingly hostile media. Revenue-hungry governments chase swings in popularity and maintain a distinctly short-term outlook, contributing to the rise of political opportunism, and feeding the common attitude of ‘bashing the rich.’ As the principal of a family business pointed out to me recently, “This is a world of increased transparency everywhere with sites like Facebook and Twitter. Couple that with public anger globally and you have the angry layman who hates the rich, but cannot differentiate between the different types of wealth. There is us who managed money carefully, and then there are investment banks that screwed everyone over with their greed. When they refused to lend to anyone, including the people who bailed them out, they brought public fury onto all of us.”

Certainly, this is an interesting point of view, and one that originates from a very different place to the average person on the street. But does reason even have a place in today’s debates on the nature of wealth, where inequality is all but increasing?

While we cannot provide complete solutions without extensive research, what we do know is this. However the solution to inequality is addressed, the approach must be multi-layered, multi-generational, and unafraid of tackling the real issues surrounding wealth. While displays of wealth can bring forth accusations of ostentatiousness and decadence, initiatives such as The Giving Pledge, [3] a product of the ultra-wealthy, are making very real improvements to the lives of some of the world’s poorest communities. It was only recently that Bill Gates, founder of Microsoft and one of the three wealthiest men globally, was decorated with the title of ‘most admired person in the world’ [4] for his role in tackling some of the worst diseases in developing Africa.

Article by Aatish Thakerar

Refererences:

[1] http://www.forbes.com/sites/petercohan/2011/05/03/do-tax-cuts-create-jobs/

http://www.forbes.com/sites/rickungar/2012/07/17/the-truth-about-the-bush-tax-cuts-and-job-growth/

http://www.businessinsider.com/rich-people-create-jobs-2013-11

http://www.theatlantic.com/business/archive/2010/12/do-tax-cuts-for-the-wealthy-create-jobs/67723/

[2]http://www.theguardian.com/business/2014/mar/17/oxfam-report-scale-britain-growing-financial-inequality

[3] http://givingpledge.org/

[4] http://yougov.co.uk/news/2014/01/11/infographic-bill-gates-most-admired-world/