Despite the verbal war against inequality, Britain is heading towards a society ever more divided between extreme affluence and mass impoverishment. It is a trend that is locked into the country’s model of corporate capitalism, with its great concentration of the private ownership of capital. Driven by decades of rolling privatisation, de-regulation and an antipathy to collectivism, Britain has one of the world’s heaviest concentrations of wealth and capital. It is this that allows the fruits of economic activity to be increasingly colonised by a small business and financial elite.
As the World Bank economist, Branko Milanovic, has argued: ‘If one of the drivers of inequality are capital incomes… this is because they are heavily concentrated. “Deconcentration” of capital incomes, that is much wider ownership, is then a solution. But it is seldom mentioned.’
There are many ways of achieving such ‘deconcentration’. Thomas Piketty, for example, has called for a global tax on wealth, while accepting it is a somewhat utopian idea. Another route would be to encourage the spread of alternative business models – from co-operatives to partnerships – that allow the greater sharing of economic gain.
One of the most potent anti-inequality policy measures, as yet unused in the UK, would be the creation of social wealth funds. These are collectively-owned pools of wealth that ensure that a higher proportion of economic activity is socialised, with the returns shared across the population.
Social wealth funds are a potentially powerful tool in the progressive policy armoury. They would ensure that a higher proportion of the national wealth is held in common and used for public benefit – including boosting social investment – and not to serve, as now, the interests of the few. Alternatively, they could be used to help finance – as in Alaska – a citizen’s payment, or even a basic income scheme. Such funds thus tackle the problem of inequality from both ends, and by changing the pattern of ownership of the economy, build in a clear tendency to greater equality.
By injecting a strong element of long term thinking into the management of the economy, such funds would also bring greater economic resilience. By boosting the value of publicly owned assets, they would help improve the overall balance sheet of the public finances, and make the size of the national debt much less of an issue.
Variations of such funds are widely used outside the UK. Over 60 countries have established sovereign wealth funds, mostly by using the proceeds of natural resources, though some of these – such as the Norwegian Fund – are much more progressive and transparent than others.
Britain wasted the one-off opportunity to establish its own fund in the 1980s through the bonanza of North Sea oil. But it is not too late for Britain to follow the lead of other nations. A fund could be financed from a variety of sources: by assigning the dividends from a range of other assets that should be owned in common – including other natural resources, minerals, urban land and the electromagnetic spectrum; by redirecting the occasional one-off taxes on windfall profits, such as those levied in the past on banks and energy companies and oil producers, or from the revenue from revamped capital taxation.
An especially effective way of creating such a fund would be to cancel the rolling privatisation juggernaut and pool all remaining public sector assets into a ring-fenced public ownership fund. Such an approach has already been adopted by fifteen countries – from Singapore to Finland. Their experience shows that the pooling and better management of public assets can deliver high returns to be used for the social good. If instead of selling off such assets from British Gas to Eurostar – jam today politics – a public ownership fund, a third way between nationalisation and privatisation, had been created in the 1980s, with some of the returns reinvested and some used for social gain, it would today have grown to be worth a substantial proportion of the national economy.
Social wealth funds would be highly effective and popular. If our political leaders were serious about narrowing the growing divide, they should be targeting inequality at its roots.
Stewart Lansley.
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Stewart is a visiting fellow at the University of Bristol. He is the author of A Sharing Economy: How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016 and co-author (with Joanna Mack) of Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015.
Stewart will be talking about his new book, A Sharing Economy, at The Equality Trust’s Local Groups Day on Saturday 18th June in London. If you are interested in starting a local group where you live and coming along to Local Groups Day to meet with other people involved with our local groups, please get in touch with us at info@equalitytrust.org.uk and we will be happy to help.
The views expressed in this blog are those of the author and not necessarily those of The Equality Trust.