The tax man's taken all my dough,
And left me in my stately home,I came of age in the 70s and so my formative experience of politics was during the various Wilson administrations and their interruption by Mr Heath. In those days we took for granted that inherited wealth was a thing of the past. Great estates were sold off to pay death duty, stately homes were donated to the National Trust or turned into safari parks and the Kinks sang Sunny Afternoon.
And I can't sail my yacht,
He's taken everything I've got,We had progressive taxation, governments that saw redistribution as part of their role, and a belief that inequality would continue to diminish. Conspicuous wealth was something we read about in historical novels.
To people of my generation M. Piketty's Capital in the Twenty-First Centuryis a revelation. I feel something like the infamous frog sitting in a pot on a lit stove. I've been aware of the rising temperature for most of my adult life, I've felt the growing discomfort but, at some deep level, I believed that the Thatcher to Blair period was the aberration. I've kept the hope alive that soon the temperature would cool and we would get back to a meritocratic, egalitarian and democratic direction.
M. Piketty has shown that the reverse is true. The postwar period, the 50s to the 70s, was the exception. Inequality of income fell during the first half of the 20th century due to wars and the great depression. The income of the top 1% in the UK was around 17% of national income on the eve of WWII. Wartime restrictions and the post war policies saw that level fall to 8% in the 60s and 6% in the 70s. Since then the share of the top 1% has risen to 14%.
Inequality of wealth also shows a pattern of falling from WWI until the 1970s and beginning to rise from then.The top 10% went from over 90% to 60%and now back to 70%. The rise looks less dramatic than for income. Income inequality is being driven by the exessive pay going to senior managers, what M. Piketty calls the rise of the supermanagers. But there is more; the concentration of wealth also requires inheritance.
Robert Peston pointed out in his book, Who Runs Britain?that today's business oligarchs will leave their fortunes to future generations who may not have the talents of their patriarchs but will have the power that wealth brings to protect their interests. M. Piketty provides some numbers on the flow of inheritance which again shows a u-shape with decline from 1910 until the 1970s followed by a small rise.
His explanation for the tendency of capitalism to lead to ever greater concentration of wealth is summarised in his inequality: r>g. If the rate of return on capital is greater than the growth rate of the economy, then the rich have the ability to add to their wealth faster than national income expands. The very rich are most favoured because they can achieve higher returns on their fortunes and because they spend only a small proportion of their income from capital.
As a mater of fact (but not logical necessity) r has always been higher than g. It is only when taxation of capital income is taken into account that g outstrips r. Again this is a 20th century phenomenon; tax competition and lower population growth make it unlikely to continue into the future.
So that, in a British context, is the political hope for M. Piketty's contribution: to alert us frogs to what is happening. It is time to hop out of the pot and put equality back in the centre of the political discourse.