Waking Up on the Wrong Side of History, Part V

“The UK is a divided society where the richest receive the lion’s share, leaving crumbs for the rest.” – The Equality Trust

I’ve argued that the Remain voters in Britain were mainly looking out for their own economic self-interest, without considering what might be good for the UK. Meanwhile, the supposed lunkheads – the Leave voters – were motivated by four pressing issues: democracy, financialization, debt, and inequality. In this post we’ll take a look at the last of those issues, inequality.

Economic inequality is such an important issue in America that many people assume it is mainly a US problem. Nothing could be further from the truth – economic equality has increased almost everywhere on the globe in recent decades, for both good and bad reasons.

Consider China. Back in the Mao era, China’s Gini coefficient – a measure of inequality – was terrific. Of course, everyone was dirt poor and periodically went around murdering each other, but surely that’s a small price to pay for the terrific world of almost perfect equality. North Korea certainly thinks so.

Today, inequality in China is terrible – in the entire world it’s worse only in South Africa and Brazil. But it’s worse for a good reason: nearly 400 million Chinese are now either wealthy or middle class (by local standards). That leaves a billion Chinese who are still very poor – hence the lousy Gini. But would we prefer to have a billion poor or 1.4 billion poor?

Inequality is also growing in the West, and it has been doing so for decades and for the same reason: China. Jobs typically performed in Western economies by working class and lower middle class people were easily transferred to much lower-labor-cost economies like China. More intellectually complex jobs, requiring years of education, weren’t so easily transferred. As a result, economic progress stagnated for huge numbers of Western workers at the same time that economic progress surged for a smaller, elite group at the top of the economic pyramid.

Like the US, inequality has been growing in the UK for decades, creating a deep divide between the richest and the poorest Brits, and even between the rich and everybody else. The Poverty Site reports that 80% of the increase in income over the past decade has gone to the top half of the economic pyramid. The top 10% of Brits now receive “more than the income of … the bottom five tenths combined.” The Gini coefficient of the UK economy is higher than it’s been in three decades. The National Equality Panel (also known as the Hills Report) noted how much higher salaries are in London than elsewhere in the UK: “A senior finance manager in London [not a particularly elevated position] earns £90,000/year. 90% of all employed Brits earns less than half that.” [Emphasis supplied.]

I don’t live in the UK and so my ignorance of the country is probably boundless. But I can speculate about how growing inequality played into the Brexit vote by engaging in a brief thought experiment. Imagine that some (unstated-but-random) event had caused huge numbers of British workers to lose their jobs or to become underemployed. That same event caused a much smaller number of workers to prosper mightily. Just for the hell of it, we’ll call the first group Working People and the second group Highly Educated People.

In our thought experiment, everyone in the UK is horrified by this unfair state of affairs and they band together to fix it. The lucky, Highly Educated Workers pay more in taxes so that the unlucky Working People can be retrained. Cheap, job-destroying imports are slapped with import duties even though this slightly raises the cost of goods, and the proceeds are also used to improve the competitive skills of Working People. These duties aren’t designed to halt imports, but merely to slow them down while Working People adjust.

But that’s just the beginning. To ensure that the needs of Working People are taken into account in the future, every corporate board will have to have worker representatives (as in Germany), instead of only Highly Educated representatives. Skyrocketing pay for underperforming top executives will be heavily taxed, with the proceeds used for infrastructure improvements. Rampant tax avoidance by corporations and finance professionals will be halted, also raising useful proceeds. Fiscal austerity will be avoided because of the hardships it places on Working People. Tough controls will be placed on immigration, especially those who would take jobs from lower-paid workers.

Well, that’s one thought experiment, but here’s another: the exact same (unstated-but-random) event happens and for more than three decades nothing whatever is done.

Working People simply get crushed while Highly Educated People prosper. That, of course, is exactly what happened in the UK over the past 30 years. It’s exactly what happened in the US and most of Europe. Highly Educated People were naturally delighted with their good fortune, naturally believed that they richly deserved it (having forgotten that it was caused by a random event), and naturally concluded that if Working People were suffering, it must be their own fault.

These Highly Educated People established themselves as a stateless, global elite that was the source of all wisdom about everything. If you disagreed with them, that only proved that you were a loathsome, uneducated Working Person.

Unsurprisingly, Working People, who vastly outnumber Highly Educated People, voted overwhelmingly for Brexit. And, unsurprisingly, the newly minted UK Prime Minister, Teresa May, has proposed almost exactly the policies laid out in our first thought experiment.

Next up: Contemporary Colonialism