by Gwydion M. Williams
The dream of the 1950s was of a utopian globalisation, based on tolerant technocratic values. In the 1960s, the youthful generation who might have implemented this vision opted instead for wider sexual and social freedoms. And had trouble realising them, so that in the 1980s they were shoved aside by the New Right. People who loudly declared that they would restore order and liberty by freeing market forces.
It was a false promise. In as far as there ever was a ‘free market’, it had self-destructed long before with the Wall Street Crash and Great Depression. It needed the New Deal in the USA to restore the economy to health. And the so-called Keynesian Era, better called the Extended New Deal, produced several remarkable Economic Miracle. France, West Germany, Italy and especially Japan. The West outgrew the Soviet Bloc, which was in decline from their grand successes they had under Stalin.
The notion of the miraculousness of market forces started within post-Stalin Leninism. But it was implemented as a pseudo-market that still suppressed Private Enterprise. They were not doomed to failure: China under Deng succeeded by moving towards a copy of the West’s Extended New Deal. China allowed Private Enterprise in some areas, but never let the economy be dominated by a market or pseudo-market. But the Soviet Bloc failed, and we are still living with the consequences.
When the Soviet Union fell, New Right economists advised Yeltsin to do what they could not to do at home: privatise everything. Reduce the state to a ‘night-watchman role that just guaranteed property rights. They returned to Victorian values: but Victorian values in what was already a modern and integrated economy were a disaster. The economy shrank, there was great hardship, and most national wealth was grabbed by gangsters and fraudsters. The long result was Illiberal Democracy: governments with a right-wing populist attitude. Something that is now also breaking out in the West with UKIP, Donald Trump etc.
In the West, the New Right were kept under enough restraint not to actually shrink the economy. Gangsters and fraudsters remain marginal, with wealth flowing mostly to the existing privileged and partly to talented outsiders (always allowed and assimilated). This is known as the rise of the 1%.
Who are the 1%? By income, a childless couple would qualify with a before-tax income of £160,000 a year (Inequality and the 1%, page 2.[A]) In the USA, $394,000 (page 10). It used to be less, even allowing for the declining value of the currency. Shifts from the 1980s increased their privilege.
Was this a defeat for 1960s radicalism, or its fulfilment? A bit of both. A significant minority were left-wing and in favour of equality. But a majority were resentful of any sort of state control or social obligation. They wanted more sexual freedom, which has happened and is welcome. More freedom of drug-use was also desired, and was unwise. Worse, they were open to New Right arguments that the tax-and-spend state machine was their enemy and should be attacked. This caused a massive erosion of the economic equality and welfare that most of them would have supported in the abstract:
“Pay at the top rose far more slowly than pay at the bottom for the whole period from 1918 to 1978. Britain became more equal. In 1966 the Beatles famously complained about the tax man taking such a high proportion of their earnings, and spreading those monies – which had initially come from the thousands of record-buying teenagers – back into society.” (Ibid., page 17)
Money that funded a flourishing National Health Service, student grants, education with minimal fees and state help for industry that kept unemployment very low. I’m sure that the Beatles would not have said that it was better for money to be spent on their luxuries and vanity than spent on good social values. They just failed to think about it. Or else were sold the lie that small amounts of inefficiency, waste, fraud and corruption were more important than the vast success of the whole system.
The occasional sins of a Extended New Deal were used as a reason to attack it. The promise was that a ‘free market’ would somehow prevent sin. Or else prevent harmful sin even without good intent. This was the original promise of Adam Smith’s Wealth of Nations: it was phony then and it remains phony. But in the anarchic mood of 1960s radicalism, the nonsense got accepted.
“High taxes did not appear to curtail the Beatles’ success, but the pop stars’ public anger at not being able to make even more money than they were doing was just the tip of the iceberg of private angst among some of the very richest people in British society, who were coming to believe that they were hard done by.” (Ibid.)
If there had been a sane incomes policy, a popular musician would not be earning more than a doctor or an airline pilot. A sane incomes policy was part of the Labour Party’s policy in the 1960s and 1970s. Left-wing militants took great pride in defeating it. They believed that capitalism would collapse if Labour were prevented from improving and propping it up. But the Extended New Deal was nothing like the capitalism that Marx or Lenin had denounced. It was commonly called the Mixed Economy, and was different from and superior to the capitalism that the New Right wanted to restore.[B] It was in no danger of collapse. But when Hard Left checkmated Moderate Left, the Centre-Right triumphed.
The Centre-Right adopted a ‘Feed the Rich’ policy. Gains made for equality over the previous decades were seen as an aberration. Early on, we were promised ‘trickle down’: that people ‘spending their own money’ would produce a boost to wealth-creation. The poor would benefit from having a smaller slice of a larger pie. Total nonsense: not just the poor but at least 90% of the society got a smaller slice of a smaller pie. They’d have done better if the social equality aspects of the Extended New Deal had been maintained.
It is still the Extended New Deal. But with governments backed with the richest 1% and its fans, there was an Economic Miracle for the rich. Austerity for everyone else.
Interestingly, this has not happened everywhere. Nor have the rich recovered the degree of privilege they had before World War One. Sweden and the Netherlands are examples of countries that continue to do well without ‘Feed the Rich’: their richest 1% remain at the relatively low level of 6% or 7% of total income. Meantime in the USA and UK, it has soared to 20% and 15%. (Ibid., pages 18-19.) The poor are unhappy, but mostly blame the wrong people.
That’s income. Wealth is much worse, particularly with vast chunks of social wealth privatised. The more-than-millionaire class that is the richest 1% has 53% of total personal tradable wealth in the UK.
How does it happen? For the blindingly simple reason that the rich have power. “Most of the very rich are people who have control over their own pay – not those whom the rest of us think of as very able, but often people who are entrusted with large amounts of other people’s money.” (p51.)
When we talk about talents, the richest 10% would include most of those the rest of us think of as very able. The 9% just below the richest 1% get two or three times as much as the average worker (p58). The incomes of the richest 1% have soared: the 9% just below them have made small gains or no gains. If a society must reward its most talented or dedicated workers, which is the common view, it can be done without the obscene incomes of the richest 1%.
“The  crash has widened the gap between the 1 per cent and the 99 per cent across most of Europe. The crisis created by the rich has been turned to their own advantage. However, in contrast to the 1970s and 1980s, when the rich took the rest of the top 10 per cent with them … in the UK today – much as in India a few years ago – it is only the very richest who are really dong well (p153).”
Tax ‘reforms’ and benefit ‘reforms’ were also regressive. Plans by the Tory-Liberal coalition involved significant losses for the poorest 50% and gains only for the richest 10%, with the next richest 10% breaking even (p165). Things are even worse in the USA: the poor are constantly robbed but still see tax cuts as a great idea. Many of them worship Donald Trump, who promises more of the same.
I called the richest 1% a more-than-millionaire class, because that’s just what it is. Don’t let people think they are in a higher social category than they actually are. One survey showed that a fifth of US adults thought they were in the richest 1% – 25 times too many. Another fifth expected to get there eventually. But anyone can work out their chance of becoming a millionaire, in either dollars or pounds sterling. Work out that they won’t get there – yet even millionaires may not quite qualify for the elite (p90). And the elite has its own elite, with the 0.1% pulling ahead of the rest and the 0.01% doing still better.
Was it a defeat inflicted on the working class and middle class by this new rich class? Not really. A setback for the 90% in Europe and the USA; but a vast advance for ordinary people in Asia, especially China and India. Despite the obscene rise of the richest 1%, the main result was loss of Western and white privilege.
A genuinely globalising World Government would probably not have dared try to create equality so fast, had the 1960s crisis gone otherwise and some sort of hybrid of Western and Soviet systems resulted. Surprisingly, such a World Government was widely expected in the 1950s and 1960s, as the main alternative to a nuclear holocaust. You find it in the writings of Science Fiction author Arthur C. Clarke, among others. In the USA, there are Far-Right fools who still believe themselves lone champions against it. This despite the USA treating the UN as irrelevant when it fails to obey the USA.
A book called Global Inequality explains this wider picture.[C] Written by leading economist Branko Milanovic, it fails to recognise our Globalisation as Degraded Globalisation. He talks a lot about long-term cycles called Kuznets Waves, which I don’t believe to be real. But he correctly speaks of “the rise of what may be called the ‘global middle class,’ most of whom are located in China and other countries in ‘resurgent Asia'” (page 3). He contrasts this with “the stagnation of groups in the rich world that are globally well-off but nationally middle- or lower-middle class” as well as “the emergence of a global plutocracy”.
For me, the global plutocracy was always there. It just got bolder when the Soviet Union weakened. And Global Inequality‘s ‘global middle class’ is ‘middle’ in the sense of being a large chunk of the society between the poor and the rich. All sorts of New Right fantasies are based on confusion between this and the very unusual middle class of north-west Europe and its colonies in the 19th century. That middle class was an oddity produced mostly by the Puritan version of Christianity. A well-off social stratum at odds with a land-owning and religiously lax aristocracy, it was a one-off. A strong belief in the merits of open competition by political parties within a Parliamentary system was one of its fixed ideas, but not a global ideal. Parliamentary government existed in Britain from 1688, but was not even loosely democratic before the 1880s.[D] Arguably, it has not survived the rise of authentic mass democracy. Poor and ignorant voters can be persuaded to hate strangers and the educated. Or they back populist dictators who sometimes do give them real reforms and uplifts that Parliaments often can’t deliver.
The centre-piece of the book is a graph for the years 1988 to 2008 on page 11. You see small gains in income for the poorest 10%. Much larger gains for the next 60%, the 2nd to 7th deciles (tenths of the whole). Then a dip for the 8th decile. The 9th decile, the 10% below the richest 10%, have near-stagnant income. Lastly the richest 10% are still rising, especially the top 1%.
The 90% whose losses are recorded in Inequality and the 1% are broadly the same as the 8th and 9th decile that has done badly from globalisation. A reworking of the graph by other authors shows much the same, though less drastic and with more gains for the very poorest.[E] I got this from The Economist, who tucked it away in the specialist Finance and Economics section. They don’t let it intrude on their editorial judgements.
Note that this is a global pattern, as Global Inequality explains on page 23. For individual countries, the norm since the 1980s has been that the more you have, the more you gain. The richest 1% in rich countries have been able to hog almost all of the benefits of globalisation, exploiting the 90%. As I see it, when manufacturing jobs were mostly in Europe and the USA, those workers were strong and could get a fair share of any increased wealth. Could get a fair share for people like themselves, aided by friendly use of state power. With manufacturing moved to poorer countries, the balance of power shifted.
One interesting extra. A graph on page 131 confirms what I’ve said elsewhere[F] – the rise of China began under Mao. Deng was building on top of existing success. You see China’s wealth per head decline from 1800, fall sharply during the Japanese invasion and then move sharply upwards under Mao. You also see two blips caused by the failure of the Great Leap and the planned disruption of the Cultural Revolution. But no one could doubt Mao’s broad success on the basis of this graph: that must be why the West’s China experts carefully avoid all such data. Maybe author Branko Milanovic was thinking about other matters, because he certainly doesn’t credit Mao with anything.
He does mention the failure of post-Soviet Russia: “Russia’s per capita GDP went down by more than 40 percent between 1989 and 1998” (p165). He tries to lump it with the much milder failure of Latin America, where New Right influence was much weaker. He prefers technical explanations to politics. He notes (p177) that China’s Gini coefficient (a measure of inequality) rose fast from 1978 to just past 2000 and then stabilised. He does not credit Hu Jintao, top leader from 2002 to 2012, who made equality a major aim.
Another point: his graph shows that average Chinese income in 2012 was nearly three times that for 2000. This explains why almost all Chinese are very content with Communist Party rule.
Global Inequality‘s main theme is the decline of Western groups it won’t call working class. (The term is missing from the index, as is ‘trade union’.) It defines middle-class as those between 25% under and 25% over the national median income. In Western countries, their numbers shrank between the early 1980s and 2010 (p196). Interestingly, there were always more of them in Europe than the USA: more than 40% in Sweden and the Netherlands. The UK saw the biggest drop: from just under 40% to 33%. In the USA, a drop from 32% to 27%. So much for the USA’s ‘great middle class’!
You also see the vast gains made by the richest 5% in most of Europe (p198). Especially the USA and UK, where they already had an unusually large chunk of the wealth.
Mainstream economics is committed to seeing life as a burden on money. It can’t accept that an unearned Economic Miracle for the rich in the West could be caused by Centre-Right boldness after Centre-Left failure in the 1970s. But as a record of facts, Global Inequality explains a great deal.
This article first appeared in Labour Affairs, December 2016.
[A] Dorling, Danny. Inequality and the 1%. Verso 2015 2.
[B] See https://gwydionwilliams.com/48-economics/replacing-capitalism-by-capitalism-the-new-rights-muddled-ideas/
[C] Milanovic, Branko. Global Inequality: A New Approach for the Age of Globalisation. Harvard University Press 2016.