Here Stewart Lansley explores good and bad wealth accumulation and the impact of growing wealth inequality on the economy and public services. Stewart suggests that addressing wealth inequality and a better use of the nation’s resources are essential if we are to deliver good economic growth for the UK along with social progress and improved living standards.
Wealth Accumulation: Good or Bad?
Labour’s leader, Keir Starmer has called wealth creation Labour’s “No 1 mission”. Real wealth creation that boosts entrepreneurship and strengthens social infrastructure is vital for rising prosperity. But “creating wealth” is a slippery concept. Despite Britain’s recent dismal economic record, personal wealth holdings have surged. Private wealth – property, physical and financial assets – stands at around six times the size of the economy, up from three times in the 1970s. Across the globe, escalating rates of personal enrichment have coincided with lower growth rates (figure). The wealth surge has also been colonised by the few. From the mid-1990s to 2021, the top 1% of the global rich captured 38% of the growth in personal wealth. The bottom 50% received just 2%.
Figure: Annual GDP growth, year-on-year.
A progressive economic strategy needs to distinguish between “good” and “bad” accumulation. “Good” accumulation creates new value through an expansion of the real national resource pool with at least part of the gains shared more widely across society. “Bad” accumulation is associated with appropriation and non-productive or low social value activity. It involves the upward transfer of existing wealth, leading to a smaller pool of socially available assets.
Much of today’s towering wealth mountain in the UK and globally stems from bad accumulation, through, for example, the mass sell-off of former public assets, the exploitation of corporate power, and state-driven asset-inflation. The nineteenth century philosopher, John Stuart Mill, dubbed such windfall gains “getting rich while asleep”.
The last 1,000 years have seen a series of personal wealth surges, with elites – a mix of landowners, colonialists, slave traders, manufacturers, and financiers – able to secure towering fortunes through economic activity divorced from the social good. The founding economists drew an important distinction between new wealth creation that contributes to the common good, and appropriation that serves elite interests.
The American Nobel Laureate Simon Kuznets, the first to devise the system of national accounting, called for the need to distinguish between activity that benefits society and that which doesn’t. “The test of our progress is not whether we add more to the abundance of those who have much,” declared the American President, Franklin D. Roosevelt in 1936, “It is whether we provide enough for those who have too little.”
In the post-war years financial and economic elites acquiesced, with reluctance, in the politics of equalisation and pre-war levels of extraction fell. With capital’s patience exhausted, extraction is back. In the UK, large companies have been turned into cash cows or private fiefdoms. Corporate strategies have become increasingly anti-competitive, with key markets from energy supply and food production to housebuilding and banking, controlled by a handful of “too big to fail” firms. The rising profit share of recent times has disproportionately gone in payments to shareholders and executives, a key explanation for Britain’s low private investment, low productivity and low wage economy.
The volume of ‘dry powder’–capital available for investment –held by the world’s immensely powerful asset managers has reached an all-time high of $4 trillion. In recent years, over 60 per cent of such cash has been invested in private equity deal-making through the takeover of public, share-issuing companies. This is because the buying and selling of existing companies, and the plundering of their assets, delivers higher returns than longer term activity that delivers a stronger and more dynamic economy.
At immense cost – to living standards, economic stability and public finances – successive governments have ignored this distinction between wealth creation and extraction and turned a blind eye to the predatory side of modern capitalism. Keir Starmer is right to back wealth creation, but this requires a strategy that cuts appropriation and boosts the volume of high social value productive activity.
The paradox of wealth
The combination of extreme inequality and the over-empowerment of markets has proved a toxic mix. It is the source of a stark paradox of wealth. As societies have got richer, their capacity to meet essential needs – from children’s services and young adult training to social and health care – has faltered. Hence the juxtaposition of enfeebled public services, growing levels of impoverishment, and high levels of activity that serves little social purpose.
This has nothing to do with a lack of resources. Today’s global model of corporate capitalism holds a commanding nexus of control. The UK’s five largest banks hold assets of over £8 trillion—more than twice the size of the UK economy. The pro-rich, pro-market and pro-private ownership politics of recent decades has steered decisions over how resources are used away from democratic and social control. A mix of flat taxes, privatisation, excessive reliance on markets, and weak regulation of finance and monopolisation, have transferred power over how land, the workforce and financial resources are used to global asset managers, boardrooms, bankers and an increasingly wealthy billionaire class.
Scarce land and building resources have been used to construct walls of multi-million pound luxury flats and mansions, mostly bought for speculative purposes and left empty for much of the year, by the mobile super-rich. It is this that lies at the heart of today’s decline in home ownership, a lack of social housing, and unaffordable private rents.
Britain is one of the highest users of private jets, contributing a fifth of related emissions across Europe. It hosts vast and lucrative industries, from tax avoidance to lobbying, whose sole purpose is to serve the interests of the wealthy. Over-consumption by the rich and under-consumption on the everyday goods that sustain our daily lives is a primary driver of Britain’s collapsing economic strength and social resilience.
The government’s argument is that without faster growth, higher spending in priority areas such as the NHS and defence need to come, through a zero-sum game, at the expense of other public services and maintaining benefit caps, such as the two child limit. Yet, far from there being “no money left”, as the government claims, redistributing national resources for progressive ends offers a way out of Britain’s broken economy and fractured society.
To achieve this requires strategies for greater equality, through, for example, an increase in the share of taxation from capital, an increase in social ownership and tougher restraints on predatory business behaviour. Resources tied up in low social value and unproductive industries need to be unlocked by breaks on the consumption patterns of the wealthiest. Such a redirection would require progressive changes that redirect the dynamic of the economy. This could take the form of a publicly managed, incremental alternative to the Austrian political economist Joseph Schumpeter’s theory of “creative destruction”, a market-driven process of resource re-allocation. Such a strategy requires a major rethink of Treasury orthodoxy, and a shift in political economy away from today’s pro-inequality, and anti-productive, model of corporate capitalism.
Even mainstream economists are now acknowledging that the government’s current strategy, with its bias to contraction and austerity, is self-defeating. Ultimately, national renewal and social progress depends on a reallocation of the nation’s abundant, but too often badly used, resources.
About the author
Stewart Lansley is a visiting fellow in the School for Policy Studies, the University of Bristol. He has written on inequality, wealth and poverty for academic journals and newspapers. He is the author of The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, a 200-year History, Bristol University Press. Stewart has held academic posts at the National Institute of Economic and Social Research, City, University of London, the Open University and the Universities of Brunel and Reading.
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