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From International Socialism 2:69, Winter 1995.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’Callaghan for ETOL.
British society today is characterised by a growing awareness of the widening gap between rich and poor. Outrage at the massive salaries and share option schemes awarded to those who run various industries has become a journalistic commonplace. But how do those at the top get away with it? What are the class relations, the power relations, which allow the rich to ride the waves of incredulity which have accompanied each new exposure of their fantastic wealth? One key mechanism is to pretend that wealth simply accrues to the already wealthy because of the impersonal workings of the market – ‘You can’t buck the market’ – in Margaret Thatcher’s famous phrase. But although Tory governments may not have bucked the markets, they are not above rigging them in favour of the rich.
The question of ‘top people’s’ pay has not only enraged thousands of people – it has also exposed how the market is rigged to deliver huge pay increases for those at the top. When Cedric Brown, the chair of British Gas, was awarded a pay rise of 75 percent, bringing his salary to £475,000 a year, just weeks after announcing pay cuts and redundancies for British Gas showroom staff, there was a public outcry. The Confederation of British Industry (CBI) was embarrassed into setting up a face saving commission to investigate ‘top people’s’ pay, headed by Sir Richard Greenbury, Chairman of Marks and Spencer (a company which donated £50,000 to the Tories after the last election). Even the inquiry was a fraud. On 22 June, halfway through the investigation, it was discovered that in 1994 Sir Richard was himself awarded a 17 percent pay increase, bringing his annual income to £807,000, and exercised a share option to the tune of £1 million. Unabashed, his report recommended no new laws to enforce pay restraint and merely urged self restraint.
The Greenbury Committee is only the most recent of several failed attempts to regulate the excesses of the top executives. After the shock waves caused by the Robert Maxwell pension fund affair and the Asil Nadir financial scandal, the Cadbury Committee was set up to look at how companies are run. The Committee recommended that top executive’s pay should be decided by remuneration committees, made up of non-executive directors. This last provision has been completely ignored and executive directors have been installed in the committees. And because many directors work for more than one company at a time, they all sit on each other’s remuneration committees – mutual back scratching means that huge pay rises are usually recommended. Thus an innovation intended to limit the greed of the bosses has been turned into a mechanism for enhancing it.
The government’s failure to curb the boardroom excesses has been damaging to its credibility. This has been exacerbated by the obvious way in which Conservative ministers have personally enriched themselves. In 1994 John Major made a speech declaring that the House of Commons should ‘not be a hiring fair’ for private industry. A year later the Register of Members’ Interests showed that 82 percent of Tory MPs hold paid directorships and consultancies and that former cabinet ministers have 40 paid directorships between them. David Mellor, who was forced to resign amid scandal, now holds 12 paid consultancies, four with defence manufacturers. Tim Yeo, another minister forced to resign, is now a consultant and shareholder in a company which looks after the old and the disabled.
Not only have government ministers failed to curb boardroom excesses and actually cashed in themselves, they have vigorously pursued policies which have rigged the market to ensure a widening gap between rich and poor. For example, the government’s privatisation programme was supposed to rescue nationalised industries from the damaging interference of the state and allow the free market to induce efficiency. The government, however, was not prepared to leave the sell off of public utilities entirely to market forces. The industries were sold off at share prices way below their market value. Every man, woman and child in Britain subsidised the sell-offs to a total of £8 billion, equivalent to four pence in the pound off income tax. [1] The same industries have continued to make fortunes for their new shareholders. In August 1995 the Conservative trade and industry minister, Ian Lang, refused to refer various bids for electricity companies to the Monopolies and Mergers Commission and the value of shares in the electricity companies soared. It was a decision which astonished many observers and demonstrated how free competition quickly gives way to the creation of the very monopolies which privatisation was supposed to break up.
The privatisation of nationalised industries was also supposed to create ‘popular capitalism’ but successive privatisations have failed to give significant numbers of individual investors a stake in the system. Most individuals who buy shares sell them again very quickly. Only the rich, who can afford risks, hold on to their shares. The overwhelming majority of shares are controlled by investment institutions, such as pension funds. Various city institutions have controlling block votes in shareholders’ meetings, where moving a resolution can cost as much as £50,000. When the UK Shareholders Association handed in a 130 signature petition to move a resolution against the massive pay increase awarded to Cedric Brown, they were told that ‘unquantifiable costs’ could be incurred. [2]
The issue of ‘top people’s pay’ has served to highlight the existence of huge wealth in British society, wealth which exists independently of the policies of any particular government. The extent of the personal wealth enjoyed by the rich is unimaginable to most people. The ten richest people in the world have combined wealth of £78.3 billion. The Sunday Times compiles an annual survey of the richest 500 people in Britain. Top of the 1995 edition are brothers Han and Gad Rausing, who live in Britain to avoid paying taxes in their native Sweden, with a fortune of £4,000 million. [3] The people who own the wealth in society are not, however, just a collection of individuals – they form a ruling class.
Social class, however, is not just based on who owns what – it is also about who controls what. Some sociologists think that sufficient personal wealth is the only criterion necessary to describe social class. However, a national lottery millionaire does not have the same influence as a Cedric Brown. Power is rooted not only in wealth, but in the class structure – and class is not just based on luxurious lifestyles. The class structure is shaped by antagonisms which are built into the process of exploitation and the accumulation of capital. The capitalists are those who accumulate the wealth produced by the working class people who have no independent access to these means of producing things. They therefore have to work for the capitalists.
Class is based on social relationships, but not everyone who is rich occupies the same position in the capitalist hierarchy. One of the most popular myths about capitalism is that it offers the chance for anyone to make it to the top, if they are talented or dedicated enough. In the last century, when dynamic new industries were springing up and the system was expanding dramatically, some individuals did carve out fortunes. However, these fortunes did not emerge from thin air – they always depended on the exploitation of others. As Marx wrote in the last century:
Look at the millionaires of today who were poor devils of yesterday. For one man of nothing to become a millionaire overnight, a thousand $1,000-men must have been turned into beggars during the day. The magic of the Stock Exchange will do this sort of thing in the twinkling of an eye, quite apart from the slower methods by which modern industry centralises fortunes. [4]
In the era of huge multinational companies, the chances of any individual making themselves into a millionaire are extremely slim. Those who do make great fortunes usually start with more money than the majority of people could earn in a lifetime. Over 70 percent of the richest people in Britain inherited over £10,000 from their fathers alone, a figure which does not include wealth inherited from mothers, fathers in law and other relatives. [5] Even Richard Branson, often heralded as the archetypal self made man, went to a top public school which provided him with access to exclusive contacts. The industries in which such ‘self made’ men can be found are industries where there is a higher proportion of smaller firms which give access to those with more limited capital, such as clothing, transport and finance. [6]
Most of the small number of individuals who do start in working class or, more often, middle class families and end up with immense fortunes acquire their wealth because they entertain us – they are the most successful singers, film stars or sportsmen. The richest entertainer in Britain, Paul McCartney, is at twenty-first position in the Sunday Times survey with a fortune of £420 million. In 1987 he was earning an estimated £3,750 an hour from song royalties. Sir Andrew Lloyd Webber is worth £380 million, but he’s not greedy – in June 1994 he gave £1 million to the Open Churches Fund which keeps unused churches open for the public.
These entertainers owe their wealth to the quirks of the market which usually promotes those considered to be the most universally appealing and least offensive. Once they have made a fortune, the process of investing it means that they are quickly incorporated into the capitalist class. The richest pop stars are all directors of their own companies. In a Labour Research survey of the highest paid directors of 1994, Andrew Lloyd Webber was second only to Peter Wood, the Director of the Royal Bank of Scotland. In third place Phil Collins was paid a salary of £22,281,412 by the Phil Collins Company. Mark Knopfler was paid £9,145,764 by Chariscourt making him the fifth highest paid director. [7]
When people talk of Britain being a ‘class ridden society’, what they are usually referring to is the continued existence of the aristocracy, with its conspicuous rituals of wealth and privilege. Many commentators, of both the political left and the right, argue that Britain is unique because the ruling class is dominated by the aristocracy. The aristocracy achieve this, it is argued, because their values, which are patrician and essentially pre-capitalist, influence the rest of the ruling class through the mechanisms of the public schools, Oxbridge and the House of Lords. They also suggest that the dominance of the aristocracy has inhibited the development of a modern society in Britain.
It is the case that throughout the centuries the ruling class has developed a number of institutions which enable them and their offspring to maintain their wealth. Public schools separate the children of the ruling class from everyone else and teach them how to rule others. These schools, some of which have annual fees of over £12,000, also integrate children from the upper middle class into the ruling class proper:
If you spend approximately ten years of your life in a very large house with its own chapel, in a closed society where the Cabinet and heads of the armed forces are just ahead of you – Old Boys and Girls – you identify with the powerful... you feel physically at home in Law Courts or the Houses of Parliament or the pavilion at Lords. You see yourself as a small person in a huge hall where history is being made. You may be small, but you share in the great enterprise. [8]
The pattern set by the public schools is reinforced by institutions such as Oxbridge. Oxbridge graduates still dominate the upper echelons of the civil service and the boardrooms of industry, commerce and finance. In 1992 The Economist made a survey of the ‘top one hundred people’. Two thirds went to public schools and over half to Oxbridge. This proportion had not changed in the 20 years since the last survey. [9] The links between members of the ruling class are reinforced socially through inter-marriage, and exclusive clubs like Whites, the Turf and the Carlton.
A 1990 survey of the sources of wealth among the top 400 people in Britain showed that one third of the wealth of the super-rich comes from landed fortunes. [10] The landowners are predominantly drawn from the old peerage and are among the richest of the rich, like the Duke of Westminster who inherited property worth £4,200 million. In The Times top 500 survey, 14 out the richest 20 are peers: dukes, earls, viscounts and so on. Of course this extends to the royal family. The Queen has dropped to seventeenth place in The Times survey, not because she now pays tax, but because those who compiled the survey moved the goal posts: ‘After strong representations from the palace, we believe it is no longer right to count her art collection as part of her fortune.’ Her art collection is worth between £4 billion and £10 billion. Business Age magazine published a survey in August 1995 which listed the Queen as the richest person in Britain, with a fortune of £2.2 billion, and there was a outcry from palace officials.
However, the aristocracy has survived not through the dominance of its pre-capitalist values but, on the contrary, because it has a long history of integration with the capitalist system. A study by Rubenstein showed that income from property holding has traditionally been the most unequal of all types of wealth. [11] From 1740, when the first records were made, to the First World War, little changed in the distribution of landed property. In 1911 the top 1 percent of property holders owned over two thirds of all wealth. These landed fortunes have increasingly involved urban as well as agricultural holdings. The Duke of Westminster, for example, owns much of Mayfair, Belgravia, Oxford Street and Bond Street as well as his rural property. The aristocrats whose wealth was based on the ownership of property during the last century have largely integrated into the financial sector of the economy based in the City of London. ‘Many of the propertied rich hold blocks of shares in a large number of companies in the sector of institutional capital’. [12]
Some have argued that the association of the traditional land owners with the City was just a symptom of the continued dominance of the aristocracy, especially when, under the Thatcher governments of the 1980s, manufacturing capital was hit by recession while the financial sector boomed. However, the power of the British aristocracy was not responsible for the boom and the process was not unique to Britain – the deregulation of the financial markets took place across the world. The reason that financial and industrial capital appear to be less integrated in Britain than in, for example, Germany or the US is not a result of the power of the aristocracy. It is because British capital was the first to dominate the world markets. Its competitors required a greater level of centralisation to develop their economies in a world economy already dominated by Britain. The converse of this fact is the higher level of integration into the world market of both British financial and industrial capital.
The weakness of investment in Britain’s manufacturing industries was not a consequence of Thatcherism. It was a consequence of British governments’ attempts to maintain their role in world affairs after they were politically and economically supplanted by the US during the Second World War. High levels of investment in arms manufacturing in the 1950s meant that levels of investment in British industry were very low compared to the levels in Japan and Germany.
Thus the British ruling class consists of both the capitalists of aristocratic descent, whose money now finances international trade through the institutions of the City, and those who have made their fortunes from trade, commerce and industry rather than the ownership of property. The latter are not the poor relations of the former. Any distinction between the two is far from absolute. Industrial capital has been an essential feature of the development of the British ruling class for centuries. The creation of the empire rested on it. The most established industrial capitalists come from families that control huge business empires and have built them up over generations. Especially successful are those involved in retailing and property development which are the most important of a range of service industries which have produced great wealth. Examples of this success are the Guinness family, headed by the Earl of Iveagh, and the ‘fourth generation rich’ Vesty family, headed by Lord ‘Spam’ Vesty. Another example is fourth generation rich David Sainsbury, the second richest man in Britain this year, with an empire of £2,520 million. He was educated at Eton, and King’s College, Cambridge, and is now toying with the idea of voting Labour. [13]
Members of families such as these have access to enough capital to cash in as the system constantly creates new opportunities for making money. Any big changes in production lead to huge changes in the way millions of people live their lives. Old industries can suddenly boom. Unexpected new markets can open very quickly:
With accumulation, and the development of the productiveness of labour that accompanies it, the power of sudden expansion of capital grows also ... The mass of social wealth, overflowing with the advance of accumulation, and transformable into additional capital, thrusts itself frantically into old branches of production, whose market suddenly expands, or into newly formed branches. [14]
Any changes in the way we live create circumstances in which capital can ‘thrust itself frantically’ into new areas or old branches of production. Paul Raymond, for example, has built an empire worth £333 million from pornography and property speculation (in the Business Age list he is the third richest person in Britain with a fortune of £1.5 billion). John Bredenkamp has taken advantage of the business opportunities presented by repressive regimes and warfare to make a fortune of £200 million from arms dealing, as has Sam Cummings, the man listed as tenth richest by Business Age magazine with a fortune of £1.1 billion.
In addition to traditional areas of profit making, the 20th century is an era of mass commodity production, so small changes in the way we live produce new markets and massive profits. For example, a trend in clothes can created huge empires. The company which produces Dr Marten’s boots is owned by Max and Stephen Griggs, who are now worth £149 million. Similarly the producer of Barbour Coats, Margaret Barbour, is now worth £80 million. [15] The same picture can be seen with the growth of leisure industries.
Writer John Scott has drawn a distinction between entrepreneurial capital and institutional capital in the business sector. Entrepreneurial capital is based on ownership of a company by an individual, or more often a family, most of whom are descended from the entrepreneurs of the 19th century. His second category is businesses owned or controlled by financial institutions such as banks, insurance companies and pension funds. It is often argued that these operate differently, benefiting the pensioners or those with insurance policies rather than shareholders. In fact the top asset holders benefit most, in terms of occupational earnings as directors and executives and direct shareholders. These are the corporate rich. [16]
Capitalism is a system which is constantly evolving. In the early 19th century an individual capitalist, or family group, could own a firm and successfully compete against other firms of similar size. The limits of the enterprise would often have been set by personal fortunes and personal capabilities of the capitalist. During the later decades of the 19th century these units of capital became increasingly concentrated and centralised, ‘the transformation of many small into few large capitals’, and the atomised, competitive pattern of industry developed towards monopoly capitalism. [17]
Modern corporations have broken the link between capital and its individual owner. Control of capitalism has outgrown the limitations of individual ownership and become institutionalised.
Huge aggregates of capital may be assembled that far transcend the sum of the wealth of those immediately associated with the enterprise. And operating control is vested increasingly in a specialised management staff for each enterprise. Since both capital and professional management – at its top levels – are drawn, by and large, from the same class, it may be said that the two sides of the capitalist, owner and manager, formerly united in one person, now become aspects of the class. [18]
Complex management structures are a product of these changes. In the 19th century industry was organised with relatively few clerical or administrative workers. With the development of the huge monopolies, this situation was transformed. Management functions multiplied and became increasingly specialised, developing into areas like research, personnel, quality control and, most importantly, marketing, which has become an industry in its own right. The structure of management is parallel to that of production – management functions are carried out by workers, controlled by supervisors and management proper.
Those who own capital and those who manage capitalist enterprises come from the same tiny ruling class. Therefore, the top managers are usually people who own some capital, and those who own capital usually play some role in managing its operations. Nevertheless, the development of monopoly capitalism has led to the emergence of a layer of bureaucrats who do not necessarily own the companies they manage. The British ruling class, therefore, includes not only those who own their own property or business. Just as powerful are those who may not own capital but certainly control it. Within the limits set by the competition and anarchy of capitalism, they run the economy of the country.
Far from being some throwback to pre-capitalist society, the modern British state has always guaranteed the conditions necessary for capitalism to flourish, and the institutions of the state have always been used to enrich the capitalist class, collectively and individually. The powers of taxation, foreign trade, the maintenance of armed forces, provide many opportunities for making money. Under modern capitalism the role that the state plays has expanded greatly in response to several factors. One is the internationalisation of capital, which means that economic competition has often led to military competition which relies on the existence of armies maintained by the state. The state is also required to deal, however inadequately, with the massive levels of poverty and insecurity which are a permanent feature of life under modern capitalism. In addition, the government of the day also provides services which are essential for modern capitalism, such as educating the future workforce. and providing facilities for public health and transport systems.
The modern state acts as an ‘aggregate capitalist’, with huge amounts of capital at its disposal. As economic competition leads to bigger and bigger monopolies, the state has increasingly taken over large chunks of the economy. Despite privatisation, the state still owns, or economically underpins, crucial sectors of the economy. Military spending has a massive impact on other sectors of the economy and on scientific research. State ownership has led to the creation of a layer of capitalists who are paid by the state. Like the multinational companies, the state employs salaried bureaucrats whose decisions can have a massive impact on a local economy. Each area of the state’s activity is organised along the same lines as management in the private sector.
The state attempts to maintain an appearance of political neutrality, but it remains, in Engels’ phrase, ‘an executive committee for the management of the common affairs of the bourgeoisie’. In terms of personnel, the close links between the state and private industry have been illustrated by the ‘revolving door’ through which cabinet ministers are appointed to lucrative posts which depend on the expertise they acquire while in office. Norman Lamont, former chancellor, is now a director of the N.M. Rothschild merchant bank and of various investment trusts. Lord Parkinson, former trade secretary and transport secretary, is now a director of Eurorail, Dartford River Crossing and Midland Expressway and is chairman of Usborne and Jarvis Harpenden. Kenneth Baker, former education secretary and Tory chairman, is a director of Hanson, Torrey Investments, Videotron Holding, and Bell Cable Media, and is an adviser to Cable and Wireless. [19]
The ruling class show no signs of surrendering their dominant position in the state hierarchy. For example, the percentage of judges who come from top public schools actually increased between 1987 and 1994 and these judges have real power to interpret the laws made by parliament. The 1992 Whitehall Companion is a biography of 1,000 senior civil servants. Eight of the 12 biggest government departments were run by permanent secretaries who had Oxbridge degrees and attended fee paying schools. In the Treasury seven of the ten top grades were Oxbridge graduates. [20] All the top civil servants play a crucial role in the development and implementation of any government’s policies and both judges and civil servants have frequently intervened to prevent any threat to the interests of their class.
| |
Throughout the 1980s Conservative policies were justified on the grounds that they would create wealth for the rich which would trickle down and benefit everyone in society. Yet, despite many generous handouts to the rich, there is no sign that that so much as one drop trickled down. In fact, for the first time since the Second World War, between 1979 and 1992 the poorest 20 to 30 percent of the population failed to benefit from economic growth (Table 1). [21] Between 1979 and 1991 the disposable income of the bottom fifth dropped by at least 3 percent while the richest saw their net income rise by almost 50 percent. [22]
This dramatic rise in the levels of inequality was in part a direct consequence of government policies, such as tax changes. Nigel Lawson, former Chancellor of the Exchequer, explained Tory thinking thus:
Excessive rates of income tax destroy enterprise, encourage avoidance and drive talent to more hospitable shores overseas. As a result, far from raising additional revenue, over time they actually raise less. By contrast, a reduction in the top rates of income tax can, over time, result in a higher, not a lower yield to the Exchequer. [23]
This faith in the benefits of tax cuts for the rich has proved to be unfounded. The incentive of paying less tax simply enabled high earners to have more leisure time rather than work harder and earn more money. In fact, according to the Policy Studies Institute survey of 1994, it was the low paid who were paying more of their income in tax. However, tax cuts did mean a huge increase in income for the rich (see table 2). [24]
|
TABLE 2: GAINS FROM INCOME TAX AND NIC CHANGES, 1978–79 TO 1990–91 |
|||||
|---|---|---|---|---|---|
|
|
Married man, multiples of average earnings |
||||
|
×0.66 |
×1 |
×2 |
×5 |
×10 |
|
|
Tax + NIC (% of gross earnings) |
|||||
|
1978–79 |
21.9 |
27.8 |
31.4 |
50.5 |
66.5 |
|
1990–91 |
21.2 |
25.5 |
28.8 |
35.5 |
37.8 |
|
Change (%) |
−0.7 |
−2.3 |
−2.6 |
−15.0 |
−28.7 |
|
Real net earnings (% rise) |
34.7 |
37.8 |
38.5 |
73.8 |
148.1 |
|
Gross earnings (£ a week) |
202.53 |
303.80 |
607.60 |
1,519.00 |
3,038.00 |
|
Tax + NIC cut in £ |
1.42 |
6.99 |
15.80 |
227.85 |
871.91 |
One of the Tories’ most successful posters during the 1992 general election was ‘Labour’s Tax Bombshell’ claiming that under Labour everyone would pay £1,250 more in tax every year. For the poor, however, it is the Tories who have proved to be the party of high taxation. The changes in taxation meant that the poor paid relatively much more than the rich. Direct income tax was cut and indirect tax, such as VAT, was increased, with the result that in 1995 the poorest 10 percent of the population will forfeit nearly 20 percent of their gross income to indirect taxes while the top 10 percent will pay 2 percent, according to the Institute for Fiscal Studies. The top 1 percent of earners have received 30 percent of the tax cuts since 1979 – this amounts to £300,000 per person, and, according to a recent report [24], the cumulative gain to the rich from tax cuts since 1979 is £75 billion. Of the £31 billion tax cuts implemented between 1979 and 1992, the top 1 percent of income earners received 93 times as much per head as the bottom 50 percent. [25]
Taxation is very important in the distribution of wealth. Rubenstein and others have shown how higher taxes on the rich after the Second World War were crucial in fostering the trend towards more equality. [26] However, changes in taxation are not solely responsible for reversing this trend. In addition to the changes in taxation the number of people without work and dependent on state benefits has risen. Most studies of the effects of living in poverty have concentrated on those living on benefits. One such study of families living on benefits in Tyne and Wear reports:
The picture which emerges from this detailed study of family lives is one of constant restriction in almost every aspect of people’s activities ... the lives of these families, and perhaps most seriously the lives of children in them, are marked by the unrelieved struggle to manage with dreary diets and drab clothing ... they also suffer what amounts to cultural imprisonment in their homes in our society in which getting out with money to spend on recreation and leisure is normal at every other income level. [27]
Unemployment, however, is not an unfortunate accident caused by one particular economic policy. The creation of a reserve army of labour, Marx argued, is a condition of capitalist production. Marx wrote that ‘the whole movement of modern industry depends, therefore, upon the constant transformation of a part of the labouring population into unemployed or half employed hands’. [28] Of the existence of long term unemployment he wrote:
It furnishes to capital an inexhaustible reservoir of disposable labour power. Its conditions of life sink below the average normal level of the working class ... But it forms at the same time a self-reproducing and self-perpetuating element of the working class. [29]
High unemployment can have the effect of driving down wages, disciplining workers in employment and sharpening the competition between workers for jobs. Yet Marx argued that the unemployed were part of the working class. Today it is fashionable among academics, especially those who are opposed to universal welfare provision, to describe them as an ‘underclass’. They argue that the worst poverty is a result of the poor’s deviant behaviour, which returns the debate to the categories of the ‘deserving’ and ‘undeserving’ poor used during the 19th century. Charles Murray, an influential American commentator, argues that, while some poor people are doing their best on low incomes, others have created a ‘culture of poverty’. One of the main features of this culture is unemployment, which leads to the breakdown of the family: ‘Men who do not support families find other ways to prove that they are men, which tend to take various destructive forms ... Young men are essentially barbarians for whom marriage ... is an indispensable civilising force.’ Alongside unemployment, Murray identified illegitimacy encouraged by overgenerous benefits and violent crime as a cause of social disorder. [30]
Unemployment has created great hardship, but it has not led to the creation of a permanently unemployed ‘underclass’. Most people are in and out of work rather than being permanently unemployed. In 25 percent of the poorest families, the head of the family is actually in full time work. The key to growing poverty is what has happened to the wages of those in work, especially in comparison to the salaries of those who employ them. Salaries for the rich have increased massively while the tax burden has been reduced. A study of chairmen and top executives of large companies in 1986 found that a quarter of them were receiving salaries that were 23 percent higher than they had been the previous year – and one in ten of them had received rises of 42 percent or more. [31] These salaries are boosted by a range of fringe benefits and share options.
In contrast, for many working class people represented by trade unions wages have kept pace with inflation, but for some working class people wages have fallen. [32] The deregulation of the labour market, including the abolition of the wages councils, has led to an increase in low paid, part time and casual jobs. The wages councils set minimum pay for about 2.5 million workers in low paid jobs. Two recent studies found that throughout the 1980s the minimum wage declined relative to the average wage and that this was associated with a decrease in employment. The abolition of the minimum wage led to increased poverty and widening of inequalities in pay and income with no rise in employment leading to greater inefficiency. [33] As a result of these policies ‘the gap between the highest and lowest paid is greater than at any time since 1886: in the five years to 1992, the pay of the top directors of the FTSE 100 companies rose by 133 percent, to reach an average of £535,000; over the same period the wages of the lowest paid 10 percent of workers grew by 38 percent.’ [34]
The government’s most recent figures confirm that the gap is still growing. The 16 lowest paid occupations got an average pay increase of 2.8 percent, while bosses in the privatised utilities got increases of 10 percent on already huge salaries. The wages of waiters and waitresses actually fell by 1.6 percent. The figures do not include the wages of part time workers. which are usually low, but the estimate is still that 1.3 million earn less than £2.50 an hour. [35] For many workers, the inequality is all too obvious. In one week the directors of 14 British companies each earn what the average annual manual worker in the same company earns in one year. In some cases a director receives 100 times what the person who cleans his office earns. [36]
In the 1950s and 1960s Peter Townsend developed the existing measures of poverty used by the Booth and Rowntree studies in the 19th century. The criteria traditionally used to study poverty were ‘absolute’, which meant focusing on necessary subsistence levels of income. This meant that the extent of the poverty was often underestimated. As an alternative, Townsend argued that poverty should be analysed in a social context. ‘Poverty ... is the lack of the resources necessary to permit participation in the activities, customs and diets commonly approved by society’. [37] This method of analysing poverty is now widely accepted as standard. The Supplementary Benefits Commission for 1978–1979 recognised it: ‘Poverty in urban industrial societies like Britain is a standard of living so low that it excludes and isolates people from the rest of the community. To keep out of poverty they must have an income which enables them to participate in the life of the community’. [38]
To select which particular standards of ‘life in the community’ should be taken as a point of reference, Townsend used a version of the ‘social democratic’ method, which appeals to the majority of public opinion. The Breadline Britain survey attempted to update Townsend’s work using his method. They questioned a sample of the population and included as necessities items agreed by over 50 percent of respondents. Almost everyone agreed on heating, an indoor toilet, damp free housing, a bath, enough beds and public transport. Many other items considered essential are beyond the reach of many families, in and out of work:
By any measurement about one fifth of our population lives in poverty. But doing without is not confined to them. The London Weekend Television Breadline Britain survey in 1991 found that at least one of the necessities which make life worth living – hobbies, a holiday, the occasional celebration (each rated ‘necessary’ by between half and three quarters of the public) – is simply too expensive for some 21 million people. The average family now has a debt equal to seven weeks’ wages, nearly double the level in 1980. [39]
Survey after survey shows that Britain is definitely not moving any closer to becoming a classless society, as John Major once promised it would, and that every aspect of life for millions of people is shaped by growing poverty and inequality. The relationship between poverty and ill health has been well documented, but social class also affects accident rates. ‘As British children grow up, the poorest children are twice as likely as those from social class I to die from a respiratory illness, more than four times as likely to be killed in a traffic accident and more than six times as likely to die in a house fire’. [40] Thus everything from life expectancy to infant mortality rates is shaped by class. The increase in this inequality can literally make people sick: there is evidence to suggest that inequality, rather than simply absolute poverty, increases people’s resentment, sense of failure and dissatisfaction and can cause stress and depression.
The ‘trickle down’ theory has been used to justify greater inequality. But at the core of right wing economic thinking during the 1970s and 1980s is the notion that attempts to create a more equal society could only lead to economic inefficiency. A very influential book by Arthur Okun stated the case thus:
To the extent that the system succeeds, it generates an efficient economy But that pursuit of efficiency necessarily creates inequalities. And hence society faces a trade-off between equality and efficiency. [41]
Today the gap between rich and poor in British society is greater than at any time since the 1880s. This inequality has not led to an increase in efficiency in the economy as a whole. In fact, inequality has reinforced the weakness of the economy. The growth of poverty, not just for those on benefits but also for many in work, meant that the boom of the 1980s depended on high levels of debt and rising property prices, not mainly on investment in the productive sector of the economy. The recession was not created by the Tory government, but its consequences were worsened by their years in office. When the recession hit in 1990, the growing poverty meant demand fell more severely than at any time since the Second World War. Between 1990 and 1992 consumer spending actually fell by £7.6 billion and business investments fell to a 32 year low. All this has contributed to the economy’s failure to recover from the recession, the ‘lack of consumer confidence’ and the lack of any ‘feelgood factor’.
There is no relationship between high pay and improved economic performance. The massive pay increases awarded to bosses recently are no reflection of the success of the companies they manage. In fact, as table 3 suggests, the exact opposite is true. The bosses do not believe in performance related pay for themselves. [42] Will Hutton commented that ‘the sense that the aim of financial and corporate life is personal enrichment at any price is accentuated by extravagant remuneration packages for senior executives, even in cases where they have served only for a few months or failed to do their job.’ He cites the examples of David Dworkin of British Home Stores, who resigned after 6 months and collected £3.2 million, and Bob Horton, who was sacked as chairman of British Petroleum, collected £1.5 million and now works part time for Railtrack for a salary of around £122,000. [43]
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This pattern is repeated in industry as a whole. The enrichment of the capitalists has not translated into a successful economy which is better able, for instance, to support the welfare state. On the contrary, personal enrichment has in fact been accompanied by a weakening of the long term growth rate (which has fallen from an average of 2.75 percent between 1959 and 1979 to an average of 2 percent between 1979 and 1994). Not only has the long term performance of the economy not improved because of the bosses’ bonanza, but the government’s policies rebounded on their own finances. Bill Robinson, who was an adviser of ex-chancellor Norman Lamont, calculated that income tax cuts cost £9 billion, the sale of public assets below their full market value cost £13 billion and the cost of switching from rates to the poll tax and back cost £3 billion. On these three policies alone the government has spent a total of £25 billion.
Thus attempts to unleash market forces, to encourage the dynamism of capitalism through ensuring high incentives, have proved to be a dismal failure. The policies of enriching the minority at the expense of the majority exacerbated the instability of the system. Individual capitalists are driven to compete with each other for ever larger slices of a shrinking cake, and have helped to prevent their own system recovering from the recession. By summer 1995 growing levels of poverty helped to ensure that the only firms which were doing reasonably well were those which export abroad. Those still struggling were reliant on home markets. [44]
The growing inequality between the rich and the poor has an impact on the whole society. From the late 1940s to the 1970s politicians and economists became increasingly confident that capitalism could be controlled, that full employment and rising living standards could be delivered and that class struggle was a thing of the past. Thus it was widely argued that the traditional manual working class would disappear and be replaced by an educated and contented middle class workforce. Marxism was dismissed as out of date. A quote from The Communist Manifesto has often been used to demonstrate that Marx mistakenly predicted the disappearance of the middle class: ‘Society as a whole is more and more splitting up into two great hostile camps, into two great classes directly facing each other: bourgeoisie and proletariat.’ In fact, Marx and Engels do discuss how changes in the structure of the ruling class, such as the development of monopolies, will transform the shape of the middle class, but they do not argue that it will simply disappear:
In the countries where modern civilisation developed, a new petty-bourgeoisie was formed, which hovers between the proletariat and the bourgeoisie and continually renews itself as a supplementary part of bourgeois society. The members of this class, however, are being constantly hurled down into the proletariat by the action of competition; indeed, with the development of large scale industry they even see a time approaching when they will completely disappear as an independent part of modern society and will be replaced, in commerce, manufacturing and agriculture, by labour overseers and stewards. [45]
Today the promise of post-war prosperity has collapsed in ruins. Society is becoming more and more polarised in the way which Marx anticipated. The ruling class is getting richer and more removed from the experiences of the majority of people. Some sections of the middle class are getting huge salary increases while others are beginning to find themselves squeezed, and experience the fear of being hurled down to the proletariat.
The polarisation between rich and poor has also had a massive ideological impact across society, including on sections of the middle class. The Tories maintain a rhetoric which pays lip service to vague notions of a ‘classless society’ while in practice facilitating the greatest rise in inequality this century. The failure of their policies has led to a collapse in their support. There have been several devastating critiques of the effect of the Tories’ policies. Will Hutton, for example, has argued that ‘market rule has recoiled on the state’s finances; public spending on crime, health, education and social security spending itself, even though rates are meaner in relation to average earnings, has ballooned as poverty drives millions through the drab waiting rooms of the rump welfare state’. [46]
But the Labour leadership has now embraced the market with all the inequality that implies, so Labour supporters have to make criticisms and pose solutions within the existing framework of society. For example in Paying for Inequality, edited by Blair adviser David Miliband, a series of articles merely point out that poverty, low pay, unemployment and social inequality are inefficient for the system. Of course, the drive for greater wealth and profits has created many burdens on the economy as a whole. However, to suggest that social change should he geared to producing an efficient market economy is to completely miss the point that inequality, poverty and unemployment are indispensable products of capitalism. The Blairites are unable to provide a explanation of what kind of social change could satisfy the needs of both the rich and the poor, for the very simple reason that there isn’t one: the wealth of the capitalist depends on the continued exploitation of the worker, and never more so than in the last quarter of our century.
Even during the post-war economic boom, when the gross national product rose by, 139 percent, poverty was never eliminated. A report, The Poor and the Poorest, written in 1965, shocked many when it reported that about 14 percent of the population had not benefited from the booming economy and were still living in poverty. The limited redistribution of wealth which took place after the Second World War did not touch the poorest people. The bottom 80 percent owned 16.4 percent of the total private income in 1950. This had risen to only 18.5 percent by 1970. [47] When economic recession hit in the early 1970s the antagonism between the wealthy and the workers erupted as sharply as ever. It will be class struggle which will be crucial in determining whether we begin to reverse the pattern of increasing wealth and increasing poverty and there is some evidence that low pay is beginning to propel workers into fighting back.
The huge wealth which is produced by capitalism is not only squandered on arms and luxury goods, it actually contributes to the instability of the system. Parliamentary politics today is dominated by the limitation imposed by accepting the market as the only mechanism of organising society. The possibilities suggested by wealth under democratic control, free from the market system and the drive to accumulate profits, are enormous. In the short term redistributing the wealth controlled by the few could have a massive impact on the lives of millions of people. In the long term the huge potential of the system to create wealth can be the basis of a new society.
1. Observer, 3 September 1995.
2. B. Campbell, Guardian, 25 July 1995; Has anyone seen Sid?, Labour Research, July 1995.
3. Sunday Times, Top 500 List, 1995.
4. K. Marx quoted in H. Draper, Karl Marx’s Theory of Revolution, vol. 2 (Monthly Review Press 1978), p. 614.
5. J. Scott, Poverty and Wealth (Longman 1994), p. 111.
6. Ibid., p. 112.
7. Top Directors’ Pay Bonanza, Labour Research, August 1994.
8. The Official Sloane Ranger Handbook, quoted in G. Hadfield and M. Skipworth, Class, Where Do You Stand? (Bloomsbury 1994), p. 74.
9. G. Hadfield and M. Skipworth, Ibid., p. 72.
10. J Scott, op. cit., p. 116.
11. Rubenstein quoted in ibid., p. 110.
12. J. Scott, ibid., p. 120.
13. Sunday Times, Top 500 Survey, op. cit.
14. K. Marx, quoted in H. Braverman, Labour and Monopoly Capitalism (Monthly Review Press 1974), p. 253.
15. Sunday Times, Top 100 Survey, op. cit.
16. J. Scott, op. cit., p. 119.
17. K. Marx, quoted in H. Braverman, op. cit.
18. H. Braverman, ibid.
19. Guardian, 14 September 1995.
20. G. Hadfield and M. Skipworth, op. cit.
21. C.J. Johnson, The Economy Under Mrs Thatcher (Penguin 1991), p. 295.
22. Social Justice, The Report of the Commission on Social Justice (Vintage 1994).
23. N. Lawson, quoted in C.J. Johnson, op. cit.
24. Social Justice, op. cit.
25. A. Glyn and D. Miliband (eds.), Paying for Inequality (Rivers Oram Press 1994), ch. 7.
26. J. Scott, op. cit., p. 106.
27. M. Yelloly, The Dynamics of Difference: Poverty and Wealth, Journal of Social Work Practice, vol. 7, No. 1, 1993.
28. K. Marx quoted in H. Draper, op. cit.
29. Ibid.
30. J. Scott, op. cit., p. 169.
31. Ibid., p. 108.
32. Inquiry into Income and Wealth (Joseph Rowntree Foundation 1995).
33. A. Glyn and D. Miliband, op. cit., pp. 108-109.
34. Ibid.
35. S. Milne, Guardian, 2 September 1995.
36. One Director Worth 127 Cleaners!, Labour Research, July 1995.
37. J. Scott, op. cit., p. 78.
38. M. Yelloly. op. cit.
39. Breadline Britain, quoted in ibid.
40. Social Justice, op. cit.
41. A. Okun, quoted in A. Glyn and D. Miliband, op. cit., p. 6.
42. Social Justice, op. cit.
43. W. Hutton, The State We’re In (Jonathan Cape 1995), p. 6.
44. A. Callinicos, Socialist Worker, 12 September, 1995.
45. K. Marx, quoted in H. Draper, op. cit.
46. W. Hutton, op. cit., p. 175.
47. J. Scott, op. cit., p. 109.
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