Yet more discussion of Piketty - this time on Newsnight. As some have half-jokingly suggested (£) we are experiencing a Piketty bubble which will burst very soon. This would be a shame because what Piketty's analysis does is place the focus of public debate back on the issue of ownership. And there are few issues more fundamental.
Ownership is, of course, the cornerstone of our economy but things of stable or increasing value can also give their owners a strong sense of rootedness and engagement with the wider world. Things of value give us the power to create: as Adam Smith noted, no-one can produce anything of value without space in which to do the producing and materials, tools or machines to use in the production process. Ownership is also the source of wealth, as opposed to income from selling or using our labour, and thus can make people who own valuable things better off and, in a minority of cases, exceptionally better off - which is really the core of Piketty's book.
Thatcher - a Pikkety Supporter?
The modern politician who was perhaps more viscerally aware of the fundamental importance of ownership than any other was Mrs. Thatcher. In 1986, just a few months before her third election victory, she gave a barnstorming speech to the Conservative Party's annual conference putting ownership at the heart of her governing philosophy:
We Conservatives believe in popular capitalism—believe in a property-owning democracy. And it works! In Scotland recently, I was present at the sale of the millionth council house: to a lovely family with two children, who can at last call their home their own. Now let's go for the second million!
And what's more, millions have already become shareholders. And soon there will be opportunities for millions more, in British Gas, British Airways, British Airports and Rolls-Royce. Who says we've run out of steam. We're in our prime!
The great political reform of the last century was to enable more and more people to have a vote. Now the great Tory reform of this century is to enable more and more people to own property.
Popular capitalism is nothing less than a crusade to enfranchise the many in the economic life of the nation. We Conservatives are returning power to the people.
Elsewhere in the speech she stated that selling shares in the public utilities to the nation's population was not about efficiency but about "spread(ing) the nation's wealth among as many people as possible".
Thatcher's instincts were in completely the right place. It makes her a rather unexpected ally of Piketty who argues that it is the concentration of ownership rather than disparities in income that perpetuates inequality over the long term not just economically but also politically, socially and culturally. The wealthy stay wealthy and the powerful stay powerful from generation to generation because they own so much more of value than the rest of society. This ownership not only provides them with a very healthy revenue but also means they have a firmer grip on what might be called the creative assets of a society: the property, technologies and ideas that influence what we produce and consume and how we live.
Policy Too Weak
The problem is that Thatcher's self-proclaimed "crusade" to spread the wealth proved an almost total failure.
The big shift in share ownership since Thatcher made her speech has not been a widening possession by British citizens but a shift towards ownership by overseas organisations such as pension funds and banks. Foreign institutions now hold just over 53% of shares (by value) in UK quoted companies compared to just 12% when Mrs. Thatcher made her speech. The proportion held by individuals has halved from just over 20% to 10.7% in 2012. Pension funds - which it could be argued are an indirect way for individuals to own shares - have seen their proportion of ownership of UK companies fall from 30% to under 5%. (All data from ONS reports here and here.)
Despite the undoubted boost provided by the Right to Buy policy, the UK now has a decidedly average level of home ownership compared to the rest of Europe. The UK's home ownership stood at 69% in 2009 with an EU average of 68.2% . In addition, we had the fourth largest social rented sector of the EU. More notably, home ownership has actually begun to fall over the last decade for the first time in a century.
Most tellingly, Thatcher's crusade had no effect on the distribution of wealth in the UK which has remained largely stable and very unequal for many decades with the wealthiest fifth of the UK population owning over 60% of the nation's wealth,the next wealthiest fifth owning only 20% and the rest owning another 20%. If anything there has been a small trend towards greater inequality of wealth since the 1980s.
The truth is the concentration of wealth and ownership is so hard-wired into the fabric of a society and economy that even seemingly quite radical measures like privatisation and right to buy will only have a marginal effect. This is also why the left's preferred solution of asset based welfare (such as the Child Trust Fund) and wealth taxes (Piketty's favoured option and seemingly Vince Cable's) will also have a very limited impact. It also means David Cameron's recent attempt to relaunch 'popular capitalism' with policies such as Help to Buy and the privatisation of Royal Mail will have little, if any, effect in the long run.
The flaw in Thatcher's crusade was that releasing the nationalised industries into private ownership as a way of overturning huge disparities of ownership and wealth was never likely to succeed given how small those assets were compared to the size of the assets already owned by the top 20%. Other measures such as wealth taxes and direct redistribution of assets face a paradox: use them too timidly and they have no discernible effect, use them too much (think punitive wealth taxes, farm seizures and nationalisation without compensation) and they end up destroying the very value of the assets which the state hopes to redistribute.
A New Policy Agenda for Wider Ownership
If we accept both Piketty and Thatcher's analysis that the concentration of ownership is a deep failing of the modern economy which needs to be resolved then we also need to accept that we need much better policy tools than are currently on offer to do this. I am not entirely sure what those might be but there are some obvious pointers.
- Housing ownership needs to be much more widely distributed across the UK. At the very least, the recent decline in home ownership must be halted. I am pretty convinced this is a problem of supply created by hidebound planning regulation but there may well be other solutions.
- The intellectual property regime needs to be rapidly reformed. The ownership of IP has been a growing source of wealth for years and seems likely to grow exponentially as the internet revolution continues to roll. Investment in intangible assets now easily outstrips investment in tangible assets. But as the Government's recent review found, IP law is heavily biased in favour of large corporations and against small businesses and start-ups. The rapid rise in the number of micro-businesses and the self-employed (charted extensively on this blog site) means addressing this legally sanctioned concentration of IP ownership is not only urgent but also an opportunity to distribute wealth more widely.
- The cost of investment advice needs to reduce. One reason why the wealthy do better is because they can afford the sort of expensive financial and legal advice that allows them to make lucrative investments. I imagine there is a lot of money out there belonging to those further down the income chain which simply sits in low-interest savings accounts but which could be put to much better use if it was subject to better management and potentially pooled with other savers. Fortunately technology may be on our side here. It seems likely that the rise of artificial intelligence in professions like accountancy and the law will reduce the price of such services and make them available to a much wider group. Maybe the Government should investigate how to speed up the creation of first AI run wealth management fund for millions of small savers.
- We also need to go beyond the economics. Ownership and wealth remain concentrated not solely because of the inherent dynamics of capitalism but also because of the extra political and cultural sway that exists for the very wealthy. This means that the best off individuals and organisations are able to shape (sometimes consciously, sometimes unconsciously) legal and regulatory structures in a way that benefits them and their families. The starting point here may be to revive serious debate about the nature of our democracy and how a much wider range of voices can be heard and have an influence than is currently the case. Again this is an area where new technology may help.
I am sure there are plenty of other ideas but at least Pikkety has reopened an area for scrutiny that has been closed for too long.
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