Hooray for the super-rich?
For three or four years now I have been wondering whether the proliferation of the super-rich would explode as a political issue, or whether we are all Blairites now, in the sense that what matters to most of us is the elimination of absolute poverty rather than the widening gap between rich and poor.
So I am fascinated by whether Peter Hain’s distinctly unBlairite remarks in yesterday’s Sunday Telegraph reverberate for long. “There’s a real problem of people on average incomes feeling there’s a sort of super rich class right at the top,” said this cabinet minister and future contender for the deputy leadership of the Labour party. “That sort of thing creates a society where you start getting envy being promoted and a sense of real antagonism and that breeds all sorts of socially undesirable behaviour.”
Anyway, let’s deconstruct his assertions. First things first: there are remarkable numbers of people in the UK (and elsewhere) accumulating personal fortunes beyond what they or their children or their children’s children could ever exhaust. Well-heeled dynasties are being created in a way that we’ve not seen for a hundred years or so.
Reliable statistics are hard to come by, because so much of this wealth is transferred offshore for tax purposes. The Sunday Times estimated last year that there are 54 billionaires in the UK. And you needed at least £60m to be included in that newspaper’s list of the thousand richest in this country.
But I know quite a few others who ought to be in the rich roll call but aren’t, because they don’t like flaunting what they’ve got. And I could name several hundred others who have net worth of at least £10m.
To give some idea of what might be called the democratisation of riches, an annual survey by Merrill Lynch and Cap Gemini showed that in 2005 some 448,000 people in Britain had net financial assets of at least $1m. Extrapolating from global trends, there may also have been 4,500 in the UK with net financial assets in excess of $30m (roughly £15m) – although that feels to me like a bit of an understatement.
Why so many of these new plutocrats are being created is a big and complex subject, to which I will return in future commentary. But the important contributory factors include the elimination of barriers to movements of capital across borders (which makes it all-but impossible for any Government to impose penal tax rates), the business opportunities created by globalisation, the availability of cheap capital, and that we are living in an age of extraordinary innovation in financial markets (for better or worse).
I apologise if that list of causes seems opaque. But any one of those factors could generate a book-length thesis that I - at least - would find gripping.
But to return to where I started, is our brave new land of golden opportunity for the few the bad thing implied by Peter Hain? Any assessment would, I think, depend on the answers to these questions:
1) Has the creation of a new super-wealthy elite fomented the crime and social unrest that Hain thinks he can see?
2) Is the super-wealthy elite a meritocracy? Or are your chances of joining it close to zero if your beginnings are distinctly humble?
3) Is the wealth being accumulated by these individuals incremental wealth for the UK? Or is it a distribution of riches from the many to the few?
My answers, which I will elucidate at a later date are:
1) The jury is out.
2) Social mobility is not perhaps what many of us would wish it to be. The riches attaching to those who work in hedge funds, private equity or the City tend still to go to those from advantaged backgrounds. However, proper entrepreneurs who create amazing new businesses are often those who surmount tremendous social and economic disadvantages.
3) There isn't a finite stock of wealth. So one man's billion isn't necessarily a billion lost to the rest of us - although in some circumstances it could be. Some (not all) of the super-wealthy create employment and income for lots of people, which should be good for all of us. However, the spoils attaching to one section of the new elite, private equity, do to a significant extent represent a socially regressive distribution of valuable assets from the millions of us with our savings in UK pension funds to the already wealthy and the largely overseas backers of private equity.
Will Peter Hain's concerns have an impact on Government policy? For that to happen, I think he would need to be able to distinguish between the billionaires whose gains are society's losses from those who create significant incremental wealth for the rest of us. And then he would have to design a tax system that penalised the supposedly "bad" billionaires while not discouraging the good ones or driving them offshore. Not easy.