The inequality seen today is politically potent and economically inefficient. It is time for change. Here are a few ideas to turn the tide.
Up and down the country, an unhealthy concentration of wealth, and thereby, opportunity and power, is rightfully driving discontent. If we are serious about bringing Britain back together, tackling the inequality of rewards has to be a top priority. And if we are to turn this tide, we need the solutions to engage in the structural forces at the root of this problem. This takes us to a bigger conversation of systemic change.
In the first half of the article, I explored how there has been a dramatic shift in power from workers to capital owners. This has resulted in a vicious cycle of stagnant incomes and falling living standards. Therefore, in principle, driving up average wages is something everyone can get behind. However, how we do so in practice is a different story.
One way to boost wages is to increase the collective bargaining coverage of the workforce. To me this is a policy that deserves serious consideration. Trade unions, although historically demonstrated a left-right split, today should be seen as a viable option to improve workers’ conditions and increase their pay. With one in nine workers in ‘insecure’ work, bringing greater security to these jobs is imperative. Those on the right, need to recognise the power between workers and capital owners has gone too far in one direction. Sure, it is a balance, but a balance that is not currently not being struck. The effect of which is seen in lagging productivity and falling average wages. We must acknowledge some of the most competitive economies in the world have over double the collective bargaining coverage of the UK, Germany being a clear example.
Another, perhaps more dynamic, way to rebalance power would be to bring employees onto the boards of businesses. This can contribute to more successful governance and greater representation of workers’ interest. I like this idea, it embodies an exciting new dynamic, whereby the relationship between capital and labour is symbiotic. That way, a broader and more diverse set of ideas can shape the future of business.
Driving up ‘everyday incomes’ will reduce income inequality and bring up most people’s ability to save-to-invest. This will give rise to opportunities for more wealth creation, not less.
But to further open up the rewards of capital across the economy, we must spread ownership more widely by giving employees stakes in their companies. If the stakes in big business are more widely shared, the rewards will be too. Employee ownership is shown to create more committed and productive workers as well as a more fulfilling workplace. New and innovative ownership models is a space to watch; my prediction is 15 years from now ownership will look very different. John Lewis Partnership has led the way on democratic ownership for nearly a century, what are the rest waiting for?
On a different note, we must never forego public investment in education. It is fundamental to addressing inequality and the first 16 years of a person’s life are of unparalleled importance. If the UK can pioneer a truly world-class school education – for everyone – we will find ourselves equipped for the disruptive decade that lies round the corner. This calls for a more competent government, seemingly an unlikely prospect in Britain. The governments should have the confidence in their own ability to profitably invest in the future. Long-term weaknesses require long-term solutions. If you take the horizon beyond five years, the results are worth the buck.
Lastly, tax reform must play a role too. I have hesitated to focus on this, as it is treating the symptom rather than getting to the structural cause. Furthermore, wealth creation (in the true sense of the word) is a notable contribution to society and we must continue to encourage it. However currently, the income generated from assets is often undertaxed relative to the income from work – this is regressive – it favours the rich. Hence, we must tax the income generated from peoples’ assets the same as the income from work.
The above ideas have drawn from the IPPR’s Commission on Economic Justice. They are by no means far-fetched — they have all been successful in other parts of the world. They are all geared around things we should be striving for, such as, higher wages, accessible wealth and equal opportunity. And while you may disagree with the ideas to get there, my hope is you share that these are ambitions a capitalism fit for the 21st century should embody. If so, may a battle of the ideas to get there begin.
Sam is the President of Economics for Change.