I think as at no other
time in my lifetime,
people are very troubled by inequality.
Let me give you some quotes.
In 2016, Theresa May, in her
first speech as Prime Minister,
said, quote, "We believe in a union
"not just between the
nations of the United Kingdom
"but between all of our
citizens, every one of us,
"whoever we are and wherever we're from.
"That means fighting against
the burning injustice that,
"if you're born poor,
you will die on average
"nine years earlier than others."
Jeremy Corbyn has called
for a new economics
to address what he called
Britain's grotesque inequality.
On the other side of the Atlantic,
President Obama said that he believed
that the defining challenge of our time
is to make sure that the US economy
works for every American.
Across the rich world,
and not only in America,
large groups of people
are currently questioning
whether their economies
are working for them.
The same can be said of politics.
Two thirds of Americans
without a college degree
believe there is no point in voting,
because elections are rigged
in favour of big business and the rich.
Britain is divided as never
before and, once again,
many believe that their
voice doesn't count
either in Brussels or
indeed in Westminster.
And one of the greatest
miracles of the 20th century,
the miracle of falling
mortality and rising lifespans,
is no longer delivering for everyone,
and is now faltering or reversing.
Yet when people say that they're
worried about inequality,
it's frequently unclear what
they mean or why they care.
Economists think they know what they mean
when they talk about inequality,
and they produce charts
of Gini coefficients
of income and of wealth,
and when other social scientists
say that they have wider concerns,
economists, among whom
I have counted myself,
have often been too ready to tell them
that they don't know what
they're talking about.
What we would like to do in this review,
even with its large quota of economists,
is to get a better understanding
of exactly what it is
that bothers people about inequality.
We will also think about
how we might address
concerns about inequality
and indeed, which concerns
need to be addressed.
If the concern with
inequality is simply envy,
as is often claimed by the right,
it is perhaps better
to address the concern
than to address the inequality.
If the inequality comes from incentives
that work for a few but benefit many,
then we may wanna do a better job
of documenting the need for incentives
and what they do for
the economy as a whole.
If working people are losing out
because corporate governance
is set up to favour
shareholders over workers,
or because the decline in unions
has favoured capital over labour
and is undermining the wages of workers
at the expense of shareholders
and corporate executives,
then we need to change the rules.
Why are the myriad differences
between men and women
so persistent and so difficult to erase?
Given that we're just starting,
it is perhaps presumptuous of me
to say anything substantive at this point.
But what I'm gonna say
is what I myself think,
or at least what I think today,
and I look forward to
changing my mind as we go,
I wouldn't be chairing this review
if I didn't expect that to
happen in a very serious way.
I'm also perhaps too much
influenced by my own work,
particularly my recent work
with my colleague, Anne Case,
and this work is primarily
about the United States,
though we have been doing
quite a bit of thinking
over the last six months about
how it applies to Britain.
At the risk of grandiosity,
I think that today's inequalities
are signs that democratic
capitalism is under threat,
not only in the US, where
the storm clouds are darkest,
but in much of the rich world,
where one or more of politics, economics,
and health are changing in worrisome ways.
I don't believe that democratic
capitalism is beyond repair
nor that it should be replaced.
I'm a great believer in
what capitalism has done,
not only to the oft cited billions
who have been pulled out of poverty
in the last half century around the world,
but to all the rest of us
who have also escaped poverty
and deprivation over the
last two and a half centuries.
It also provides our jobs
and the cornucopia of goods and services
that we take for granted.
And Milton Friedman, whose
starry-eyed view of capitalism
has much to answer for,
was not entirely wrong
when he extolled the freedom
that free markets can bring.
Though history has not
been kind to his view
that equality would be guaranteed
by using the market to pursue freedom.
But we need to think
about repairs for democratic capitalism,
either by fixing what is broken,
or by making changes to
head off the threats.
Indeed, I believe that those of us
who believe in social
democratic capitalism
should be leading the
charge to make repairs.
As it is, capitalism is not delivering
to large fractions of the population.
In the US, where the
inequalities are starkest,
real wages for men without
a four-year college degree
have fallen for half a century,
even at a time when per
capita GDP has robustly risen.
Mortality rates are rising
for the less-educated group
at ages 25 through 64,
and by enough that life expectancy
for the entire American population
has fallen for three years in a row,
the first time such a
reversal has happened
since the end of the First World War
and the great influenza epidemic.
And just let me say that again.
Three years in a row, life
expectancy has fallen,
and that has not happened
for a hundred years.
And we're not talking
about a narrow group.
We're talking about
life expectancy at birth
for the whole American population,
rich and poor, taken together.
Less educated Americans are
dying by their own hands,
from suicide, from
alcoholic liver disease,
and from drug overdoses.
Morbidity is rising too,
and they are also suffering
from an epidemic of chronic pain
that for many, makes a
misery of daily life.
In Britain, these
inequalities are not so stark,
at least not yet.
But median real wages in Britain
have not risen for more than a decade.
One decade is much
better than five decades,
but we surely do not
want to wait to find out
whether the American experience
will be replicated here.
There have also been prolonged period
of real wage stagnation in recent years
in Italy and in Germany.
In those countries too,
increasing overall prosperity
is not reaching everyone.
And as I noted above,
democracy too does not seem
to be working for everyone.
The sense of being left behind,
of not being represented at Westminster,
is much the same as the sense
of not being represented in Washington.
In Clement Attlee's 1945 cabinet,
the cabinet that implemented
the Beveridge Report
and built the first modern welfare state,
there were seven men who had
begun their working lives
at the coal face.
When labour MPs from
Glasgow set off to London,
local bands and choirs
came to the train station
to see them off as if
they were going to war,
which indeed they were.
Only 3% of MPs elected in 2015
were ever manual labourers,
compared with 16% as recently as 1979.
The union movement, which
once produced talents
like those in Attlee's cabinet,
has been gutted by the success
of postwar meritocracy.
Attlee's warriors would
today have gone to university
and become professionals.
They would never have been down the pit,
nor in a union hall.
Meritocracy has many virtues,
but as predicted by Michael Young in 1958,
it has deprived those who
didn't pass the exams,
not only of social status
and of the higher incomes
that degrees bring,
but even of the kind of
political representation
that comes from having people
like themselves in parliament.
Young wrote, quote,
"The bargaining over the distribution
"of national expenditure
is a battle of wits,
"and defeat is bound to go
"to those who lost their
clever children to the enemy."
He referred to the less
educated group as the populists
who in turn, refer to the
elite as the hypocrisy.
A very splendid term.
What does history tell us?
Not surprisingly, we've been here before.
There have been several episodes
where capitalism seemed
broken, but was repaired,
either on its own, or
by deliberate policy,
or by some combination of the two.
In Britain at the beginning
of the 19th century,
inequality was vast compared with today.
The hereditary landowners
not only were rich,
but also controlled parliament
through a severely limited franchise.
After 1815, the notorious Corn Laws
prohibited imports of wheat
until the local price was so high
that people were at risk of starving.
High prices of wheat, even
if they hurt ordinary people,
were very much in the interests
of the land-owning aristocracy,
who lived off the rents
supported by the restriction on imports.
The Industrial Revolution had begun,
there was a ferment of
innovation and invention,
and national income was rising.
Yet working people were not benefiting.
Mortality rates rose as people moved
from the relatively healthy countryside
to stinking, unsanitary cities.
Each generation of military recruits
was shorter than the last
as their childhood nutrition worsened,
from not getting enough to eat
and from the nutritional insults
of unsanitary conditions.
Churchgoing fell, removing
a major source of community
and support for working people,
if only because churches
were in the countryside,
not in the new industrial cities.
Wages were stagnant
and would remain so for
half a century, like today.
Profits were rising,
and the share of profits
in national income
rose at the expense of labour.
It would have been hard to
predict a positive outcome
of this process.
Yet by century's end,
the Corn Laws were gone,
the rents and fortunes of the aristocrats
had fallen along with
the world price of wheat.
Reform Acts had extended the franchise
from one in 10 males at the
beginning of the century
to more than a half by its end,
although the enfranchisement of women
would have to wait until 1918.
Wages had begun to rise in 1850,
and the more than century-long decline
in mortality had begun.
All of this happened without
a collapse of the state,
without a war, or a pandemic,
though gradual change in institutions
that slowly gave way to the demands
of those who had been left behind.
Good story, sort of.
America's first Gilded
Age is another case.
It also shows that the
fundamental rules of the game
can be changed.
In the Progressive Era,
four constitutional
amendments were passed,
all designed to limit inequality
in one form or another.
One instituted the income
tax, one gave women the vote,
one prohibited alcohol,
strongly supported by women
who believed that alcohol abuse
was an instrument of their oppression,
and one an electoral reform
that instituted the direct
election of senators,
as opposed to their previous appointment
by state legislatures that were
often dominated by business.
I've already mentioned the
case that is most on my mind,
the construction of the
modern welfare state
by Attlee's government
after the Second World War.
The Great Depression,
like the stagnation of
wages in the early 1800s,
spawned a large literature
on how to modify or abolish capitalism,
and according to one version of the story,
it was Attlee's government
that tamed the beast
and that made it possible
for the tamed beast
to deliver the unprecedented shared growth
that many of us grew up upon.
Joe Stiglitz has recently written
that he grew up in the
golden age of capitalism,
very odd statement,
though, as he wryly notes,
it was only later that he discovered
that it was the golden age.
And, of course, it wasn't
really a golden age,
at least in terms of
material living standards
or in terms of health,
but perhaps it was in terms
of the rules of the game
that allowed the growing
post-war prosperity
to be widely shared.
I don't think that anyone
would argue that the late 1940s
was a golden age in Britain.
There was bread rationing,
petrol rationing,
and to a young Angus Deaton,
the terrible deprivation
of sweet rationing.
But the safety net that
was built in those years
played a role in fairly sharing,
and perhaps even in helping generate,
the prosperity that was to come.
That safety net is needed
just as much today.
Globalisation and automation
are challenging us today
just as they did in
the early 19th century.
Safety nets are most needed
when change is rapid,
and it is one of the reasons
why America is doing so much worse,
most obviously in deaths of despair
than are wealthy European countries.
But what is happening today
is also a real threat to
Britain and to Europe.
The argument that Anne Case and
I are making in our new book
is that less-educated white
men and women in America
have had their lives
progressively undermined,
starting in the 1970s
and showing up since 1990
in rising numbers of deaths from suicide,
alcoholic liver disease, and
accidental drug overdoses.
African-Americans experienced
this similar disaster 30 years earlier
and the improvements in
their lives since then
have protected them to an extent.
In the face of globalisation
and innovation,
many of us would argue
that American policy,
instead of cushioning working people
has instead contributed to
making their lives worse
by allowing more rent-seeking,
reducing the share of labour,
undermining pay and working conditions,
and changing the legal framework
in ways that favour business over workers.
Inequality has risen not only due
to wealth generation from
innovation or creation,
but also through upward
transfers from workers.
It is not inequality itself
that's hurting people,
but the mechanisms of enrichment.
It's how inequality happens,
not the inequality itself.
So how much of this is
a threat to Britain?
Some of the mechanisms of
enrichment are not operative here.
The US wastes about a
trillion dollars a year
on a healthcare system
that is very good at enriching
providers, hospitals,
device manufacturers, and
pharmaceutical companies,
but very bad at delivering health.
You do not have that problem.
The US has licenced pharma companies
to sell opioids to the general public,
including for chronic pain,
which ignited an epidemic
of addiction and death
with a cumulative toll
that is now larger than all Americans lost
in both World Wars.
You too use opioids, but
usually in hospitals,
not in the general population.
Yet the opioid manufacturers
are following the model
of tobacco manufacturers
and working hard when blocked in the US
to expand elsewhere.
Purdue pharmaceutical has
the subsidiary, Mundipharma
that agitates on behalf
of the greater pain relief
that they argue opioids can bring.
As I write this, Matt Hancock,
the Minister of Health,
noted that, "Things are not
as bad here as in America,
"but we must act now to protect people
"from the darker side of painkillers."
So people here know that it's a problem.
The BBC News report on
this carries a chart
showing the extraordinary
geographical inequality
in opioid prescriptions in England,
with prescription rates
five times larger in Cumbria
and the Northeast than in London.
As the briefing note
for this launch shows,
deaths of despair are rising in Britain,
particularly in less
successful parts of Britain,
just as they are in other
English-speaking countries,
although the numbers and death rates
are small compared with the US.
What about wages?
The US has extensive business lobbying
which you do not have or
certainly not in the same way.
The US also had very little
lobbying prior to 1970
which is something that's
not widely understood,
so it could happen here too.
It's not something that's endemic
to the way the US
Constitution was written.
As in the US, unions have become
much less powerful in Britain,
a decline that many have welcomed,
but their countervailing
power in boardroom decisions
may have protected wages
and working conditions.
Unions provided social
life and political power
for many people who
have less of both today.
The replacement of stakeholder capitalism
by shareholder value maximisation
is widespread in the US
and has been remarked on here, too.
Paul Collier in his recent book
has noted that Imperial
Chemical Industries, ICI,
once the crown jewel of British industry
used to boast, quotes,
"We aim to be the finest
"chemical company in the world."
But that, before it was lost
to takeovers and mergers in 2006,
it had changed it slogan
to we aim to maximise
shareholder valuation.
They weren't pretty good at that either.
(audience laughing)
In Britain, as in America,
some cities and towns
are doing much better than
other cities and towns
and the easy mobility that tended
to keep these differences in check
seems to have been much reduced.
America has no city that is dominant
or as uniquely prosperous as London.
Political disfunction
in Britain is different
but there is a common thread
that many voters believe that
they are not well-represented.
And there are sharp
differences across groups,
with age, education, ethnicity, gender,
and geography important in both countries.
For me, I think that people
getting rich is a good thing,
especially when it brings
prosperity to others.
But the other kind of getting rich,
what you might call
taking rather than making,
rent-seeking rather than creating,
enriching the few at
the expense of the many,
taking the free out of free markets,
is making a mockery of democracy.
In that world, inequality and misery
are intimate companions.
Thank you very much.
