[R-G] [BillTottenWeblog] The myth of the super-rich

[Bill Totten]

by Peter Wilby

New Statesman  (September 11 2008)

Most of our tycoons are not wealth creators, but wealth drainers


Most Britons, and particularly readers of this column, will be familiar
with the extent to which the super-rich are soaring away from the rest
of us. Over the past five years alone, the average earnings of chief
executives of FTSE-100 companies have doubled to GBP 3.2 million. Their
pay has been rising five times faster than their employees'. The top one
per cent of the population now enjoy 23 per cent of national wealth,
while the poorest half share a mere six per cent. For most of the 20th
century, Britain became steadily more equal. For the past three decades
the movement has been in the opposite direction and it is estimated that
Britain's wealthiest person, Lakshmi Mittal, is worth more than twice as
much as anybody in the past 150 years.

The reasons for the international trend of growing inequality are still
disputed. Most economists, however, agree that globalisation and
technology both play a role, because they make business more competitive
and, therefore, put a high premium on scarce skills, including those of
entrepreneurship and leadership. Government policies - tax cuts,
deregulation and anti-union legislation - have certainly added to
inequality. But, the argument runs, these are made necessary by the
increased competition. If we hit the super-rich with what are
pejoratively called "punitive" taxes, it is said, they will take their
money and wealth-creating prowess elsewhere. Then we all lose.

This account is challenged by Stewart Lansley, author of Rich Britain
(2006), in a pamphlet put out by the TUC for its annual conference (Do
the Super-Rich Matter?). Lansley argues that the largest group among
today's super-rich are not wealth creators at all. They make their
fortunes from land, property and finance and, in essence, are parasites
living off an economy that is being slowly destroyed.

The share of domestic bank lending that goes to the manufacturing
industry fell from 5.2 per cent in 1999 to 2.3 per cent in 2007. Britain
is strong in only two sectors of advanced technology: aerospace and
pharmaceuticals, which are both supported by government money.

Spending on research and development is declining. Output per worker is
still well below the US, France and Germany. Internationally, Britain
compares poorly on patent generation.

To some degree - which Lansley doesn't fully acknowledge - none of this
matters. You could argue Britain is strong in the growth areas of the
future, which are mostly services such as education, media and top-class
football matches. But Lansley is right to point out that an
extraordinary proportion of current investment and top-end earnings go
to financial institutions and their employees. In effect, Britain has
turned into an enormous hedge fund on which ministers have bet the
house. Many of the super-rich specialise in shifting money around,
allegedly so it can be used most productively. This too may be described
as a service: wealth management for the world. Now the credit crunch has
revealed that financiers, to put it mildly, did a less than brilliant
job and that large sums ended up in their own pockets. Indeed, the high
earnings in the finance industry came mostly from the speculative
activity that got us into the present mess. One must wonder how long the
world will continue paying for this kind of service.

But even if we keep their taxes low, the super-rich will eventually find
reasons to leave, because Britain will lack the educated workforce, the
transport, the policing, and perhaps even the stable democratic
structures that make it a good place to live and do business. The mass
of taxpayers will not indefinitely finance state spending while the
country's 49 billionaires pay, according to one estimate, just 0.1 per
cent of their income in tax.

Lansley proposes several measures to "cap unjustifiable fortune-building
at the expense of others". Some, such as requiring banks to hold higher
levels of capital in proportion to what they lend, might well have
restrained a national spending spree built on credit, with the dire
consequences that are now familiar. But the best proposal is that the
super-rich should simply pay tax at roughly the same rate as most other
people. Lansley suggests that, however many tax reliefs and avoidance
schemes are available, they should all pay a minimum of 32 to forty per
cent of their earnings to the Treasury. That would still leave them very
rich, but also force them to make a fair contribution to services that
they now seem to imagine are provided by the tooth fairy. It is a sad
comment on new Labour that it will not contemplate a solution that is so
obviously just.

_____

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996
and of the New Statesman from 1998 to 2005. He writes a weekly column
for the New Statesman.

http://www.newstatesman.com/society/2008/09/super-rich-wealth-britain


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