Crony capitalism is empowering the Left

The Economist reports on a new paper by Jonathan Chapman of NYU Abu Dhabi, which looks into the question:

“He compared the generosity and harshness of the conditions of poor-law relief in different areas with the gap between rich and poor, as measured by income from wages, and inequality within the rich, as measured by families’ number of live-in servants.”

The gap between the rich and the poor is of obvious relevance, but why also look at the gap between “within the rich” i.e. between the very rich and the merely middle-class?

Well, it turns out that the size of both kinds of income gap had an effect on local Poor Law policies – albeit in opposite directions:

“He found that areas of high wage inequality had less harsh rules for claiming poor relief—as conventional theory would suggest. More surprisingly, however, he also found that areas with a larger gap between the wealthiest and the simply well-off were much less generous and had much harsher rules for welfare handouts than those where the elites were more uniform.”

In other words, the further they are behind the rich, the less generous that the merely comfortable are inclined to be to the poor.

Might this factor still be in effect today? Obviously, a huge amount has changed since Victorian times – not least the size of the middle class, which like the welfare state is massively bigger than it used to be.

And yet it might explain a seemingly paradoxical feature of our contemporary politics. This is an era of widening inequality – of real anger towards the rich and powerful. And yet as The Economist notes, there’s been no groundswell in support for redistribution through the tax and benefit system.

It’s telling that the radical parties of the Left talk about more spending through borrowing or by resort to exotic measures such as Modern Monetary Theory. If higher taxation is mentioned at all, it is very clearly targeted at the super-wealthy and corporations. As for spending priorities, the emphasis is on free stuff for everyone – e.g. the abolition of student fees, socialised healthcare, universal basic income etc – as opposed to support targeted at the poor.

As I’ve argued before, you don’t get Scandinavian-style welfare states without Scandinavian levels of taxation on middle-class incomes – but that appears to be an unsaleable proposition in politics these days.

And no wonder. Writing for the BBC, Sean Coughlan looks at a new report from the OECD that shows how the middle class is falling further and further behind the rich:

“Across OECD countries, which include most of the big economies in Western Europe and North America, the 10% of highest earners have increased their income by a third more than middle earners. In the UK, more than a third of middle-income households ‘report having difficulty making ends meet’, says the OECD. In the United States over the past three decades, the top 1% of earners have increased their slice of total annual income from 11% to 20%.”

The fragility of middle-class household finances isn’t just about income:

“The report, Under Pressure: The Squeezed Middle Class, says that totems of middle class family life, such as access to housing and higher education, have become increasingly expensive.

“The rising cost of property, in particular, has outstripped the growth in income, with parents worrying about the housing prospects for their children.”

Given the ease with which rich avoid tax, the squeezed middle fear that they will be squeezed even harder to pay for a tax-funded redistribution of wealth to the poor.

And whether they pay for it or not, I suspect that people on middling incomes (i.e. the majority of the working population) resent redistribution to the poor when it pays for lifestyles not dissimilar to their own. This isn’t snobbery so much as the sense of unfairness that people feel when the things they have to work for are given to others for free.

I wonder if trends like the expansion of higher education, competition for affordable housing in expensive cities and the erosion of some mid-level occupations is having the effect of pushing the classes closer together – both physically and in terms of socio-economic status. One might have thought this would encourage solidarity, but it could be having the opposite effect – undermining popular support for focusing government assistance on the poorest people.

It is usually assumed that a weaker, less optimistic middle class is bad news for the established parties of the centre-Right. On the one hand, angry older supporters defect to the populist Right; and, on the other, the conveyor belt of prosperity that would otherwise turn young radicals into middle-aged conservatives grinds to a halt.

And yet the Left needs to watch out too. Right now, their ranks may be swelling with the disaffected children of the middle-class. Indeed, by holding out the prospect of change to Generation Rent, the likes of Jeremy Corbyn and Bernie Sanders might just find themselves in power. However, what this new Left would be expected to deliver in government wouldn’t just be a bigger welfare state, but a middle class welfare state. That won’t be cheap and they’ll be expected to pay for it without middle-class tax rises.

Yet with the wealth of the rich never more mobile (and alternatives like Modern Monetary Theory being, let us say, unproven) a Left-wing government would have to rely on borrowing and thus the confidence and goodwill of the money markets.

A corrupted capitalist system is close to putting the radical Left into power – and yet it is on that system that the Left in power would have to depend.

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Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.

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