There’s more to extreme wealth than first appears. Mark Thomas points it out.
We are all used to inequality. There is inequality of height, weight, shoe size and just about every other human characteristic. And we are all used to thinking of people as being “of average height” or as “tall’ or “short”.
We expect most people to be at or close to average height and we understand that there are fewer noticeably short or tall people. That is the kind of inequality we can get our minds around.
But wealth is different. The distribution of wealth is so strange that it is hard to comprehend. And it is so extreme that it distorts the functioning of our democracy.
In the graph Household wealth in the UK we see data on wealth inequality in the UK, presented as a frequency distribution – not including the wealthiest 10%, who are off the scale.
Household wealth in the UK: no room to fit the nation’s richest people on this graph.
In wealth distribution, the three kinds of average are dramatically different:
- the mode is between zero and £50,000;
- the median is around £300,000; and
- the mean is around £560,000.
Here, unlike with heights, each average tells a completely different story.
The mode tells us that it is far more common to have household wealth in the band £0-£50,000 than any other band of the same spread. The median tells us that a household in the middle of the distribution has total wealth of about £300,000 – six times more than the mode. And the mean tells us that there is so much wealth in the top part of the distribution that if it were equally divided between every household, each one would have almost double what the median household has. So this can be quite baffling.
To help us get our minds around this kind of inequality, two metaphorical tales are very helpful.
Once we have absorbed the extent of financial inequality we live with, it’s natural to ask: how much is financial inequality simply a reflection of hard work and intelligence?
Well, let’s look at a few normally-distributed things that affect our abilities and work rate in the UK:
- the average IQ is 100, and no one has an IQ of 300;
- the average working week is 40 hours, and no one works 160 hours; and
- the average number of years worked is 40 and no one works for 100 years.
So on the basis of a reward for effort and intelligence, we might expect the wealthiest to be about 30 times richer than the average. In the UK, the ratio is around 80,000. And were Jim Radcliffe’s wealth simply proportionate to his intelligence and hard work, it would not be more than £9m.
(In fact, if everyone’s wealth were a proportionate reflection of intelligence and hard work, wealth would be far more evenly distributed than it is today, and the median wealth would be nearly twice as high. So the wealthiest would be able to accrue up to about £18m).
If the UK seems extreme, the US is even worse (see graph Wealth distribution US vs UK).
The poorer half of the US population own only around 3% of the total wealth, whereas the richest 1% own over 30%.
Looking globally, the pattern is generally that Europe has lower wealth inequality than US and UK – but many other countries are even more extreme.
Does this really matter? A few individuals are extremely wealthy, certainly – but what does that have to do with the rest of us?
While it might seem reasonable, from a policy perspective, to ignore the super-rich as unrepresentative outliers, excessive wealth concentration undermines democracy.
Making very large amounts of money is about playing a game: the game of capitalism. Like any game it demands skill and effort to play it well. But unlike most other games, ability to play the game of capitalism is also heavily determined by the social circles you move in and by the amount of money you have available as you start the game. It is also strongly influenced by whether or not you are in a position to rewrite the rules of the game in your own favour.
Making money from business investments requires:
- that you are aware of an investment opportunity and have access to the individuals who control it;
- that you have capital to invest; and
- that you either have the skill to manage the investment yourself or can buy these skills in.
Starting with a large amount of capital is a big advantage in playing this game. It helps you with all three requirements. The game is rigged against those without this advantage.
Even more worryingly, there are four key levers of power that are easier to pull if you are extremely rich:
- access to elite education;
- access to social circles of the rich and powerful;
- access to policymakers and politicians; and
- ownership of major media outlets.
Mixing in the social circles of the rich and powerful gives access to politicians and policymakers and enables one – especially if the player is also a major political donor – to have a direct influence on policy drafting as well as on the way that legislators will vote on draft bills that are presented to the house.
With extreme wealth comes the option to own major media outlets, which strengthens access to politicians and policymakers and also gives the owner control of the dominant narrative in society and therefore the ability to influence the votes of millions. The media empire of Rupert Murdoch, has never been shy of trying to influence political outcomes. On Saturday 11 April 1992, The Sun famously claimed to have determined the result of the then recent general election in the UK.
More recently, the acquisition of Twitter by Elon Musk, has given him the power to set its editorial (moderation) policy to reflect his own beliefs – which are market fundamentalist in nature.
All this enables the wealthiest individuals to shape policy in the interests of their own businesses, for example by encouraging the government to sell public assets at below intrinsic value, by creating tax breaks and perpetuating loopholes and by reducing regulation. It allows them to undermine democracy. And they do.
The 99% Organisation is calling for five key actions to preserve our democracy and prevent the impoverishment of the UK population. In brief, these are:
- A democratic reset to protect the integrity of our democracy and ensure that government policy is set for the benefit of the whole population, not just for its donors;
- Fact-based policy – the dominant policy of the last 12 years has been austerity, based on the myth that the ratio of UK debt to GDP is at historically high levels;
- Policy for solidarity and abundance – recent policy has neither grown the pie nor shared it fairly;
- Wise investment in the future – recent policy has unwisely underinvested in key areas like health and infrastructure;
- Cleaning-up capitalism – ensuring that the playing field is levelled so that unethical businesses cannot out-compete ethical ones by externalising their costs to society (for example by paying less than a living wage, so that their wage bill is subsidised by the taxpayer).
If this matters to you, please do sign up and join the 99% Organisation.