At the beginning of this series, I suggested a definition of wealth as ‘the ability to purchase in the market place those goods and services which are essential to wellbeing, along with others which, though not essential, nonetheless enhance quality of life.’ Having discussed the various means by which an elite minority secure for themselves vast amounts of unearned wealth, we should still ask the question: does it really matter?
The conventional view is that the creation of wealth, as measured by GDP, is all that counts, and over the last few decades we’ve become pretty good at it. The process of wealth creation employs many people, and, even if much of that wealth ends up in the hands of a small minority, it still gets spent back into the economy, adding to demand and keeping people in jobs.
But this argument fails on several levels. It is far from clear that current economic arrangements lead to a maximisation of wealth creation. As Ha-Joon Chang has pointed out, economic growth in the UKin the 1960s and 1970s was 2.4 per cent, despite enterprise being subject to heavy regulation and punitive rates of tax. In the two decades from 1990, after substantial deregulation and lower taxation, both of which should be positive for wealth creation, growth fell to 1.7 per cent.
Overall, the changes to which the economy has been subject over the last thirty years have had a negative impact on our collective ability to create wealth. They have also led to greater injustice in the distribution of wealth; the gap between rich and poor has grown considerably. With the rate of growth in wealth creation slowing, and the top few per cent taking a bigger slice of the cake, most people have become worse off.
If everybody who wanted to work had a job that provided access to adequate levels of wealth and wellbeing, then perhaps we could turn a blind eye to unearned wealth. But they don’t because access to most of the land and capital is controlled by a small economic elite; and because too great a share of that sequestered land and capital is tied up in non-economic processes which deliver further unearned wealth to the already wealthy, instead of being invested in the kind of wealth creating activities from which everyone benefits.
There is only one way to create genuine wealth: to combine the factors of production, land, labour and capital, to create something that didn’t previously exist and has exchange value in the market place. If that process doesn’t allow the participation of the entire population, then society will continue to be divided into rich and poor. And unless we take a harshly Spencerian view and decide to leave the poor to their fate, those who do have work will have to provide for rest out of their own earnings.
It doesn’t have to be like this. There is no reason why the economy can’t be configured to give everybody access to viable economic opportunities. The only thing stopping it is the desire by a small minority to set themselves apart by amassing huge fortunes via the mechanisms of unearned wealth.
What if the racism and inequality that America faces today are not accidental but actually happened by design?
Today, Australians are world champions in private debt, the country presides over a massive housing affordability crisis, and inequality rages. What went wrong down under?