‘Starmer’s right on wealth creation, but Thatcher fuelled elite wealth extraction’

Last week, Keir Starmer praised Margaret Thatcher for seeking to boost entrepreneurialism. This week, he added that wealth creation is Labour’s number one priority.

Both are potentially desirable goals, but that ‘potential’ depends heavily on the small print.

Thatcher unleashed inequality, not productive investment and activity

Mrs Thatcher was persuaded by a small group of New Right evangelists that lower taxes and higher rewards at the top along with freer markets would unleash a new capitalist spirit that would make all us richer more quickly. Two of those thinkers – the monetarist Milton Friedman and the leading post-war prophet of small government, Friedrich Hayek,  were amongst those to quickly congratulate Thatcher on her 1979 victory.

The main effect of this pro-market and anti-egalitarian experiment has been to convert Britain from one of the most equal to the second most unequal of rich nations. The great surge in personal wealth at the top is not the result of a boost to R&D and private investment, and record levels of productive activity.

Modern-day enrichment is the product of growing monopolisation, the monetisation of social need and the selling off of socially-owned assets. It has been driven by the accretion of economic power and elite control over scarce resources. This is all a far cry from the culture of entrepreneurialism advocated by Mrs Thatcher.

Far from building a stronger economy and more resilient society, many large companies have been turned into cash cows for executives and shareholders through anti-competitive devices and the manipulation of corporate balance sheets. The rising profit share of recent times has disproportionately gone in payments to shareholders and executives, leaving little for private investment and improving wages.

Market capitalism’s record is worse than social democracy

“What do you most admire about Margaret Thatcher?” asks #BBCLauraK

Shadow Business Secretary Jonathan Reynolds says “[She was] an opponent you had to respect” after Labour leader Keir Starmer praised the former PMhttps://t.co/p0NDzo178S pic.twitter.com/aZModd3ev6

— BBC Politics (@BBCPolitics) December 3, 2023

On nearly all counts, the economic record of market capitalism has been greatly  inferior to that of post-war social democracy. Growth and productivity rates have been slower, unemployment levels higher, while financial crises have become more frequent and more damaging in their consequences.

The economy has been the subject of an accelerating process of upward transfer of wealth through a system of corporate extraction, via a range of business methods which have contributed to Britain’s low-growth, low-productivity, low-wage economy.

Nineteenth century economists drew an important distinction between new wealth creation that contributes to the common good, and extraction that serves the interests of a powerful few.  Economic efforts, declared the influential Italian economist Vilfredo Pareto in 1896, ‘are directed to the production or transformation of economic goods, or else to the appropriation of goods produced by others.’

Such ‘appropriation’ or ‘extraction` was widespread in the Victorian era, less prevalent in the post-war era, and is again common practice.  Extraction ‘crowds out` more productive activity that offers greater social value.

Even an ex-editor of the financial magazine MoneyWeek, hardly an enemy of markets, has argued too much personal wealth has accrued from “mismanaged monetary policy; politically unacceptable rent-seeking; corruption; asset bubbles; a failure of anti-trust laws; or some miserable mixture of the lot”.

We’re building luxury homes while public services are axed

One of the most damaging effects of the process of wealth accumulation and the philosophy  of ‘private good, public bad’ has been the diversion of resources from meeting essential needs to feeding the lifestyles and pet hobbies of the super-rich.

While Britain has cut investment in children’s services, in young adult training and in social care, vast sums are spent on private airports, fortress developments and luxury yachts. Scarce land and building resources have been used to construct walls of multi-million pound luxury flats and mansions, mostly bought for speculative purposes, and left empty for much of the year, by the mobile super-rich.

Britain is an over-privatised, increasingly narrowly owned economy, with the returns from once collectively owned assets accruing to a small minority rather than to society as a whole.  The same process has greatly weakened the public finances, lowering the state’s capacity to handle issues like inequality, climate change and social reconstruction.

We need to redirect resources towards what’s socially useful

In 1945, Attlee’s Labour government set about restraining demand for non-essentials and steering resources to priority needs. A progressive strategy for 2024 should also start with the redirection of resources to social reconstruction, and ending the way the race to runaway fortunes have depressed socially useful production.

Such a strategy would require greater democratic control over resources. This means new progressive policies on tax, especially on wealth, a more equal balance between private and common ownership and a more egalitarian distribution of property rights.