“Social and economic inequalities are to be arranged so that:
- offices and positions must be open to everyone under conditions of fair equality of opportunity;
- they ought to be of the greatest benefit to the least-advantaged members of society.”
The Difference Principle: John Rawls (1921-2002), Economist
My reading material for the UK August Bank Holiday weekend has been ‘Capitalism — a Graphic Guide’ by Don Cryan, Sharron Shatil and Piero, a book published in 2019. It's an entertaining romp through capitalist economics from the demise of feudalism to Thomas Picketty’s book ‘Capital in the 21st Century’.
The extraordinary thing about this history of economic development is that there is no mention of inter-generational rebalancing at any point; the only reference to ‘inherited wealth’ is on its penultimate page, and then only in the context of the wealthy getting wealthier.
At various times over the past four hundred years, great economists have wrung their hands to deplore the polarisation of wealth; but none of them have contemplated using the human life cycle as the tool for rebalancing. Instead, state intervention is the only means offered for reducing inequality, but it has been proven over and over again that this doesn't work.
The essence of the human life cycle is:
- that humans born into this world have the same mix of potential for individual achievement regardless of class, gender, race or nationality. It's not nature which handicaps us (except medically), it’s nurture; and
- that we enter this world with nothing, and we leave everything material behind us when we die.
This presents economists with a huge opportunity, but they seem to be totally oblivious of it. Instead, they look at humanity as a continuous mass of activity driven by factors such as supply, demand, labour, capital, inflation and interest rates. Meanwhile their view of how the present should be designed to influence the future is so heavily conditioned by discounting that their strategic perspective is not much different from the average politician.
Untroubled by the guidance of economists to do otherwise, governments therefore continue to seize what they can from the estates of rich people as they die, only to squander it in the melting-pot of trying to cope with their bloated public sectors and sky-high national debts. There are of course many individuals who leave generous donations to charity, but mostly they make provision for their own descendants: hence the Piketty reference to inherited wealth.
I'm not an economist by training, but the fact that the discipline has passed through centuries of great thinkers without addressing the opportunity for inter-generational rebalancing is simply disgraceful. It's akin to the discipline of physics not acknowledging the role of gravity, or of mathematics not realising the significance of the binary system.
I respect John Locke’s (1632-1704) assertion that people ‘in the state of nature’ have the right to private property, which is of fundamental importance to the moral justification of capitalism, and John Rawls’ Difference Principle as quoted above which points towards a more egalitarian society — but why has no-one in the long chain of economists looked to draw these objectives together?
We have argued frequently for using inheritance levies to fuel inter-generational rebalancing, and on several occasions I have written to HM Treasury asking them to hypothecate these receipts in order to provide disadvantaged young people with starter capital accounts and incentivized learning for life skills — but all to no avail.
It’s high time we resolved this black hole of economics.
On 1st September, the oldest recipients of Child Trust Funds reach 21 years of age. Its funding may not have been drawn from inheritance tax receipts, but it is the first time that a comprehensive programme of starter capital account provision has been made with additional targeting for young people from low-income households.
Economists across the world should be looking carefully at its impact, but at present there is little evidence that they are doing so, with the exception of a team from Bristol University who are working with The Share Foundation.
But there remains a big challenge to ensure that these young people from disadvantaged backgrounds are actually receiving the benefit of their good fortune: as we reported on 31st July, there are over one million adult CTF accounts waiting to be claimed from the account providers, with a total value of nearly £2 billion. Government needs to be as focused as The Share Foundation in enabling the ‘receipt end’ of inter-generational rebalancing to work — only then will we be able to put the hard facts in front of the economists in order to show them the more egalitarian merits of capitalism.
There is a widespread acknowledgement — even from Karl Marx — that capitalism is the only way forward for economic growth: ‘First, it is going to spread globally and defeat all rival economic systems. Second, it is going to bring an unprecedented level of technological advance. Both of these processes will eventually bring about, for the first time, the possibility of supplying the global demands of mankind’.
Capitalism inspires human enterprise, promotes creativity, and copes with an immense variety of change factors. However, it also leads to immense concentration of wealth and control, and that is its Achilles heel.
In the long run, this can only be addressed by using the natural human life cycle to rebalance as generations move forward. Readers of our commentaries will know that there is not only theory but also practical experience here to show how this can happen.
Gavin Oldham OBE
Share Radio