Photo by Andrew Sayer
Andrew Sayer
We simply cannot afford to ignore the rich, given their extraordinary rise over the last 30 years and their increasing domination of politics, but sociology has taken surprisingly little interest in them. The most striking feature of the growth in income and wealth inequalities in the UK, the US and many other countries is the pulling away of the 1% from the rest.
Yet the vast majority of sociological writing about class and economic inequality has been about the working class, and to a lesser extent the middle class, while the upper class or the rich class is hardly recognised. (I made this mistake too when I published a book on class back in 2005 that hardly mentioned them.) This is now beginning to be remedied, as this special issue shows, though ‘elites’ is an unfortunate, question-begging term for the rich as it suggests special qualities and merit.
The astonishing success of Thomas Piketty’s book on the rich has caught sociology looking the other way. As Piketty and associates have shown, the rich have made a remarkable comeback; the post-war boom was an exceptional period when the share of national income in the UK going to the rich fell from it’s early 20th century figure of nearly 20% to less than 6%. Now it’s climbing back to over 15%.[1]
Few people realise just how fast wealth is concentrating at the top:
Collective wealth of the UK’s 1,000 richest people
1997 = £98 billion
2008 = £413 billion
2010 = £336 billion
2012 = £414 billion
2013 = £450 billion
2014 = £519 billion
Source: Sunday Times Rich List
In these times of austerity, the wealth of these people increased by 15% just between 2013-2014. That £519 billion would fund the UK education system for 5.9 years, or the state pension bill for 3.7 years, or the NHS for 4.2 years. It’s also 4.6 times the size of the country’s annual welfare bill. It’s worth pausing to let these figures sink in; the UK has 63.9 million people and yet many of their most important needs could be met several times over just by the collective wealth of the richest 1,000.
Economics is about social relations – between buyers and sellers, employers and employees, lenders and borrowers, landlords and tenants, taxpayers and beneficiaries of state spending, carers and cared-for, and so on. No-one ever got rich or poor outside of these relations, so sociologists should be studying them.
In my book Why We Can’t Afford the Rich, I attempt to demonstrate that the wealth of the rich – particularly the top 0.5% – comes primarily from controlling assets like property and money that allow them to extract wealth from those that need to use those assets. To understand this, we need to revive an old distinction from political economy, socialist thought, and the history of taxation – between earned and unearned income. Earned income is income that is conditional on contributing directly or indirectly to the production of goods and services, whether the work is in the public or private sector. This doesn’t mean that such income is in some way proportional to contribution – in fact that’s unlikely; but it is conditional on contributing.
Unearned income is income based on using control of existing assets to extract income without providing any new goods and services. In an earlier era it was called ‘illth’ (Ruskin), or ‘improperty’ (Hobson). The classic case is rent. I don’t mean payment for construction or maintenance of property, but the ‘unearned increment’ over and above that. Since money only has value if there are goods and services which they can buy, then those who use existing assets to get money without providing new goods and services in return are getting something for nothing. They are free-riding on wealth created by others. They get that inflated income because they can. It’s a matter of power.
On top of rent there are capital gains. At the time of writing, London house prices are rising at 20% a year. The property in one of the richest streets in London (see picture at head of article) is increasing in value by millions every year, even though, as the security grills in the windows indicate, many are empty much of the time. Where owners can realise these gains (e.g. by selling up and moving somewhere cheaper, or if it’s a property bought purely as an investment) the windfall is unearned income.
Interest on debt is another source of unearned income, since it’s over-and-above the return of the principal and is not a result of providing additional goods and services. The fact that 97% of money is created as digital credit money by private banks at negligible cost just by typing in numbers into borrowers’ accounts allows them to siphon off interest – a deadweight cost and a source of unearned income. Debt or usury provides a net flow of money from borrowers – usually having low or middling incomes – to creditors (usually rich). As the age-old critiques of usury have said, it allows the strong to take advantage of the weak. In the UK (and in Germany), only the top 10% of the income distribution are getting more in interest than they’re paying out, and most of the net gain is going to the top 0.5%. The growth of indebtedness has allowed the rich to hoover up increasing sums from the rest.
In old-fashioned language many of the rich are ‘rentiers’. A significant proportion of the so-called ‘working rich’ may get their income from their salaries rather than from interest or capital gains, but their heavy concentration in finance and property sectors tells us that much of their salary effectively comes from rent and interest payments by customers, from speculation and from seeking out new sources of unearned income, or charging fees to do this work for others: they work for rentier businesses and so are rentiers-at-one-remove. Others are top managers rather than owners of medium and large businesses. While their income is again often in the form of salary, the weakening of trade unions and the end of full employment after the 1970s meant that they gained more power and could effectively decide their own pay, as long as they kept shareholders happy by doing whatever was necessary to keep up share prices and dividends – further sources of unearned income.
The return of the rich is primarily a result of the rich taking advantage of a labour movement weakened by competition from cheap labour countries, using financial deregulation to increase their access to rent, interest, profit and speculative gains, and increased domination of politics to get tax cuts and more ways of extracting wealth and hiding it. Productivity has continued to go up over the last 30 years, but the share of national income going to labour in a large number of countries has fallen markedly. In 13 western capitalist countries surveyed by John Peters the share of labour had fallen from 78% in the 1970s to 63% in 2005.[2]
Neoliberalism has ushered in a shift in the economic class structure of the countries it has most affected. It involves not only a shift of power and wealth towards the rich, but a shift of power within the rich: from those whose money comes primarily from control of the production of goods and services, to rentiers, whether individuals or organisations. Neoliberalism as a political system supports these interests, particularly by making many of the 99% indebted to the 1%.
There are further reasons for spotlighting the rich –for their role in the build up to the crisis and its aftermath, their domination of politics, and their excessive consumption, which not only diverts resources and labour from providing basic necessities but threatens the planet. Through their consumption and investments the rich have a financial stake in unsustainable growth and continued fossil fuel extraction.
As always such economic changes are associated with cultural changes too, and inequalities are always coupled with symbolic domination and misrecognition. Nevertheless major economic inequalities would remain even if the dominant class were respectful towards those below them. We should stop allowing the rich to hide in ‘the middle class’. And sociology’s move away from political economy prevents it understanding why we have such inequalities. It’s time to remedy this.
References:
[1] World Top Incomes Database. See also Piketty, T. (2014) Capital in the 21st Century, Cambridge: Belknap Harvard University Press; Dorling, D. (2014) Inequality and the 1% London: Verso.
[2] Peters, J. (2010) ‘The rise of finance and the decline of organised labour in 16 advanced capitalist countries’, New Political Economy, 16 (1) pp.73-99. See also Sayer, A. (2014) Why We Can’t Afford the Rich, Bristol: Policy Press, pp. 186-188.
Andrew Sayer is Professor of Social Theory and Political Economy at Lancaster University. His books include Why Things Matter to People (2011, Cambridge University Press) and Why We Can’t Afford the Rich (2014, Policy Press).