The central promise of free market capitalism is that anyone can make it if they try. It’s appeal over the old model of landed aristocracy and feudal society was the emancipation of land locked peasantry to enjoy the fruits of their labours based on meritocracy – in short: those who can, will. However, with social mobility in decline and the wealth gap widening to ever greater degrees – have capitalists become the new aristocrats, lording over a globalised neo-feudal system?
Life under Feudalism
Feudalism was the economic system exercised between the 5th and 15th century across Europe and parts of Asia, which structured society around the holding of land in return for service and labour. Those living at the time did not consider feudalism as a formal structure for their society, but through the lens of history it can be viewed as nothing else. The society was a pyramid with Monarch at its head and peasant at its base. The Monarch in theory owned the land and parcelled it out to Lords in return for loyalty (military and other support). The Lords in turn allowed peasants access to the land in return for their labour and services upon it. Feudal rights of Lordship were hereditary and passed from the landowner to the eldest son automatically on his Lordships death. The labour of agricultural peasants was the foundation and lifeblood of the society, the surplus of which was used to increase the wealth of the aristocratic ruling class and generated the development of towns, non agricultural craftsmanship, and education.
No one reading Feudalism at even the most rudimentary level can fail to overlook the entrenched caste system generated by it. One feels a sense of entrapment even briefly entertaining the thought of being referred to as a peasant, or of being part of a clearly stratified society and the idea of needing to know one’s place.
It might then come as some surprise that social mobility is no greater now than under feudalism in the middle ages.
A recent University of California study examined social mobility patterns in England between 1066 and 2011. The key finding of the study by Gregory Clark were:
- The modern ‘meritocracy’ is no better at achieving social mobility than the medieval oligarchy. Instead that rate seems a constant of social physics rather than social engineering.
- There is tentative but disquieting evidence that after 1000 years of complete long run social mobility, modern England is becoming more stratified by class.
The Promise of Capitalism
These findings challenge the central promise of Capitalism and the American Dream: that anyone can make it if they try. The Clark study highlighted that it has always been possible for people from the bottom of the pile to scratch and claw their way to the top of it. This is nothing new. Yet Capitalists the world over continue to cite the nonetheless rare event of a peasant ‘making it’ as proof positive of the inherent egalitarianism of the system.
Capitalism grew out of the 16th century and has existed in several iterations. It is important to understand, at least in outline, the development of the means of economic and social organisation which now governs the majority of the globe.
Mercantilism – 16th to 18th Century
The first run at Capitalism was Mercantilism. This can be best summed up as: there is only so much stuff; we need to get the most stuff!
Mercantilism was very much a vehicle of the state, rather than the individual. The purpose was to increase the wealth of the nation through strict governmental regulation of the whole national economy through creating a favourable balance of trade (exporting more than you import), developing agricultural and manufacturing capability and output, and (by war and plunder) creating and maintaining foreign trade monopolies.
Industrialism – 18th Century & 19th Century
The writings of mid-late 18th century thinkers David Hume and Adam Smith not only coined the term Mercantilism but ushered in the subsequent epoch of Industrialism. They challenged the idea of mercantilism that the rate of wealth in the world remained constant and gains could only be made by one state at the loss of another.
During the Industrial Revolution the new industrialists become the dominant force in society over their merchant predecessors. The reins of power were not so much handed over as seized by this new industrial class. The period saw the dawn of free trade policy where Britain began to abandon protectionist policies such as the Corn Laws, and began the lowering of tariffs on imports.
Karl Polanyi argued that capitalism as we know it did not emerge until the progressive commodification of land, money, and labour culminating in the establishment of a generalized labour market in Britain in the 1830s.
Keynesianism and Neoliberalism - 20th Century to Present
The dawn of the 20th century, two world wars and two enormous and pan western economic meltdowns saw the demands of the poorest for greater protections from the seemingly unavoidable fits of crisis produced by ‘the market’. As the policies of capitalism saw fluctuations in prices of staple foods, energy, and employment the welfare state was created to shelter the majority from the worst of the storms. The largest difference the Clark study finds here is that the development of the welfare state and access to health and maternity care in particular saw the mortality rates balance between the elites and the rest in the UK for the first time.
The period also saw a wave of denationalising of formerly state managed industries as the idea of the free market took hold. Energy, water, transport, aerospace industries, steel, coal, control of wages, control of prices, printing of money, joined a long line of newly privatised interests. The dawn of the 21st century has seen the hallowed spaces of state education, prison, probation, police and military functions being passed over to the private sector to manage.
However, during the rise of neoliberalism and globalisation in the latter half of the 20th century, social mobility and wealth distribution markers have been set firmly to reverse.
The Great March Backwards
While social mobility has been declining in Britain since the 1950’s (this is a reverse in a complete progressive trend in the UK for the previous thousand years) the situation has escalated for the worse since the late 1990’s. The wealth gap in the UK has not so much widened as undergone a seismic event.
A recent report by the Resolution Foundation, Squeezed Britain 2013, revealed stunning disparities in the ever growing wealth gap in modern Britain. The top 1% of earners now pocket 10p in every £1 earned in Britain – an increase of 7% in the last fifteen years. The poorest half of the population taking home just 18p – dropping 1% during the same period. This reveals not only that the top 1% is earning more than ever, but that their earnings are coming from the share of the rest of the 99%. This would be bad enough if it was simply a UK phenomenon, but these patterns reflect the global pattern of wealth distribution in the 21st century. A recent study by James S Henry, former McKinsey head and Tax Justice Network board member revealed equally horrific results at a global scale, summarised in the pie chart below.
The top 0.1% own 81% of the world’s wealth, whilst the bottom 99.9% hold only 19%. This figure is staggering. Perhaps more staggering is that in spite of this figure, the myth persists that social mobility is increasing, today’s children have better life chances than yesterday’s children and the world is gradually ‘developing’. The reverse is true.
“Income inequality, and wealth inequality even more so, are worse in the United States since the 1920s, and by some measures since the 1890s. Most of the economic gains in the past 25 years have gone to the top 15-20 percent of Americans, but more recently, in the past six to seven years, most of the economic gains have gone to the top one percent. . . . The average CEO is making about 380 times more than the average worker – a huge gap relative to what it used to be 40 years ago – it was about 30 times.”
In response to this, proponents of the current system might argue, and indeed have, that mobility and equality are non issues; that so long as the standard of living keeps rising for the bottom, the inordinate wealth at the top is irrelevant. But the rise of neoliberalism has seen the top increase their wealth at the expense of those at the bottom, and those at the bottom less likely to ever make it out.
Things Are Not Getting Better
The reality is, wages are stagnating or falling for most of the 99%. Today, wages have not simply stagnated but fallen sharply for a number of groups. If we turn to the US, the earnings of so called ‘High School drop outs’ have dropped 66% since 1969, and people with some college – the median education level in the US – have seen their wages drop by a third.
Outside of the US and UK, the outlook isn’t much better for the global 99% either. Global wages, whilst still on the rise, have dropped significantly in their rate of rise from 3% in 2007, dropping each year since to just 1.2% in 2011 (0.2% is you remove China from calculations).
Contrary to the language of workers versus shirkers in the UK, and the language of Mitt Romney’s ill fated presidential campaign in the US, the working class are working harder than they ever have, and for less. Further research by the International Labour Organisation reports that the rise in Labour Productivity has outstripped wage inflation at an ever increasing rate in the last decades. Between 1999 and 2011 labour productivity (the output of workers time and efforts) increased at double the rate of wages. In Germany, labour productivity surged by almost a quarter over the past two decades while real monthly wages remained flat.
The reality the world over is that people are working harder, for longer, for less and that work is increasingly unlikely to see them move out of their social strata than at any time in the last five hundred years.
The widening income and wealth gap matters because it has a causal link to the decline in social mobility. In today’s economy, the working poor can neither afford to lavish money or time on the development of their children to the same degree as the increasingly non working rich. The working poor of today are finding themselves both time and cash poor.
Meanwhile, the richest 1% earns roughly half their income from wages and salaries, a quarter from self-employment and business income, and the remainder from interest, dividends, capital gains and rent. In the world’s largest capitalist economy, the United States, the top 1% are increasingly working in Finance, marrying each other and taking a strong interest in politics.
Their children will largely go to fee paying schools outside of the state system, whilst the children of the 99% will largely go to state funded schools. This not only gives these children an advantage in terms of the standard of their education, the pupil:teacher ratios in their classes and so on, but it perpetuates a social network of privilege. It is no coincidence that the current Prime Minister, Chancellor and Mayor of London attended public school followed by Oxford, where they formed their future networks.
The Conservative party candidate in the Eastleigh by-election Maria Hutchings somewhat let the cat out of the bag on this matter recently. When challenged as to why her child would not be going to a local state school she replied:
“William [her son] is very gifted which gives us another interesting challenge in finding the right sort of education for him – impossible in the state system. He wants to be a cardio-respiratory surgeon.”
I short, the state school system is seen by the political elite in the UK as the provider of plumbers, managers, small business owners…but not judges, surgeons and political leaders. And they are right. A 2007 study by the Sutton Trust found that more than half of Britain’s leading 500 figures came from Independent schools, whilst these schools educate only 7% of the UK’s children.
Dr Lee Elliot Major, Director of Research at the Sutton Trust, said:
“This analysis shows that the school you attend at age 11 has a huge impact on your life chances, and particularly how likely you are to reach the top of your chosen profession.
We are still to a large extent a society divided by wealth, with future elites groomed at particular schools and universities, while the educational opportunities available to those from non-privileged backgrounds make it much more difficult for them to reach the top.”
The beneficiaries of fee paying schools included: 70% of High Court Judges, 54% of FTSE100 CEOs, 53% of the current UK government, 28.5% of those studying medicine and dentistry, and the legal profession has seen a backward slide in favour is privately educated members. Between 1988 and 2004, the proportion of privately educated magic circle partners aged under 39 grew from 59% to 71%; and in the late 1980s, 10% fewer barristers and 15% fewer solicitors were privately educated than in the early 2000s.
Inequality matters because it is not a static thing. It is an increasing gap in income, an increasing gap in wealth, an increasing gap in life chances and an increasing gap in the ability of people to have a say in the ways science, law, economics, politics and health are managed in our society. These decisions are increasingly being made by fewer people, from a narrower slice of wider society. The results have been those outlined above, an escalation in the enrichment and empowerment of one section of society, over the equivalent loss for the rest. While the medieval peasant was land locked, the modern day peasant is simply locked out.