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LILICO Andrew looking down

Banks Face 6 Billion Of Libor LitigationAndrew Lilico is an economist and political writer.

As part of a French documentary on inequality, I was recently asked why inequality has traditionally been seen in a more relaxed way in the UK than in France. My response was that in the UK we believe that the vast majority of UK citizens’ wealth has been acquired justly, through a combination of talent, hard work and the husbanding and passing-on of the talent and hard work of previous generations. Because wealth has thus been distributed justly in the first place, UK voters and opinion-formers have not normally believed that it needs to be redistributed for its distribution to be just.

That is not the same in every society. In many societies, much of the acquisition of wealth depends upon various forms of corruption and cronyism. Wealth is thus the political reward of raw power, not the economic reward for talent, hard work and careful husbanding. In Zimbabwe, those who were best connected in Zanu-PF got land. In Nigeria or Southern Italy, those able to obtain control over the issuing of contracts and concessions gained wealth through bribes. In many countries, businessmen with the right connections could secure tax breaks and subsidies. In other countries, the top political jobs are always held by members of a small number of families.

If much of a society’s wealth is distributed via such arbitrary, unjust or even corrupt mechanisms, there will be constant and perhaps justified pressure for property to be redistributed more fairly. But redistribution of that sort undermines the property rights upon which capitalism depends. I can only invest in a long-term project if I can be confident that I will be permitted to spend my money at the end. Private sector businesses will only run services in politically sensitive areas if they are confident they will be permitted to make profits in doing so and will not subsequently be subject to confiscatory taxes to redistribute what had been gained.

In Britain, the form of income about which there is most suspicion is income derived from the state. If your business is subsidised, or has a tax break, or is bailed out, or if you receive benefits or other monies from the state, Britons will not regard you as owning the receipts by right. Your activities become the subject of public scrutiny. Folk ask if you spend your benefits on booze and fags. They ask your business how it contributes to wherever the wider economy is going – whether that means you increase output (because we are in recession) or keep wages down (if inflation is high) or provide support to certain socially useful activities (if there are depressed regions or social groups that might benefit from your support). If you are subsidised, you cease to belong to yourself and your role in the capitalist system is, by and large, destroyed.

In Greece we are seeing how a sufficiently corrupt system can lose all legitimacy, and voters choose outright anti-capitalists to overthrow the old order. Few, if any, Greeks regard the distribution of Greek property as basically just. Everyone knows that tax evasion is widespread, that certain industries have been heavily subsidised, that there have been bribes and corruption, that just three families have controlled the governing parties for decades and, worst of all, that the huge funds obtained via the Eurozone and banking bailouts did not find their way to ordinary Greeks.

Until there is some sense that Greek wealth is distributed justly, according to some principle that the Greeks regard as right and proper and sustainable, there can be no security in investing in Greece.
There is a similar (albeit normally less extreme) loss of confidence in the basic justice of wealth allocation and of the economic order across much of Europe. The bank bailouts and the Eurozone sovereign debt bailouts have created huge transfers of wealth that are manifestly not just in origin. Some folk have been lucky or well-connected or ruthless, since 2007, in obtaining a cut of the bailout trillions. Most will not even know for sure that they are beneficiaries, let alone know how much. But almost everyone who is politically and economically aware grasps that the bailouts constitute a huge departure from any sort of justice-based allocation of wealth. So those that have suffered in Italy or France or Spain or Portugal know that they have not suffered as an unlucky by-product of a just system. Instead they have suffered, whilst others flourished, because they didn’t get a cut.

In Britain we have also had bailouts. And they have seriously undermined confidence in the justice of high wealth earned in the financial sector, especially coming in association with (albeit exaggerated) tales of corrupt politicians in the expenses scandal. But the pressure for redistribution of wealth remains very limited. We had been so confident for so long that wealth was overwhelmingly allocated justly, and despite a nasty recession the response of our politicians and policy-makers has not been seen as as abject a failure as in, say, Greece or Spain, that the injustice of bailouts is tolerable (or nearly so, for most people – yours truly excepted). Basic confidence remains… for now.

And that “… for now” is important. For a distribution of wealth that is not fair (not equal, or at least not proportionate to, personal merit) to be regarded as nonetheless just then society must have a sense of what “justice” means that goes beyond mere fairness. Fairness is the residual form of justice: we insist that an allocation should be fair if we have no good reason for it not to be fair (otherwise it is “arbitrary”).

The classic three things that trump fairness (that make an allocation/distribution just even if it is not fair) are: property, contract and family. For example, I do not give my children Christmas presents and not the children of poor parents that I do not know because I think it fair that my kids get more presents and other children get fewer. I do that because my children are part of my family and it is just to favour one’s own family even if that is not fair.

But in addition to these classical three, there are other principles that societies accept as making unfair distributions of wealth nonetheless just. For example, if your country is attacked in a war and you then win the war, you may extract reparations from the defeated country. That the proceeds or plunder of just wars are regarded as justly acquired depends upon a society’s confidence in the moral underpinning of its cause.

That principle is more important than one might immediately appreciate. It isn’t simply a question of whether one believed the Normans or Saxons in the right at Hastings, or the United States entitled to acquire the lands and minerals gained in the wars against the Spanish and the aboriginal Americans in the 19th Century. Think instead of Germans dispossessed at the end of World War II, of changes to wealth in Romania after the fall of Ceaușescu, or the ways wealth is shifting in the Ukraine today.

For wealth to be allocated morally according to some other principle than fairness, society must have a broad consensus behind some other social mission. We must believe in promoting the glory of Rome by subjugating those whom the gods have not blessed, in bringing civilisation and the Bible to the savages, in defeating the Commies, in reaching for the stars, or whatever mission our society has. Without such a mission, our collective morals will inevitable shrivel until only fairness is left.

For a capitalist society to flourish we need a social mission, and the ability to reinvent that social mission, that allows us to believe that unfair distributions of wealth and income are nonetheless morally justified. And if wealth was once allocated according to some other principle, and now all we have to believe in is fairness, the pressure to reallocate wealth will become intense and the property rights that underpin capitalism will be swept away.

59 comments for: Andrew Lilico: For a capitalist society to flourish it needs a social mission

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