We need more work in the economy. If every business (and remember more people are employed in businesss with under 6 staff in the UK than any other type!! so businesses like mine etc) were so busy they were taking on new people and hardly able to fill the orders streaming in then there would be funds for more things. There is an article in the Sunday Times today although it does not really conclude as I would want it to, which is interesting:
2Adrian Wooldridge: Stop war on wealth, we need the rich few
The Sunday Times Published: 19 August 2012
Ferdinand Mount and Joseph Stiglitz can hardly be described as soul mates: Mount once ran Margaret Thatcher?s policy unit and Stiglitz is a Nobel prizewinning economist who was an adviser to Bill Clinton and has been moving leftwards ever since. But they have both recently come to similar conclusions about what ails us.
In his book The New Few, Mount argues that an elite has grabbed too much wealth and power. In The Price of Inequality, Stiglitz says widening inequality is fomenting economic bubbles, reducing consumer demand and wreaking havoc.
The revolt against the rich is shaking up politics. Spain and Italy have extended surtaxes on the rich. François Hollande is preparing to impose a 75% tax rate on high earners. Barack Obama is running for re-election as a champion of the 99% against the 1%.
His policies might sound like small beer compared to Hollande?s super-strength lager ? Obama wants to raise the top rate of tax from 35% to nearly 40% and to increase taxes on capital gains and dividends ? but his rich-bashing represents a big change in a country founded on the worship of wealth.
The International Monetary Fund has revised its view that a rising tide lifts all boats and concluded instead that it can produce weak growth. The World Economic Forum has found that its members regard growing inequality and poor governance as the two biggest threats in the next decade.
It is easy to see why people are so worried. In America the top 1% more than doubled their share of national after-tax income from 8% in 1979 to 17% in 2007, while the bottom 80% saw their share decline. The much-vaunted American middle class is shrinking, while the poor are falling further behind. Even egalitarian countries such as Sweden and Japan have been moving in the same direction.
Can anything be done about growing inequality? It is one thing to reduce inequality if it is based on cronyism and connections, but it is quite another to reduce it if it is based on open competition. Ronald Reagan once quipped that Lyndon Johnson declared war on poverty and poverty won. The coming war on wealth will be equally one-sided.
The biggest problem for egalitarians is that people differ as much in their mental abilities as they do in their athletic ones. This hardly mattered for most of human history because land and connections were more important than brains and knowledge. But as society passed from industrial to post-industrial, brains mattered ever more.
Today a single genius can spark a corporate renaissance. When Steve Jobs left Apple in 1985 and went on to found Pixar, Apple almost collapsed and Pixar took off. When Jobs returned to Apple in 1996 he inaugurated the age of the iPhone and iPad. Geniuses can mean the difference between success and failure. Bill Gates says that ?if it weren?t for 20 key people, Microsoft wouldn?t be the company it is today?.
Cultural inequalities powerfully reinforce natural inequalities. Bright people congregate together in regions such as southern England or the northeastern United States. They frequently end up marrying each other.
American psychologists calculate that by the time they reach the age of four, the children of professional parents have heard 45m words addressed to them compared with 26m for the children of working-class parents and 13m for the children of parents on welfare. And that?s before they start after-school activities and extra tuition.
The consequences of intellectual inequality are magnified by the two most powerful economic developments of our time ? globalisation and technological innovation. Globalisation vastly increases the rewards for the successful. Computers are hollowing out mid-level jobs in much the same way that machines once hollowed out manufacturing jobs. David Autor, of the Massachusetts Institute of Technology, points out that job growth is concentrated at the top and the bottom of the skills curve. For elite brain workers, computers are tools that enhance their productivity. For service workers they are irrelevancies. For clerical workers they are redundancy notices.
In a fascinating new book, Human Capitalism, Brink Lindsey suggests that the problem of inequality is even more intractable than the pessimists had thought. He argues that the leitmotif of the post-industrial economy is growing complexity: there is more knowledge to acquire, there are more institutions to deal with and more choices to make. Success increasingly depends on your ability to master complexity, which in turn depends on your ability to master abstraction: to see how particular bits of information fit into abstract patterns and to think through the long-term consequences of your actions.
Subcultures differ in their ability to master abstraction: to put it brutally, people at the bottom are more likely to inhabit a world of concrete events and immediate satisfactions. The result is that educated people are pulling further ahead of less educated people in their private lives as well as their careers.
The weapons that policy-makers have at their disposal look feeble in comparison with these forces. The most obvious weapon is taxation. Why not increase taxes on the rich to counterbalance the fact that able people are getting better rewarded for their abilities? The problem is that talented people are mobile. London, New York and Singapore will happily roll out the carpet for tax refugees. These mobile people are the world?s most important job creators ? they produce the ideas and organisations that create high-quality jobs.
Another weapon is the welfare state. Why not use the machines of public education and welfare to reduce inequality? There are two problems: the first is that middle-class people have always proved to be much better at squeezing resources out of the state than working-class people. They not only monopolise the best jobs in the public sector, they also get more than their fair share of government-provided healthcare and education.
The second problem is that the state is wedded to many enlightened policies that end up increasing inequality. The state is rightly committed to abolishing discrimination against women. But this will only increase the formation of power couples as more women become successful and marry successful men.
Should we give up and watch as the world divides into PhD-ville and Asbo-land? Far from it. There is plenty that we can do provided we are willing to focus on manageable problems. We need to combat the influence of cronyism and connection. That means making markets more open and competitive and intervening at the first sniff of collusion. We need to focus on preventing poor people sinking into a life of crime and dysfunction. Iain Duncan Smith, the British work and pensions secretary, has made an impressive start by emphasising the moral as well as the practical importance of having a job.
The British coalition could make the legal system more comprehensible ? Hawaii is enjoying success with a programme that rapidly sends people to prison for a few days if they violate their parole. Crucially we need to build a ladder of opportunity from the tenements to the ivory towers.
That said, it would be foolish to resurrect a discredited idea from the 1970s and pursue equality of results rather than equality of opportunity. The key to success in a post-industrial economy lies in making the best use of your brain power and the key to that lies in providing talented people with the right incentives to cultivate their talents and put them to productive use. More often than not the new few are also the vital few ? and the price of inequality is a price worth paying.
Adrian Wooldridge is the management editor and Schumpeter columnist of The Economist. "