City AM is a free newspaper, available outside many railway stations in the Greater London area, targeted at City workers. It’s always worth a quick read to see what is currently agitating finance capital. On Tuesday, 3 April, the lead article was written by Ryan Bourne who occupies the Chair in Public Understanding of Economics at the Cato Institute.

The Cato Institute is an immensely rich, right wing think tank based in Washington DC. It has been deeply compromised by its involvement in the denial of global warming. Professor Bourne wisely chose to refrain from improving our understanding of that particular problem; instead, he sought to improve our understanding of growing inequality. This, according to the Professor, is a myth: inequality is at its lowest level since 1987 and is currently declining. Really?

To support his case, Professor Bourne refers to an IFS study which he fails to cite. My guess is that he is referring to Fifty Years of Income Inequality . This concludes that inequality peaked in the mid-1980s (i.e. High Thatcherdom) and has not recovered significantly since. The study recognises that interpreting how income inequality has changed in the last 20 years depends on which years you include and exactly what measure of income you use. It appears to assess the situation as flat.

It’s undeniable that the IFS study does not provide much evidence of recent growth in inequality as measured by such statistics as the Gini Income Coefficient. Why is this when most of us can observe it with our own eyes? All it takes is a walk along Croydon High Street any afternoon. The reason is that such coefficients do not relect that

  • the social wage has been shredded by the austerity cuts since 2007 to health, education, social services and child support and the people at the bottom are being asked to bear too high a burden. We have replaced social security with food banks.
  • social mobility has been undermined by cuts to education and student support and attacks on trade unions. Become poor, stay poor.
  • the elite are sufficiently small in number and sufficiently adept for their income and wealth not to show up in Gini Coefficients

Interestingly, Professor Bourne concludes his article by saying that history shows that inequality only ever improves under communism, violent revolution, war or bubonic plague.

As bubonic plague, war and even violent revolution are best avoided (we much prefer peaceful revolution), it appears, against all the odds, that the Professor must agree with us on the need for communism! Either that or he’s actually dismayed at the prospect of the declining inequality he claims to detect. He cannot have it both ways. That’s impossible, even for a professor of public understanding of economics.


Tesco and Equal Pay for Equal Work

Do markets have memory? No, according to a basic tenet of market fundamentalism, the philosophy of the rich and powerful which is endorsed by their high priests, the professors of neoclassical economics. Markets, they contend, are forward looking and respond only to changes in prospects, not past events. This is why they are beyond challenge. They reflect the future and condition what is possible in the present. Furthermore, in the case of financial markets, they respond instantaneously – the so called ‘efficient market hypothesis’. Thus news that Tesco was being pursued through the conciliation service ACAS by the law firm Leigh Day over an equal pay claim that could cost Tesco £4 billion may have dented Tesco’s share price to the extent that investors thought it likely to succeed, but there was no question of customers having to pay for the £4 billion settlement, should it succeed, with higher prices. Future prices would be affected, according to this theory, only to the extent that the average cost of employing staff in future increases.

For communists, two issues arise here.

  • While we agree that markets don’t have memory, the economy we actually experience is one of State Monopoly Capitalism in which institutional pressures are brought to bear to protect capital, including that invested in Tesco. To understand this economy, we need to begin our analysis not, where the neoclassical economists begin, with market prices, efficient or otherwise, and work backwards but with production, labour and the creation of value by workers and work forward, identifying with whom this created value ends up. It doesn’t end up with workers, whether shop floor or warehouse, male or female. After workers receive enough to survive and replicate (assuming their offspring are still needed), it ends up with those who own the capital – the 1% and the 0.1%.
  • While communists fully support equal pay for equal work claims such as that against Tesco, we recognise that capitalism is incapable of achieving this except in the very limited case of a single workplace – and even then it is hard enough to achieve and sustain. Equal pay for equal work across an entire economy is the defining condition of socialism, which Marx defined as from each according to their means to each according to their work. That is not something that social democracy can, or even wishes, to deliver as, it would rent asunder our existing institutions (on which they, themselves, depend) and replace them with the more democratic framework needed for building communism with its ultimate aim of from each according to their means to each according to their need.