If progressives in the United States could somehow cut our current gap between CEO and worker pay by a hefty three-quarters, would the USA rate as a relatively equal nation?
No. Not even close. Indeed, if Corporate America’s pay gap suddenly plunged by three-quarters, workplaces in the USA would be no more “equal” than workplaces in the UK, one of the industrial world’s most unequal nations.
And just how unequal have workplaces in the UK become? In 2021, says a just-released new report from financial analysts at Deloitte, CEOs at Britain’s top corporations averaged £3.6 million, the equivalent of over $4.5 million. These execs took home 81 times the pay of their most typical workers. In effect, UK chiefs now make almost seven times more in a month than their workers make in a year.
Top execs in the United States, by contrast, realize almost seven times more than their worker annual pay in just a week, according to the Economic Policy Institute’s latest corporate pay figures. Back in 1965, top execs in the USA averaged 21 times their annual worker pay. The current multiple: 351 times.
UK CEO pay figures show a similar upward trend line, only less pronounced. Forty years ago, top British CEOs were pocketing only 18 times their annual worker pay.
Both the USA and the UK, in other words, have become significantly more unequal over the last half-century — and by every economic measure, not just CEO pay.
What engendered this outcome? Simply put: Political decisions have driven the UK and the USA down the road to ever-greater economic inequity, and, to a remarkable extent, as Stewart Lansley shows in his just-published The Richer, the Poorer: How Britain Enriched the Few and Failed the Poor, the USA and the UK have marched down this road in an eerie political sync.
In both the UK and the USA, transformational right-wing political leaders came to power at nearly the same exact time, with Margaret Thatcher elected in 1979 and Ronald Reagan in 1980.
In both countries, the first nationally elected alternatives to the economic order these right-wingers ushered in, Bill Clinton and Tony Blair, took office in the 1990s. Both spoke the same political language. Both accepted grand concentrations of income and wealth as the way of the world. Both maintained that we need not worry about how our economic pie gets divided so long as the poor get a decent-sized piece.
“I don’t care if there are people who earn a lot of money. They’re not my concern,” Blair would note famously. “I do care about people who are without opportunity, disadvantaged and poor. We’ve got to lift those people but we don’t necessarily do that by hammering the people who are successful.”
“We are not a people who object to others being successful,” Bill Clinton wholeheartedly agreed. “We do not resent people amassing their own wealth fairly won in a free enterprise system.”
The history of our still-young twenty-first century has reaffirmed the economic and moral bankruptcy of this nonchalance toward grand fortune. The concentration of income and wealth does make a difference. No society can wink at that concentration and “fix” poverty at the same time. Grand concentrations of wealth poison everything.
The British analyst Lansley’s latest work puts that poisoning in a long-term perspective. Lansley tracks the unfolding of the UK’s last fifty years in the context of the last two centuries of British history. In this broader timeframe, the modesty of the pay gap between top execs and workers in the middle of the 20th century, the overall relative equality of those years — in both the UK and the USA — amounted to “a temporary truce between capital and labor and rich and poor.”
That “brief period” represented a break from the “extractive capitalism” of the generations before and since. In the nineteenth century, Lansley relates, “a combination of plutocratic power, concentrated ownership of land and property, a largely powerless labor force, and a hands-off state” created “perfect conditions for building vast fortunes.”
This “enrichment of the few” would have “profound” negative implications for economic stability and “the life chances of the many.” In the UK, Lansley notes, “escape from hunger and early death did not become a reality for many ordinary people until well into the twentieth century.”
World War II, more than any other single event, would burst open the escape hatch. The war, coming on the heels of the horrific Great Depression, had left old elites dispirited and their conventional wisdoms discredited. An ever larger share of the population had begun to share British historian R.H. Tawney’s take on the crucial relevance of wealth’s distribution.
“What thoughtful people call the problem of poverty,” as Tawney quipped, “thoughtful poor people call with equal justice, a problem of riches.”
In 1942, Tawney’s brother-in-law, Sir William Beveridge, would produce an official government report that called for an all-out offensive against the “five giants” blocking “the road to post-war reconstruction”: Want, Disease, Ignorance, Squalor, and Idleness. This blockbuster Beveridge declaration enjoyed overwhelming public support and set the stage for the ambitious social agenda the newly elected Labour Party would start implementing in 1945, with initiatives on everything from free healthcare to a national assistance safety net.
Taxes on the rich, meanwhile, were skyrocketing. Rates on “unearned income” from dividends and interest would go as high as 98 percent during the war. In the United States, war-time tax rates on top-bracket income would go as high as 94 percent and then hover around 90 percent until the mid-1960s.
Workplace power dynamics also shifted fundamentally, in both the UK and USA, as union memberships soared. Between 1939 and 1965, the number of British workers belonging to unions more than doubled. For the first time ever, writes Lansley, “the distribution question” was seeming to be “settled in the interests of those outside the circle of the rich and most affluent.”
But this equality moment would not last. Grand private fortunes had shrunk, but not disappeared, and their holders would soon become the patrons of an ideological “counter-revolution,” Lansley notes, “that took the UK, the US, and eventually much of the rich world back to pre-war thinking.” Once-marginalized pro-market evangelists would replace egalitarian voices in ways big and small.
A newly created Nobel Prize for economics, for instance, would ignore progressive figures like the brilliant Joan Robinson, the British economist who detailed “how corporate concentration and a tendency to monopoly” were undermining market competition and suppressing wages. Nobel Prizes would go instead to free-marketeering fundamentalists like Friedrich von Hayek and Milton Friedman, in the process bolstering their reputations and economic worldview.
At the same time, Lansley points out, the “egalitarian optimism” of the mid-century boom years was petering out. That optimism assumed that a “mild taming of capitalism combined with Keynesian fine-tuning would deliver the sustained economic growth necessary to secure redistribution without resistance from higher-income groups.” That assumption would not turn out to be the case. The architects of the mid-century egalitarian moment had “overstated the reformist power” of “incremental social change.” Stagnation, inflation, and the unrelenting hostility of the awesomely affluent toward sharing their good fortune would bring Thatcher and Reagan into power and attacks on inequality out of fashion.
We know what happened next. The triumphant right promised higher levels of wealth-creating economic efficiency. But their banking deregulation, Lansley explains, “brought financial meltdown” while their “corporate tax cuts failed to boost productive investment” because the savings from those cuts went into over-the-top rewards for top corporate execs and shareholders.
The Thatcher and Reagan eras would add into this mix attacks on workers and their unions, a financialization that favored speculative over productive investment, and a consistent contempt for the poor. The entirely predictable — a stunning increase in grand fortune — would quickly play out. The share of national income and wealth going to working families plummeted as billionaires and their superyachts, not Britannia, now ruled the waves.
What can we do to regain the egalitarian momentum of the mid-twentieth century? Lansley sees some promise in building strategic approaches around the “Palma ratio,” an inequality yardstick developed by the Chilean economist Gabriel Palma. His ratio compares the income share of a nation’s top 10 percent with the share of its bottom 40 percent. A number of progressives would like to see a “1.0” Palma ratio — the situation we get when a nation’s top 10 percent takes in no more income than the bottom 40 percent — become the United Nations standard for sustainable development.
Within the ranks of OECD nations, only Mexico and Turkey currently sport Palma ratios worse than the United States. The UK has the overall fifth-worst. All these nations have become sustainability horror shows. Lansley cites one particularly horrific example: The 11-minute space joy ride that billionaire Jeff Bezos took last year emitted more carbon per passenger that the lifetime emissions of any one of the world’s poorest billion people.
Inequality, in the face of our existential climate crisis, may matter more today than ever before. Lansley believes that only a “progressive political earthquake” — along the lines of what World War II supplied in the twentieth century — can break our current “intertwined poverty and inequality cycle.” Might climate change be that earthquake in the twenty-first?