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The Growing Gap

October 3, 2018 by

Houston, we have a problem. That problem is the abyss between the wealthy and the less fortunate. Edward Luce, a columnist and commentator of the Financial Times, paints a gloomy picture in his new book The Retreat of Western Liberalism.

Liberal democracy’s strongest glue is economic growth, Luce says. When groups fight over the fruits of growth, the rules of the political game are relatively easy to uphold. When those fruits disappear, or are monopolized by a fortunate few, things turn nasty. The losers seek scapegoats.

For centuries, Westerners have taken a linear view of history, in which time is always marching us towards a happier place. Not anymore. Between half and two-thirds of people in the West have been treading water – at best – for a generation. The West’s median income has barely shifted in the last half-century.  It will only get worse. Tens of millions of Westerners will struggle to keep their heads above the surface over the coming decades. The downward pressure on the incomes of the West’s middle classes in the coming years will be relentless.  They are the left behind, the squeezed middle, the precariat: those whose lives are dominated by economic insecurity. Their weight of numbers is growing. So, too, is their impatience.

Many of the tools of modern life are increasingly priced beyond most people’s reach: an appartment in the city, decent health care, obtaining a degree. The runaway costs of acquiring social capital are why so many are so pessimistic about their children’s life prospects.  When people lose faith in the future they are less likely to invest in the present.

The incomes of the global top 1 per cent on the other hand have jumped by more than two-thirds over the last three decades. The 1426 richest individuals on the planet are worth $5.4 trillion, which is roughly twice the size of the entire British economy and more than the combined assets of the 250 million least wealthy Americans.

The American dream is less likely to be realized in America, says Luce. The children of the rich are overwhelmingly likely to stay rich. Today’s inequality is accompanied by vanishing mobility. To a large exent, your life chances have been set by the time you are five. About one in four of the richest Americans attended an elite university, compared with less than half of 1 per cent of the bottom fifth.

What has changed is the public’s trust that societies are all in this together, including the elites. That invisible referendum is the essence of the Western social contract. Too many people smell an indifference towards society’s losers and there is complacency about the strength of our democracy. When social trust falls, the cost of doing business rises. A culture of mistrust pervades society. They come to view what the winners tell them with a toxic suspicion, which makes a common goal much harder to define.

Edward Luce’s book links closely to topic of ELP’s Annual Conference 2018 Do the Right Thing. Reuniting a Divided World. See www.leadershipconference.eu for more information or to buy tickets.