Reasons to be optopian
Why we can be cautiously optimistic about taking action on wealth inequality over the next five years
In 2020, a ‘cli-fi’ book called The Ministry for the Future was published, and it’s fair to say that it has received a lot of attention since. It sets out what The Guardiandescribed as a “chilling yet hopeful vision of how the next few decades might unfold”, focused on an increasingly effective global response to the climate catastrophe, spearheaded by the eponymous new international organisation.
The book inspired many, including some Oxford academics who described the approach outlined in the book as ‘optopian’ (cautiously optimistic). They defined ‘optopia’ as “a middle ground between the competing views of corporations and markets as either saviours or monsters”, which works “with the existing political and economic framework, challenging and expanding its boundaries as we progress”. It requires significant changes - not simply small reforms - to the existing system, but does not depend on the root-and-branch replacement of that system with something entirely new.
This particular article applied the logic of ‘optopianism’ to ‘green’ capitalism, and proposed a number of changes that would be necessary to change capitalism enough that it would help rather than hinder the green transition, going beyond “carrots and sticks” to include far-reaching accounting reform, the active inclusion of communities and citizens in designing policy solutions, and ‘polycentric’ governance models.
Can a similar approach be taken to some of the other problems facing humanity? For example, what would an ‘optopian’ approach to tackling wealth inequality look like?
I’d argue that the variety of reforms being proposed to reduce wealth inequality (there are some examples in the box below) are already ‘optopian’. None of them are utopian in the sense of either being hopelessly optimistic or requiring a state of perfection that presupposes that our current economy is torn down and replaced with something completely different.
Expanding worker ownership of companies / Expanding the cooperative sector / Restricting insecure work / Increasing top income tax rates / Increasing the power of trades unions / Reforming parental leave and flexible working / Mandating ethnicity pay gap reporting / Replacing GDP with wellbeing economy indicators / Capping the amount of individual wealth / Making child benefits more generous / Making unemployment benefits more generous / Making disability and sickness benefits more generous / Reforming council tax / Replacing inheritance tax with an annual gifts tax / Equalising capital gains tax rates with income tax rates / Extending beneficial ownership registers / Clamping down on tax avoidance / Increasing resources for HMRC / Introducing a citizens’ inheritance / Creating a sovereign wealth fund / Subsidising young savers / Introducing a universal savings account / Introducing a lifelong learning entitlement / Reforming pension contributions / Introducing an essentials guarantee / Introducing a universal basic income / Reforming the finance industry / Creating pension super-funds / Mandating worker representation on boards / Increasing the national minimum wage / Introducing a maximum employee pay ratio / Devolving economic decision-making / Introducing an annual wealth tax
Should we, then, also be cautiously optimistic about the prospects for building a fairer economy in the UK in which there is a smaller gap between the wealthy and the poor?
I think so.
Here is my list of four reasons to be optopian / cautiously optimistic / a bit cheerful about the prospects for reducing wealth inequality in the UK in the next decade or so. (Warning: some are simultaneously hopeful and slightly dystopian at the same time.)
Reason 1: Governments need to increase revenues
The next government will have to find more revenue, and it can’t all come from borrowing, even if the fiscal rules are relaxed. The Institute for Fiscal Studies has outlined the scale of the economic and fiscal situation facing the next administration. If politicians want to prevent public services from completely falling over, while also ramping up spending in key areas (not least defence), they will have to find other sources of revenue, and raising taxes on working people is unlikely to go down well. Wealth is significantly under-taxed compared to income. While no major political party is going to say as much during the election period, this is an obvious opportunity for a new government to explore. While raising more tax revenue from the wealthy won’t solve the problem on its own, it will make a significant contribution to plugging the revenue hole, and it is also a prerequisite for gaining public support for further changes to the tax system. And taxing wealth more effectively would have an appreciable income on wealth inequality.
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Reason 2: Awareness is growing of the risks posed by wealth inequality
As it happens, we’ll be publishing a detailed report on this topic (a Wealth Gap Risk Register) in the autumn, but in the meantime, it’s safe to say that there is growing disquiet among what could be called ‘elites’ in the UK that wealth inequality is damaging our economy, our society, our democracy and our transition to net zero, with potentially catastrophic consequences. We ran a webinar earlier this year with Peter Turchin, an expert in researching the origins of political instability, who finds a recurring link throughout history between wealth inequality and societal breakdown. As the evidence base for the risks and negative impacts of wealth inequality grows and becomes better-known, there is an opportunity to build a consensus for action. This is a consensus that can span much of the political spectrum; there is already mounting disquiet on the centre-right that wealth is not widely spread across British society, and there are Conservative voices calling out wealth inequality as a problem.
By the same token, because wealth inequality undermines so many public goods, many of the evidence-based policy solutions to it (see box above) will be very effective at improving the state of those public goods, whether we are talking about economic growth, social cohesion, democracy or action on the environment.
Reason 3: Public attitudes to wealth inequality are evolving (slowly)
As a London School of Economics literature review published by the Joseph Rowntree Foundation earlier this month* makes clear, and as we and others have found , the public have nuanced views about wealth inequality and what we should do about it:
Public understanding of the economy was found to be both thin and complex. People have an intuitive understanding that the economy is rigged, and that some people don’t play by the rules. People aspire to have wealth and understand its utility in terms of securing against risk and saving for a better future. There was strong (albeit qualified) support for wealth inequality with dislike of messaging that vilifies the rich. Acceptance of inequality is related to how people explain economic outcomes?with internal (individual) explanations leading to higher tolerance for inequality and external (structural) factors leading to the reverse. It is easier to raise levels of concern about economic inequality than to convert this concern into commitment to act.
* The International Inequalities Institute at the London School of Economics have also just published a very relevant new report, Why wealth inequality matters .
Campaigners must tread a series of tightropes to bring the public with them, but this isn’t an impossible task. Five such tightropes:
Reason 4: Economists are changing their minds
Heterodox economists have been talking about the problems of wealth inequality for years, especially since Piketty published his magnum opus a decade ago. But now mainstream economists are joining the party. Consider this from Angus Deaton earlier this year:
Efficiency is important, but we valorize it over other ends. Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder. Keynes wrote that the problem of economics is to reconcile economic efficiency, social justice, and individual liberty. We are good at the first, and the libertarian streak in economics constantly pushes the last, but social justice can be an afterthought. After economists on the left bought into the Chicago School’s deference to markets—“we are all Friedmanites now”—social justice became subservient to markets, and a concern with distribution was overruled by attention to the average, often nonsensically described as the “national interest.”