Poor little rich kids – the perils of inheriting vast wealth

Emine Saner in The Guardian

It is reported that when the 6th Duke of Westminster, who died this week, realised at the age of 15 that he was heir to his family’s immense fortune, he dreaded it – the responsibility, the knowledge that he hadn’t earned it, the isolation it would bring him. He would have prepared his son for the eventuality of becoming duke, although neither would have wanted to think it would happen as early as it did. On Tuesday, Gerald Grosvenor died suddenly at the age of 64; his son Hugh, now the 7th Duke of Westminster, is just 25 and inherits the family’s £9.3bn fortune.

Aside from the trauma of losing a parent – having money does not ease the pain of bereavement – the 25-year-old finds himself in both an enviable, and unenviable, position. On the one hand, he becomes one of the richest men in the world; on the other, money didn’t bring happiness to his father, who appeared to find his title and wealth a burden. “Given the choice I would rather not have been born wealthy, but I never think of giving it up,” he said once. “I can’t sell it. It doesn’t belong to me.”

The Duke of Westminster



It is, however, very difficult to feel sorry for the rich, which is, in itself, a problem for many of them. “They know that others have no sympathy for them, and no understanding of the situation they’re in,” says Thayer Willis, author of Navigating the Dark Side of Wealth: A Life Guide for Inheritors, who runs a counselling business helping the rich deal with the psychological challenges of wealth. “They know not to go around whining and expecting people to feel sorry for them.”

But there are serious challenges that come from inheriting vast fortunes, she says, particularly at a young age. Willis knows many of them herself – she was born into the family that started the Georgia-Pacific Corporation, a timber company worth billions. “I stumbled through my 20s and made a lot of mistakes,” she says.

“For all of us, our 20s and 30s are the ‘building years’, when we’re meant to get out in the world, figure out who we are, what we like to do, who we like, who we like to date,” she says. “Having a tremendous amount of financial wealth come into your life at that point really messes with motivation. All of a sudden the question becomes: ‘What do I need to do to manage this wealth?’ instead of: ‘How do I identify and clarify who I really am?’ People’s motivation to be around you becomes questionable. Are they attracted to me or to this wealth?” These are “definitely first-world problems, but it certainly messes with the psychological development of that young adult”. In her 30s, Willis settled down, trained as a psychotherapist and became a wealth counsellor.

If it’s so awful – an obvious question – why not give the money away? “Some people think of that, usually to the horror of the family. Older family members understand what this money can do in terms of providing a resource for any kind of emergency, or starting a business, or philanthropy.”

For inheritors of wealth going back generations, there is a sense, as Grosvenor said, that they are mere custodians and the money isn’t theirs to give away or lose. “I’ve seen some quite young heirs who really understand the dynastic vision of a family from a pretty early age,” says Julian Washington, head of intermediary relationship management at RBC Wealth Management. “They don’t want to be the weak link in the chain when the family story is told. In my experience, when you deal with old-money families, if you want to call them that, they tend to be pretty good at educating their next generation, because typically they’ve been doing it for centuries.” And when someone – a male member of the family, thanks to outrageous primogeniture – comes to inherit, “more often than not they’re in a pretty good place because they come to it with all that tradition and they understand the nature of the shoes they’re stepping into”.

Mark Zuckerberg and Priscilla Chan Zuckerberg have decided to give away 99% of their fortune – but their daughter, Max, could still inherit $450m. Photograph: AP

Plenty of members of the super-rich have already decided not to burden their children with vast, unearned fortunes in the first place – it is enough that they have had expensive educations and all the opportunities of a privileged start in life. Warren Buffett’s famous take on inheritance is to leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing”. It has been reported, though not confirmed, that Bill Gates plans to leave his children a meagre $10m (£7.7m) each from his $76bn fortune. Mark and Priscilla Zuckerberg have pledged to give away 99% of their $45bn pile(although it’s all relative – this still leaves them, and their daughter, with $450m). Not quite on the same financial scale, Nigella Lawson has said she isn’t planning to leave her children anything: “It ruins people not having to earn money.”

Sam Roddick, the daughter of the Body Shop founder Anita Roddick, didn’t know that her mother, who died in 2007, had planned to give away her entire £51m fortune. “We found out when it was published in a Daily Mail article,” she laughs. It wasn’t entirely a surprise – her parents were socialists, rather than socialites, and their business was famous for its fair-trade principles. And it wasn’t personal. Cutting one’s child out of your will can, to some, seem like “a deep act of abandonment. I never had that abandonment because I had a healthy relationship with her. I know other people who haven’t been given money and it has been a huge act of aggression.”

Duke's £9bn inheritance prompts call for tax overhaul



Roddick was also unusual among the children of the rich in that she hadn’t grown up surrounded by wealth. She was largely brought up by her working-class grandmother, “and working-class values – you work hard, you earn your keep and you contribute to society. Entitled people from inherited wealth are all about other people being in service to them.”

She has observed the very wealthy people she has met over the years. “They are isolated from normal society,” she says. With the extremely wealthy, “relationships become transactional, and that is something that is extraordinarily emotionally damaging. A lot of very wealthy people are not accountable to their community, they’re not accountable to the people they love, they show their power and control through transaction and they are unhappy, from what I can tell. The people I know who are very wealthy and are happy are all contributing something to society.” Until we sort out the rules that allow vast fortunes held in trusts, as the Grosvenor estate is, to avoid hefty death duties and be passed down the generations, it’s something for the new Duke of Westminster and his future male heirs to bear in mind.

We’ve been conned by the rich predators of Davos

Aditya Chakrabortty in The Guardian



Davos: ‘This week, some of the richest people on Earth will gather high up a snowy mountain in the world’s biggest tax haven.’ Photograph: Ruben Sprich/Reuters


As metaphors go, this one takes some beating. This week, some of the richest people on Earth will gather high up a snowy mountain in the world’s biggest tax haven. Most will have paid big money to attend the three-day meeting in Davos: the most exclusive memberships cost somewhere in the region of £100,000 each. From there, they will relay thoughts on global risks and opportunities to the ski-jacketed press corps. They will talk about gender inequality and technological innovation. The message will go out: however turbulent the global economy, it is being capably stewarded.

These are our economic elites as they want the rest of us stuck on the flatlands below to see them: big-thinking, well-intentioned, hard-working – and thoroughly meritocratic. This is also how they justify the mammoth rewards they enjoy: we sweat for it; we’re worth it. The follow-up is usually only implied, but it is the one that underpins the entire system: put in enough hours and this could be you. 

Set against that promise the finding from Oxfam that 62 billionaires have more wealth than half the world’s population – 3.5 billion people – share between them.

Ponder those numbers for a moment because they make up possibly the most grotesque ratio in the world economy today. Go through the 62 richest people and plenty of names jump out to show that any notions of meritocracy are a big fat lie. None of those 3.5 billion men, women, boys or girls will be born into a fortune such as that enjoyed by the Waltons of Walmart fame, in which just six people own $149bn. Nor will they ever get to be a Saudi royal such as Prince Alwaleed bin Talal, worth $26bn.

I could pull out plenty of other names giving the lie to the complacent notion that this is the era of the self-made plutocrat. The top of the money tree is still festooned with inheritances. Just look at the widow of chocolatier Michele Ferrero, Maria Franca Fissolo, who at 98 is the fifth wealthiest woman on the planet; the offspring of the Lidl and Aldi dynasties and the three Mars siblings who are worth $80bn. One doesn’t need to be a Bolshevik to see that many of the world’s super-rich are recipients of dumb luck, born into the right family at the right time.

But that grotesque index tells us that something else has gone badly wrong. At the start of this decade, 388 billionaires owned as much as half the world. By 2011, that number had plunged to 117. Last year, it had fallen to 80. In other words, in the five years since the world recession, the very richest have grown inexorably wealthier. And that’s not because the global economy is booming, as every worker on a pay freeze and every family seeing their benefits cut knows. It’s because we are living in a period of trickle-up economics, in which the middle- and working-classes have handed over money to those right at the very top.

The 80s were the decade of trickle-down economics, with Thatcher and Reagan cutting taxes for the richest and promising that everyone else – from Easington to Port Talbot, Pittsburgh to Milwaukee – would soon feel the benefits. By contrast the past half-decade has been about trickle-up economics, in which the world’s most powerful central bankers have launched policies that have been explicitly about boosting the fortunes of the richest. The disbursement of thousands of billions in quantitative easing both in the US and the UK from 2009 onwards was meant to raise asset prices – and assets are by definition in the hands of the wealthy.

No wonder the Bank of England admitted that 40% of the gains from its £375bn QE programme went to the top 5% of British households. No wonder Stanley Druckenmiller, the billionaire hedge fund manager, labelled QE: “The biggest redistribution of wealth from the middle-class and the poor to the rich ever.”

The figures prove him right. According to the Berkeley economist Emmanuel Saez, between 2009 and 2012 the top 1% of American households took 91 cents out of each extra dollar that the country earned. The other 99% of Americans had to share the remaining 9 cents between them.

This didn’t happen in a fit of absent-mindedness. Rather, decades of burgeoning inequality – of the Davos set scooping more and more of the gains from growth – have enabled the super-rich to pretend that their narrow sectional interests are what’s good for the world economy. Policies as manifestly unfair as QE would never have happened in a fairer economy – the UK and US would have relied instead on public investment and government programmes.

Massive inequality has allowed the 1% to buy political influence as never before in postwar history. Indeed, the super-rich now practically write their own tax laws – such as the way senior executives of Britain’s biggest businesses were invited by George Osborne to advise on overhauling corporation taxes. They get to ensure that tax havens are treated with due leniency, all the better to hide their trillions in them. They buy their own politicians, as with the shadow-bankers who funded the Conservative election campaign or the billionaire Koch brothers using their fortune to tip the US presidential contest. Indeed, the more ambitious decide to become politicians. Think not just of Donald Trump but former bond trader turned media mogul turned mayor of New York Michael Bloomberg.

The great mistake made by the mainstream left and right, even by NGOs such as Oxfam, is in imagining that the super-rich, now enjoying such massive riches, are somehow playing by the same rules as the rest of us. That they are “wealth creators” providing jobs and investment for the rest of us, or that they might give up their tax havens. If that ever were the case, it isn’t now. A tiny minority has gained from massive tax cuts and legislative leniency about where they shove their money. They have siphoned off gains in salaries and profits wherever possible and enjoyed hundreds of billions flowing into their asset markets. Meanwhile, the rest of us who provide the feedstock for their revenues see our welfare states hollowed out, our wages frozen and our employers failing to invest. But none of that matters very much in Davos.

Capitalism simply isn't working and here are the reasons why

Economist Thomas Piketty's message is bleak: the gap between rich and poor threatens to destroy us

• 
• • Will Hutton
  • The Observer, Saturday 12 April 2014 20.30 BST

Thomas Piketty has mined 200 years of data to support his theory that capitalism does not work. Photograph: Ed Alcock for the Observer

Suddenly, there is a new economist making waves – and he is not on the right. At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty's book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.

Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.

The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".

For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.

As a result, the burden of paying for public goods such as education, health and housingis increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.

The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions – or end up going to war. Piketty fears a repeat. His critics argue that with higher living standards resentment of the ultra-rich may no longer be as great – and his data is under intense scrutiny for mistakes. So far it has all held up.

Nor does it seem likely that human beings' inherent sense of justice has been suspended. Of course the reaction plays out differently in different eras: I suspect some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.

The solutions – a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax – are currently inconceivable.

But as Piketty says, the task of economists is to make them more conceivable. Capital certainly does that.

Inherited wealth is an injustice. Let's end it

Inheritance, which rewards the wealthy for doing nothing, is once again becoming a key route to riches – just as it was in the Victorian era

• 
• • James Butler
  • theguardian.com, Wednesday 26 March 2014 15.08 GMT

'The transfer of wealth between generations allows access to privileges that are otherwise beyond reach.' Photograph: Cultura Creative (RF) / Alamy/Alamy

Inherited wealth is the great taboo of British politics. Nobody likes to talk about it, but it determines a huge number of outcomes: from participation in public life, to access to education, to the ability to save or purchase property. When David Cameron recently promised to raise the threshold for inheritance tax to £1m and praised "people who have worked hard and saved", he is singing from the hymn sheet of inherited inequality: it is, after all, easier to save if you inherit substantial sums to squirrel away, or if you can lock money in property that is virtually guaranteed to offer huge returns. Hard work has very little to do with it.

In 2010-11, the most recent period for which we have figures, 15,584 estates of 259,989 notified for probate paid inheritance tax. That is approximately 3% of all deaths that year. Already, inheritance tax is paid by a tiny fraction of all estates. The asset composition of these estates remains stable over time, with property composing about 50% of taxable estates; a disproportionate number of these are located in London and the south-east, reflecting the rocketing house prices in that corner of the country. The "nil-rate threshold" – the value under which inherited wealth is untouched by tax – currently stands at £325,000, frozen since April 2009. But that's only half the story. Since 2007, it has been possible for spouses to transfer their unused nil-rate band allowance to their surviving partner. This has lifted many estates in the £300-500,000 band out of inheritance tax altogether: at this point we are beginning to talk about substantial, indeed life-altering, sums of money.

Beyond these key figures lies a hinterland of tax-minimisation strategies through which assets can be exempted from tax, including various types of trust and business property relief. Despite nominal efforts to curb this kind of minimisation, there remains a booming market in financial advice tailored to avoidance. The knock-on effects of this minimisation are huge: it permits further concentration of wealth in the hands of those who already possess it, rewarding those cunning enough to avoid taxation, and cushioning their children with an influx of unearned wealth. There are obvious uses to which this can be put: paying off student loans early, thus avoiding interest, investing in buy-to-let property, or high-return financial products. It permits the children of the middle classes to sustain themselves through unpaid internships or unfunded study into secure middle-class careers, while locking these off from those without such resources. Given the chancellor's recent changes to pensions, the flow of cash into property as a secure income stream for the already wealthy is only likely to increase. Again, despite the rhetoric, this has little to do with hard work, but the preservation of wealth gaps between classes.

Why do we permit this? The transfer of wealth between generations is an injustice: it is a reward for no work, and a form of access to privileges that are otherwise beyond reach. Professor Thomas Piketty, in his new book Capital in the Twenty-First Century, makes the argument that, after a social-democratic blip in the middle of the last century, inheritance is once again becoming the key route to wealth. Piketty argues that if wealth is concentrated and the return on capital is higher than the economy's growth rate, inherited wealth will grow more rapidly than that stemming from work. This returns us to the terrain of Balzac and Austen, where the road to financial security is to target those who already possess wealth and, where possible, marry them. The data Piketty analyses – a huge and comprehensive set – suggests that the proportion of people receiving a sum in inheritance larger than the lifetime earnings of the bottom 50% is set to return to 19th-century levels in the next couple of decades. Pleasant news for our neo-Victorian government; less pleasant for the rest of us, and a disaster for anyone who cares about inequality.

It is difficult to justify inherited wealth from anything other than a class-partisan position. It is the point where the already threadbare veil of "meritocracy" falls off to reveal a fiscal system designed to reward already concentrated pots of wealth. Far from a Keynesian "euthanasia of the rentier", we are seeing the triumph of a rentier economy: in such conditions, rather than further accumulation by the sons and daughters of the wealthy, we should instead demand an end to inherited wealth entirely.

Brainwashed by the cult of the super-rich

Followers, in thrall to Harrods and Downton Abbey, repeat the mantra that the greed of a few means prosperity for all

• 
• • Priyamvada Gopal
  • The Guardian, Wednesday 25 December 2013 17.00 GMT

'We are invited to deceive ourselves into believing we are playing for the same stakes while worshipping the same ideals, a process labelled ­'aspiration'.' Photograph: Alamy

Last week, Tory MP Esther McVey, Iain Duncan Smith's deputy, insisted it was "right" that half a million Britons be dependent on food banks in "tough times". Around the same time, the motor racing heiress Tamara Ecclestone totted up a champagne bill of £30,000 in one evening. A rich teenager in Texas has just got away with probation for drunkenly running over and killing four people because his lawyers argued successfully that he suffered from "affluenza", which rendered him unable to handle a car responsibly. What we've been realising for some time now is that, for all the team sport rhetoric, only two sides are really at play in Britain and beyond: Team Super-Rich and Team Everyone Else.

The rich are not merely different: they've become a cult which drafts us as members. We are invited to deceive ourselves into believing we are playing for the same stakes while worshipping the same ideals, a process labelled "aspiration". Reaching its zenith at this time of year, our participation in cult rituals – buy, consume, accumulate beyond need – helps mute our criticism and diffuse anger at systemic exploitation. That's why we buy into the notion that a £20 Zara necklace worn by the Duchess of Cambridge on a designer gown costing thousands of pounds is evidence that she is like us. We hear that the monarch begrudges police officers who guard her family and her palaces a handful of cashew nuts and interpret it as eccentricity rather than an apt metaphor for the Dickensian meanness of spirit that underlies the selective concentration of wealth. The adulation of royalty is not a harmless anachronism; it is calculated totem worship that only entrenches the bizarre notion that some people are rich simply because they are more deserving but somehow they are still just like us.

Cults rely on spectacles of opulence intended to stoke an obsessive veneration for riches. The Rich Kids of Instagram who showed us what the "unapologetically uber-rich" can do because they have "more money than you" will find further fame in a novel and a reality show. Beyond the sumptuous lifestyle spreads in glossies or the gift-strewn shop windows at Harrods and Selfridges, and Gwyneth Paltrow's Goop website, shows like Downton Abbey keep us in thrall to the idea of moolah, mansions and autocratic power. They help us forget that wealthy British landowners, including the Queen, get millions of pounds in farming subsidies while the rest of us take back to the modest homes, which we probably don't own, lower salaries and slashed pensions. Transfixed by courtroom dramas involving people who can spend a small family's living income on flower arrangements, we don't ask why inherited wealth is rewarded by more revenue but tough manual labour or care work by low wages.

Cue the predictable charge of "class envy" or what Boris Johnson dismisses as "bashing or moaning or preaching or bitching". Issued by its high priests, this brand of condemnation is integral to the cult of the rich. We must repeat the mantra that the greed of a few means prosperity for all. Those who stick to writ and offer humble thanks to the acquisitive are contradictorily assured by mansion-dwellers that money does not buy happiness and that electric blankets can replace central heating. Enter "austerity chic" wherein celebrity footballers are hailed for the odd Poundland foray, millionaire property pundits teach us how to "make do" with handmade home projects and celebrity chefs demonstrate how to "save" on ingredients – after we've purchased their money-spinning books, of course.

Cultish thinking means that the stupendously rich who throw small slivers of their fortunes at charity, or merely grace lavish fundraisers – like Prince William's Winter Whites gala for the homeless at his taxpayer-funded Kensington Palace home – with their presence, become instant saints. The poor and the less well-off, subject to austerity and exploitation, their "excesses" constantly policed and criminalised, are turned into objects of patronage, grateful canvasses against which the generosity of wealth can be stirringly displayed. The cult of the rich propounds the idea that vast economic inequalities are both natural and just: the winner who takes most is, like any cult hero, just more intelligent and deserving, even when inherited affluence gives them a head start.

We are mildly baffled rather than galvanised into righteous indignation when told that the rich are being persecuted – bullied for taxes and lynched for bonuses. The demonising of the poor is the flip side of the cult of the rich or, as a friend puts it, together they comprise the yin and yang of maintaining a dismal status quo. It is time to change it through reality checks, not reality shows.

Understanding Germany and its Mittelstand ethos

Germany is right: there is no right to profit, but the right to work is essential

The strength of Germany lies in its medium-sized manufacturing firms, whose ethos includes being socially useful

• 
• • John Studzinski
  • The Guardian, Wednesday 6 February 2013

'The objective of every German business leader is to earn trust – from employees, customers, suppliers and society as a whole.' illustration by Belle Mellor

 

People talk too much about the economy and not enough about jobs. When economists, academics and bankers are allowed to lead the debate, the essential human element goes missing. This is neither healthy nor practical.

Unemployment should be our prime concern. Spain, with youth joblessness close to 50%, is in the gravest crisis, but there is hardly a government on the planet that is not wondering what it can do to guide school-leavers into work, exploit the skills of older workers, and avoid the apathy and alienation of the jobless, which undermines not just the economy but also the social fabric.

There may be no definitive answer but, over the past half-century, Germany has come closest to finding it. Its postwar economic miracle was impressive, but its more recent ability to ride out recessions and absorb the costs of reunification is, perhaps, even more remarkable. Germany was not immune to the economic crisis of 2008-9, but the jobless rate rose more slowly than elsewhere in Europe. Although in recent months it has edged up towards 6.9%, it remains well below the euro area's 11.7% average. Germany's resilience springs from the strength of its medium-sized, often family-owned manufacturing companies, collectively known as the Mittelstand, which account for 60% of the workforce and 52% of Germany's GDP. So what can we learn from the Germans?
The enduring success of the Mittelstand has been well documented but rarely emulated. The standard excuse is that it is rooted in German history and culture and therefore unexportable. At a time when so much business is conducted on a global scale, via globally accessible media, this excuse is wearing thin.

Let me highlight some of the features unique to the Mittelstand model that I believe everyone should learn from – and imitate if they can. The first is what we might call the Mittelstand ethos – that business is a constructive enterprise that aims to be socially useful. Making a profit is not an end in itself: job creation, client satisfaction and product excellence are just as fundamental. Taking on debt is treated with suspicion. The objective of every business leader is to earn trust – from employees, customers, suppliers and society as a whole. This ethos chimes with the values of prudence and responsibility with which every schoolteacher hopes to imbue their pupils. Consequently, about half of all German high-school students move on to train in a trade. Business and education are natural bedfellows.

The second essential feature of the Mittelstand model is the collaborative spirit that generally exists between employer and employees. This can be dated back to the welfare state that Chancellor Otto von Bismarck established in the late 19th century to head off what he saw as the menace of socialism. Its modern-day equivalent is the system of works councils, which ensures that employees' interests are safeguarded, whether or not they belong to a trade union. German workers expect their employers to keep training them, enhancing their skills. In the post-reunification recession, it seemed only natural to German workers to offer flexibility on wages and hours in return for greater job security. More recently the government protected jobs by subsidising companies that cut hours rather than staff.

A third feature of the Mittelstand model is the determination of German companies to build for the long term. To this end, they tend to keep core functions such as engineering and project management in-house, while outsourcing production whenever this proves more efficient. Mittelstand companies are overwhelmingly privately owned, and thus largely free of pressure to provide shareholder returns. This makes them readier to innovate, and invest a larger proportion of their revenues in R&D. There are Mittelstand companies that file more patents in a year than do some entire European countries. It is one of the underlying reasons for their exporting success, even when their goods seem expensive.
Finally, German companies work closely with their suppliers. This has proved especially valuable in developing Sino-German trade. Unlike most of their international competitors, they are happy to take suppliers' representatives on trade missions. The result is that they can guarantee swift and sure supplies of components and other products. Chinese customers are not the only ones willing to pay extra for this kind of service excellence.

Of course, there are other factors that lie behind the success of the Mittelstand and of the German economy as a whole. Both the economy and political system are highly decentralised, with the result that local banks, businesses, entrepreneurs and politicians know and understand each other, making everyday co-operation easier – while, at the national level, Germany's leaders rarely miss an opportunity to promote their country's industry abroad.

Nonetheless, there is much that non-Germans could learn from. To close the gap between education and business, companies should take a greater interest in their local schools and colleges. If you haven't got spare cash for sponsoring gyms or computer equipment, go and talk to sixth-formers or degree students about what you do. Find out what graduates aspire to. It will help you to work out how to attract the next generation.

If you want to get more out of your employees and suppliers, consult them; invite them into your confidence. Don't complain: "We're not like the Germans. It won't work here." Think of a different way. Try harder.

The same applies to governments. Let me mention one simple legislative option. In German law, the owner of a family business who passes it on to the next generation can avoid paying inheritance tax if, during their tenure, they have increased employment and thereby benefited the economy. What better signal could a government give than by favouring those who create employment?

There is no question in my mind about which is the single most important feature of the Mittelstand model – its underlying ethos, which is based not on dry economic theory, but on everyday, practical humanity. The notion that business should be socially useful may have sprung from Germany's postwar conscience, but it has resonance now, when so many of our citizens are still suffering from the aftermath of the credit crunch and the failures of leadership it exposed.

There is no right to make a profit, and profit has no intrinsic value. But there is a right to work, and it is fundamental to human dignity. Without an opportunity to contribute with our hands or brains, we have no stake in society and our governments lack true legitimacy. There can be no more urgent challenge for our leaders. The title of the next G8 summit should be a four-letter word that everyone understands – jobs.

A web of privilege supports this so-called meritocracy

On both sides of the Atlantic, the social ties that bind our political, legal and corporate forces lie exposed

• 
• • Gary Younge
  • guardian.co.uk, Sunday 6 May 2012 21.59 BST 
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‘The meetings, lunches and visits showcase a parallel, unaccountable universe where decisions are made and deals done.' Photograph: Laurence Griffiths/Getty

Shortly after Mitt Romney's failed 2008 campaign for the Republican nomination his son Tagg set up a private equity fund with the campaign's top fundraiser. One of the first donors was his mum, Anne. Next came several of his dad's financial backers. Tagg had no experience in the world of finance, but after two years in the middle of a deep recession the company had netted $244m from just 64 investors.

Tagg insists that neither his name nor the fact that his father had made it clear he would run for the presidency again had anything to do with his success. "The reason people invested in us is that they liked our strategies,'' he told the New York Times.

Class privilege, and the power it confers, is often conveniently misunderstood by its beneficiaries as the product of their own genius rather than generations of advantage, stoutly defended and faithfully bequeathed. Evidence of such advantages is not freely available. It is not in the powerful's interest for the rest of us to know how their influence is attained or exercised. But every now and then a dam bursts and the facts come flooding forth.

The Leveson inquiry has provided one such moment. It was set up last year to look into the specific claims about phone hacking at the News of the World, alleged police corruption and the general culture and ethics of the British media. But every time it probes harder into the Murdoch empire it draws blood from the heart of our body politic, telling us a great deal about how Britain's political class in particular and ruling class in general collude, connive and corrupt both systemically and systematically.

Issues of alleged criminality will eventually be determined in the courts. But while illegality would be more damning, much of what we now know that is legal is no less corrosive. The evidence has laid bare the intimate, extensive and insidious web of social, familial and personal ties between the political, corporate and legal forces that govern a country: a patchwork of individual and institutional associations so tightly interwoven that to pick at one part is to watch the whole thing unravel. The "sit downs", pay-offs and class camaraderie on display owe more to a cross between Downton Abbey and the Sopranos than the functioning of a 21st-century democracy.

The details of the main narrative bear repeating. We now know that James Murdoch met with David Cameron 12 times between January 2006 and January 2010 – eight times for dinner, twice for breakfast, once for lunch and once for drinks. Between May 2010 and July 2011 there were also more than 60 meetings between ministers and either Rupert Murdoch, his son James, the then News International chief executive Rebekah Brooks or James Harding, the editor of the Times. That averages around one a week. We know there were more, but not all were logged as such by Downing Street.

The subplots are stunning. And the forthcoming attractions could yet overshadow the lot. Now that Brooks has agreed to hand over her text messages to Cameron, we are about to learn whether rumours that they exchanged as many as 12 texts a day are true.

Brooks was arrested both on suspicion of phone hacking and corruption last year. She was arrested again this year with her husband, Charlie Brooks, on suspicion of perverting the course of justice. Charlie went to Eton with Cameron – as did the Tory mayor of London, Boris Johnson.

Such is the incestuous nature of the British ruling class and the gene puddle from which it draws its stock. Such is their brazen venality, complicity, contempt and mendacity. Eton, Oxford, Bullingdon, Westminster – if you're looking for a tiny minority who are struggling to integrate, look no further than the cabinet.

Two things make this a matter of import as well as intrigue. The first is the lie it gives to the insistence on meritocracy at a time of acute economic crisis when benefits are slashed, the poor hammered. Cameron and his cabinet insist others pull themselves up by their bootstraps even as they themselves swan around in their parents' expensive pairs of loafers. Today almost 40% of MPs went to private school. In 1997 it was just 30%. In terms of social mobility, we are going backwards. The issue here is not class envy but class entrenchment. The fact that they were born rich is irrelevant. They had no choice in the matter. But the fact that they appear to want to give even more to those who already have a great deal while denying much to those who have little is unforgiveable.

The one job Cameron landed in the private sector was arranged by his wife's mother, Lady Astor, who was friends with Michael Green, then executive chairman of Carlton. Green gave Cameron a starting salary of £90,000. He has no more had to stand on his merits than James Murdoch had to interview for a job at News Corp.

Rocked in the cradle of power from birth so that its rhythms become second nature, these people imbibe their sense of entitlement with their mother's milk. But the personal tutors, private schools, the most expensive universities do not, somehow, suffice. As though the benefits of wealth were not enough, they apparently feel the need to game the very system they already control.

Which brings us to the manner in which these interactions mock the very notion of democracy on which the nation's illusions are based. For the meetings, lunches and visits showcase a parallel, unaccountable universe where actual decisions are made and deals are done. All these informal gatherings took place at a time when the government was supposed to be adjudicating News Corporation's bid to take over BSkyB. With the culture secretary described by Murdoch's lobbyist as a "cheerleader" for News International, it seems as if the takeover was to all intents and purposes a done deal, prevented only by the fallout from the hacking scandal. All the kinks ironed out on horseback and settled in time for the main course. Parliament would have been a mere rubber stamp. Oversight reduced to an afterthought in a House of Commons that may soon more closely resemble a house of cards.

The biblical foundation for a celibate priesthood is flimsy, and now cracks are beginning to show in the Catholic church's ban on marriage for those in holy orders

The troubled history of priests, sex and the church may be at a turning point

• 
• • Sophia Deboick
  • guardian.co.uk, Friday 16 September 2011 19.00 BST
  • larger | smaller

In a new autobiography published this week, Father Edward Daly, former bishop of Derry and the handkerchief-waving priest of the famous Bloody Sunday photograph, has called for an end to the celibacy rule for Catholic priests. Pointing to the severe decline in numbers of serving clergy (while the worldwide Catholic population has almost doubled since 1970, the number of priests has remained virtually static), Daly believes crisis could be averted by allowing priests to marry. Many see clerical celibacy as fundamental to the church, but in fact it is a religious tradition rather than a strict scriptural prohibition, and it has been far from universally observed throughout its history.

The biblical foundation for a celibate priesthood is flimsy. While Saint Paul recommended celibacy, he thought anyone who cannot "contain themselves" should marry, "for it is better to marry than to be burnt" (1 Corinthians 7:9). Further, the Gospels spoke of apostles who were married, with no hindrance to their ministry. But the model of Christ's own celibacy (emulated by the priest acting "in persona Christi") marked it out as a higher calling, and ultimately an unmarried priest would be more committed to his religious duties, his celibacy giving him the "power to attend upon the Lord, without impediment" (1 Corinthians 7:35).

The first official attempt to impose celibacy on those in holy orders was made at the Council of Elvira (c 306), and efforts to enforce it followed throughout the middle ages. But how it played out in practice varied enormously, and stories of married clergy and fornicating popes abounded. Pope John XII was accused by a 10th-century synod of having "fornicated with the widow of Rainier, with Stephana his father's concubine, with the widow Anna, and with his own niece, and he made the sacred palace into a whorehouse".

Unperturbed by such examples, the First and Second Lateran Councils in the 12th century decreed that clerical marriages were invalid, but Thomas Aquinas asserted a century later that this was not the decree of God, but merely church law, reversible by papal or conciliar authority. Indeed, in the middle ages the prohibition of marriage had less to do with spiritual concerns than the conservation of church property. Married priests meant legitimate heirs and the loss of church assets through inheritances – something that couldn't be countenanced.

The 16th-century Council of Trent confirmed the celibacy rule (just as the Church of England was abolishing it), but it was only in the 20th century that priestly celibacy, along with all matters of sexual morality, became an obsession for the church hierarchy. Following the reforms of the Second Vatican Council, Pope Paul VI issued the encyclical Sacerdotalis Caelibatus, reaffirming the fundamental value of celibacy as allowing "a closer and more complete relationship with the mystery of Christ and the Church for the good of all mankind".

Yet the encyclical also permitted the possibility of married clergy from other Christian traditions being ordained as Catholic priests, and cracks began to show in the edifice. Although Pope Benedict rejected the idea of married priests in 2006, he has since taken up Paul VI's baton by allowing defecting married Anglican ministers to enter the church.

The absolute prohibition on married Catholic priests has gone, and with suggestions (of debatable credibility) of a link between the church's child abuse crisis and celibacy, last year's plaintive call for the abolition of the rule from Italian women romantically involved with priests, and the proliferation of groups advocating a married priesthood, a new chapter in the troubled history of priests, sex and the church may be opening.

•  © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved.

Oxbridge walls that can't be scaled

 

Johann Hari

A blunt, blind admissions system still discriminates in favour of wealthy interview-machines

Thursday, 4 September 2008

Nothing causes a louder shriek in Britain than if you challenge the right of the rich to pass their privilege untouched on to their children. The shadow chancellor George Osborne has just decreed that the richest 1 per cent will – under David Cameron – be allowed to inherit £2 million estates they have done nothing to earn without paying a penny of it towards schools and hospitals. The "horror" of inheritance tax – introduced in the great progressive wave of the Edwardian era – will be over. This has been greeted with a gurgle of pleasure by Conservatives; why should anyone get in the way of wealth "cascading down the generations", as a Tory Prime Minister once put it?

Over the next few months, an even more tender spot for the privileged will be pressed: Oxford and Cambridge admissions. Today, a third of all Oxbridge students come from just 100 top schools. For example, half of the entire intake of £20,000-a-year Westminster School go there every year: some 410 pupils. The wealthy now have a taken-for-granted expectation that their kids will go to the best universities.

Some on the right, like the late Bill Deedes, explained this by saying the wealthy are a genetic over-class who naturally have cleverer children. But there's a hole in the side of this theory: several studies have shown that when rich people adopt kids from poor backgrounds, those children go on to do just as well.

To see how this buying of unearned privilege works, I have to introduce you to two people I know who applied to study Philosophy at the same Cambridge college as me in 1998. The first is a likeable, confident guy whose parents are wealthy businesspeople. Let's call him Andrew. They sent him to one of the most expensive private schools in Britain, and he had never been in a class larger than 12. He was trained for over a year for his Cambridge interview – a near-scientific drill that included one-on-one tuition by Oxbridge graduates, extensive rewriting of his application form "with" a teacher, and even being videoed so his body language could be analysed.

The other person, by contrast, was a chain-smoking teenager brought up on an Enfield estate by her dinner-lady mum. Laura wrote her application alone, and she had no preparation for her interview at all. None. Most of her A-level classes had 25 people in them, and were led by teachers who hadn't even got top grades themselves. Andrew got four As. Laura got an A and three Bs.

Who had demonstrated they were smarter? I'd say Laura did – but she was rejected, while Andrew got in. His training – and a lifetime in such surroundings – paid off. Laura was nervous, and her complex thoughts about Nietzsche and Hume and Russell must have appeared less polished. It was Cambridge's loss: the cleverer student got away. This isn't a stray anecdote. For too long, it was the main story. In 2006, for example, the gap between the best private schools and the best grammar schools in exam results was just 1 per cent – but the private schools students were still twice as likely to be admitted.

Here's where we get to the pressure-point. For the past few years, senior figures in Oxford and Cambridge – pressured by a Labour government – have resolved this can't go on. They want to run a university for the best, not a highbrow finishing school. So they have begun to introduce very mild reformist measures. Instead of just looking at the surface of exam and interview performance, they will judge them in the context of the student's life. They'll look at your school's average exam grades, whether your parents went to university, and the area you're from: if you got good grades at a school in Moss Side, you'll be rated higher. This is painted by huffing headmasters at private schools as "positive discrimination". But the choice is not between a system that discriminates and one that doesn't. It's between a blunt, blind admissions system that discriminates in favour of wealthy well-trained interview-machines, and a sophisticated, seeing one that snuffles out the genuinely clever.
Soon the green shoots of these new policies will become clear. Geoff Parks, Cambridge's Director of Admissions, says early indicators show there will be a "significant" increase in pupils from normal backgrounds this year. Expect a firestorm of anger. The right-wing press will rage that "middle-class" children are being "persecuted". Their definition of "middle-class" is increasingly comic: the median wage in Britain is £24,000. Half of us earn more; half of us earn less. Yet they describe as "Middle England" people who spend that entire sum every year on one child's schooling.

Often, the privileged will defend their place merely with a visceral howl of "It's mine!" For example, David Cameron's relative Harry Mount has written an angry article asking, "What's wrong with keeping Oxford within the family?" He admits his success at his interview was "staggeringly unfair" but went on to say the only problem is rich people can't buy preference for their children outright with "donations."

There will be furious predictions that Oxbridge will collapse under a "chav-alanche" of inferior students. Those of us who believe that in Britain you should be able to get to the top if you are smart need to push back hard for these changes to be stepped up. Of course Oxbridge can't get us all the way to genuine meritocracy. For that, the schools system needs to be reworked to be genuinely comprehensive, rather than the parody we have today where they are split between good schools selecting by house-price and sink schools for the rest. But even with the unequal products of that system, Oxbridge can go a lot further.

In the 1970s, when the former Conservative Prime Minister Harold Macmillan was Chancellor of Oxford University, he was amazed by the changes in the admissions process. "In my day," he said, "all they asked you was where you got your boots made." In the 2040s, we will be equally astonished that Oxbridge used to rely so heavily on interviews that give an unfair advantage to the well-drilled children of the wealthy.

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