Never mind aid, never mind loans: what poor nations are owed is reparations

At Cop26 the wealthy countries cast themselves as saviours, yet their efforts are hopelessly inadequate and will prolong the injustice writes George Monbiot in The Guardian

Excerpt from a painting depicting the British East India Company in India, 1825-1830. Photograph: Print Collector/Getty Images  


The story of the past 500 years can be crudely summarised as follows. A handful of European nations, which had mastered both the art of violence and advanced seafaring technology, used these faculties to invade other territories and seize their land, labour and resources.

Competition for control of other people’s lands led to repeated wars between the colonising nations. New doctrines – racial categorisation, ethnic superiority and a moral duty to “rescue” other people from their “barbarism” and “depravity” – were developed to justify the violence. These doctrines led, in turn, to genocide.

The stolen labour, land and goods were used by some European nations to stoke their industrial revolutions. To handle the greatly increased scope and scale of transactions, new financial systems were established that eventually came to dominate their own economies. European elites permitted just enough of the looted wealth to trickle down to their labour forces to seek to stave off revolution – successfully in Britain, unsuccessfully elsewhere.

At length, the impact of repeated wars, coupled with insurrections by colonised peoples, forced the rich nations to leave most of the lands they had seized, formally at least. These territories sought to establish themselves as independent nations. But their independence was never more than partial. Using international debt, structural adjustment, coups, corruption (assisted by offshore tax havens and secrecy regimes), transfer pricing and other clever instruments, the rich nations continued to loot the poor, often through the proxy governments they installed and armed.

Unwittingly at first, then with the full knowledge of the perpetrators, the industrial revolutions released waste products into the Earth’s systems. At first, the most extreme impacts were felt in the rich nations, whose urban air and rivers were poisoned, shortening the lives of the poor. The wealthy removed themselves to places they had not trashed. Later, the rich countries discovered they no longer needed smokestack industries: through finance and subsidiaries, they could harvest the wealth manufactured by dirty business overseas.

Some of the pollutants were both invisible and global. Among them was carbon dioxide, which did not disperse but accumulated in the atmosphere. Partly because most rich nations are temperate, and partly because of extreme poverty in the former colonies caused by centuries of looting, the effects of carbon dioxide and other greenhouse gases are felt most by those who have benefited least from their production. If the talks in Glasgow are not to be experienced as yet another variety of oppression, climate justice should be at their heart.

The wealthy nations, always keen to position themselves as saviours, have promised to help their former colonies adjust to the chaos they have caused. Since 2009, these rich countries have pledged $100bn (£75bn) a year to poorer ones in the form of climate finance. Even if this money had materialised, it would have been a miserly token. By comparison, since 2015, the G20 nations have spent $3.3tn on subsidising their fossil fuel industries. Needless to say, they have failed to keep their wretched promise.

In the latest year for which we have figures, 2019, they provided $80bn. Of this, just $20bn was earmarked for “adaptation”: helping people adjust to the chaos we have imposed on them. And only about 7% of these stingy alms went to the poorest countries that need the money most.

Instead, the richest nations have poured money into keeping out the people fleeing from climate breakdown and other disasters. Between 2013 and 2018, the UK spent almost twice as much on sealing its borders as it did on climate finance. The US spent 11 times, Australia 13 times, and Canada 15 times more. Collectively, the rich nations are surrounding themselves with a climate wall, to exclude the victims of their own waste products.

But the farce of climate finance doesn’t end there. Most of the money the rich nations claim to be providing takes the form of loans. Oxfam estimates that, as most of it will have to be repaid with interest, the true value of the money provided is around one third of the nominal sum. Highly indebted nations are being encouraged to accumulate more debt to finance their adaptation to the disasters we have caused. It is staggeringly, outrageously unfair. 

Never mind aid, never mind loans; what the rich nations owe the poor is reparations. Much of the harm inflicted by climate breakdown makes a mockery of the idea of adaptation: how can people adapt to temperatures higher than the human body can withstand; to repeated, devastating cyclones that trash homes as soon as they are rebuilt; to the drowning of entire archipelagos; to the desiccation of vast tracts of land, making farming impossible? But while the concept of irreparable “loss and damage” was recognised in the Paris agreement, the rich nations insisted that this “does not involve or provide a basis for any liability or compensation”.

By framing the pittance they offer as a gift, rather than as compensation, the states that have done most to cause this catastrophe can position themselves, in true colonial style, as the heroes who will swoop down and rescue the world: this was the thrust of Boris Johnson’s opening speech, invoking James Bond, at Glasgow: “We have the ideas. We have the technology. We have the bankers.”

But the victims of the rich world’s exploitation don’t need James Bond, nor other white saviours. They don’t need Johnson’s posturing. They don’t need his skinflint charity, or the deadly embrace of the bankers who fund his party. They need to be heard. And they need justice.

Eat the rich! Why millennials and generation Z have turned their backs on capitalism

Owen Jones in The Guardian

The young are hungry and the rich are on the menu. This delicacy first appeared in the 18th century, when the philosopher Jean-Jacques Rousseau supposedly declared: “When the people shall have no more to eat, they will eat the rich!” But today this phrase is all over Twitter and other social media. On TikTok, viral videos feature fresh-faced youngsters menacingly raising their forks at anyone with cars that have start buttons or fridges that have water and ice dispensers.

So should the world’s billionaires – and fridge-owners – start sleeping with one eye open? Hardly. It’s clear that millennials (those born between the early 80s and the mid-90s) and zoomers (the following generation) are not really advocating violence. But it is also clear that this is more than just another viral meme.

The world’s most famous leftwing millennial, New York’s rebellious Democrat Alexandria Ocasio-Cortez, neatly sums up the generation’s zeitgeist. If leftism often seems to be the preserve of socially awkward nerds – hi! – and shouty older white men, she is the totem of the cool kids who like their redistribution of wealth and power with a hefty side order of mainstream popular culture.

It doesn’t sit easily with some: when the congresswoman accepted a free invitation to the uber-exclusive Met Ball in a dress emblazoned with “Tax the rich”, even some leftists joined the right in puffed-up outrage. Whether you thought it was an audacious demand for the sickeningly rich to cough up at their own exclusive party – or a stunt compromised by taking place in a real-life version of The Hunger Games’s Capitol – it showed that elites can’t escape the young flexing their political muscles.

According to a report published in July by the rightwing thinktank the Institute for Economic Affairs (IEA), younger Britons have taken a decidedly leftwing turn. Nearly 80% blame capitalism for the housing crisis, while 75% believe the climate emergency is “specifically a capitalist problem” and 72% back sweeping nationalisation. All in all, 67% want to live under a socialist economic system.

With a seemingly hegemonic Tory party on a high after routing Corbynism, the IEA warned that the polling is a “wake-up call” for supporters of market capitalism. “The rejection of capitalism may be an abstract aspiration,” it says. “But so too was Brexit.” It’s a striking phenomenon on the other side of the Atlantic, too: a Harvard University study in 2016 found that more than 50% of young people in the heartland of laissez-faire economics reject capitalism, while a 2018 Gallup poll found that 45% of young Americans saw capitalism favourably, down from 68% in 2010.

Jack Foster, a 33-year-old bank worker from Salford, shows how lived experience has fed this disillusionment with capitalism. After he dropped out of university and worked in a call centre – a “horrible job” – the financial crash shaped his political attitudes, as they did for much of his generation. But housing loomed particularly large. “I was renting, thinking: ‘How will I ever be able to afford a house?’” he says. “My mum was a cleaner, my dad was disabled, and the people I knew who could afford a house got help off their parents. It wasn’t a case of having a job and saving up; you had to inherit money.”

Dating apps are another, less formal way of seeing where the wind blows. The apps have increasingly become no-go zones for Tory supporters. Given Labour had a 43-point lead among the under-25s in the last election – unlike in 1983, when the Tories had a nine-point lead among our youngest voters – the dating pools of the youthful true blue have shrunk. “No Tories – it’s a deal breaker”, “Absolutely no Tories (the left are sexier anyway, facts)”, “Swipe right if you vote left” and “Just looking for someone to hold hands with at the revolution” adorn profiles on Tinder, Hinge and Bumble.

Many of the young have concluded that an economic strategy that penalises them, coupled with a “culture war” that denigrates many of their deeply held values, amounts to a Tory declaration of war on their generation. Anyone who buys into that is, therefore, deemed profoundly unsexy.

For the IEA’s Kristian Niemietz, this is partly down to a “reputational change” for socialism. Once associated with “fringe groups”, he thinks it is now more “a fashion statement, definitely on social media, where people construct a socialist persona which they use for image purposes”. Where he agrees with the left is that an epic housing crisis should receive much of the blame for its renewed attractiveness.

“Whether you ask free marketeers, conservatives, centrists, the centre-left or socialists, all believe the UK has a housing crisis, that it’s a massive problem, but all have different answers about where it comes from and what to do about it,” he says. “If people are getting ripped off and think the market is rigged against them, the one way people can react to that is to generalise: ‘This is what capitalism is like – what the market is like’, making them more sympathetic to socialist ideas.”
Rather than a ‘property-owning democracy’, Britain looks more like a landlord’s paradise. Illustration: Jacky Sheridan/The Guardian

In the 80s, Margaret Thatcher’s ideological mentor Keith Joseph described the push for homeownership as resuming “the forward march of embourgeoisement which went so far in Victorian times”. The great hope, for many Thatcherites, was that the “right to buy” would transform Labour-voting council tenants into Tory-supporting homeowners, a view later echoed by either David Cameron or George Osborne, one of whom Nick Clegg recalled objecting to building more social housing on the grounds that “it just creates Labour voters”.

But rather than the “property-owning democracy” promised by Thatcherism, Britain looks more like a landlords’ paradise. By 2017, 40% of the homes flogged off under right to buy were owned by private landlords charging twice the rent of council properties. Indeed, in the space of two decades, the odds of a young adult on a middle income owning a home more than halved. These young people have been called generation rent, with about half of the under-35s in England renting in a private sector often defined by extortionate rents and insecurity.

Rents in England take up approaching half of a tenants’ take-home pay, and an astonishing 74.8% in London, up one-third since the century began. And if millennials bet the house, so to speak, on a parental lifeboat, disappointment beckons: the typical inheritance age is between 55 and 64, and the median amount handed down is about £11,000, meaning half receive less.

There is no rational reason, of course, for the young to defend this economic system. According to a 2019 poll by the charity Barnardo’s, two-thirds of under-25s believe their generation will be worse off than their parents. Keir Milburn, an academic and the author of Generation Left – which argues widespread leftist sympathies among the young are a modern phenomenon bred by economic conditions – says this pessimism is new. “For someone born in the 60s who came into adulthood, there was a sense of optimism, that things will be better,” he says. “It’s the Enlightenment, modernist attitude that things will get better, society will always generally progress. Now it’s just [the author] Steven Pinker who thinks this.”

David Horner, 30, a charity worker in London, began feeling disenchanted with the prevailing system when he was at university. Now he has a child on the way, he worries about the world he’s bringing them into. From working with younger people from poorer communities to listening to the experiences of friends working in crisis-ridden health and education services, he’s in no doubt about the problem. “But we’re told this is the apex, the best we can get as a political economic system, and any alternative – even if it’s seemingly not that radical – just gets pushed away, that this is the way things have to be,” he says. “As I’ve got older, there’s that unfortunate feeling that you don’t want to accept the way things are, but there’s so much power, and corporations and people with vested interests in capitalism and the way the economy works at the moment.”

A generation was told that it was important to go to university to have a salary you could live on. But the earnings gap between graduates and non-graduates has fallen substantially and, despite England’s graduates accruing a student debt of £40,280 in 2020, more than one-third of employed Britons with a degree work in non-graduate jobs. In the years that followed the financial crash, and austerity in particular, it was the wages of young workers that fell the most in a protracted living-standards squeeze without precedent since the Victorian era.

Formal education plus economic insecurity is a heady mix, but it’s not the only phenomenon at play. Non-academic routes to a secure standard of living have been stripped away, such as the skilled apprenticeships available to so many 16-year-old school leavers in the past. Young working-class voters were considerably more likely to vote Labour in 2017 than their middle-class counterparts.

But a profound existential question has led many young people to question the entire economic system. “I saw a post on Instagram the other day asking if you’d rather travel a hundred years backwards or forwards in time, and all the comments asked: ‘Are we even going to be around in a hundred years?’” says Haroon Faqir, a 22-year-old graduate. “Those comments sum up people my age and our attitudes towards the problems we face in a capitalist system.”

Emily Harris, 20, a student in London, says her biggest worry is that “there’s not even going to be a planet: we’ve got Jeff Bezos launching himself into space while Las Vegas runs out of water and half the world’s on fire. If these billionaires stopped making money they could solve all of these problems and still have billions in the bank.”

While much of the mainstream media offers little sympathy for the insecurities and aspirations of younger Britons, the internet has offered a political education. The journalist Chanté Joseph is 25, placing her in the borderlands between millennial and zoomer. “[The microblogging site] Tumblr radicalised me,” she says. “Reading about race, identity and class made me think: ‘This is all crazy,’ and opened my eyes.”

Many of her generation then migrated to Twitter and TikTok, she says, “where young people create a lot of political content that’s really personable and relatable. That’s why a lot of younger people feel more radical – it seems more normal when these ideas are explained in a way where you think: ‘How can you possibly disagree?’”

More than one-third of workers on zero-hours contracts – often not knowing how much they will be paid week to week – are under 25, while many others are in “bogus self-employment”, where they are registered as self-employed but are actually working on contract for one employer while deprived of rights such as a minimum wage or holiday pay. The free market would bring them freedom, they were told; instead it gifted them insecurity.

The sacrifices made by young people during the pandemic have further crystallised a sense of injustice. Hannah Baird, a 22-year-old student, grew up in Rotherham and has always felt dissatisfied by the status quo. Her fears about the climate emergency, and exposure to dissenting opinions on social media, strengthened her discontent. “During the pandemic it feels like a lot of blame has been put on young people for the cases,” she says. “I still have to pay the full tuition fees when exclusively doing online lessons for a year and a half, which feels like a slap in the face, and it always seems universities were the last to be mentioned in plans for unlocking. It just feels, in general, that the government don’t really care about our generation, like we’re left behind.”

That doesn’t mean the young have been transformed into committed revolutionary socialists, but of those millennials familiar with Karl Marx, half have a positive view of him, compared with 40% of generation X and just 20% of baby boomers.

In Beautiful World, Where Are You – the latest novel by the millennial author Sally Rooney – it’s not just the sex that is sexy. One of her characters mulls over how everyone is talking about communism. “When I first started talking about Marxism, people laughed at me,” they say. “Now it’s everyone’s thing.” While it’s probably not the backbone of the patter at newly bustling nightclubs in Newcastle or Cardiff, there’s no question that a post-cold war youth is far more open to this once roundly condemned 19th-century philosophy.

Many placed their faith in Jeremy Corbyn’s leadership to offer solutions to their economic grievances; recent polling suggests that younger Labour voters are nearly twice as likely to believe he would be a better leader than Keir Starmer.

Most young people are not immersed in radical literature, yet politicised zoomers and millennials leave an ideological footprint in their friendship groups. But this doesn’t mean the left should simply bank the two rising generations, waiting for demographics to eventually grant the political victory that has so far eluded them. As the economist James Meadway warned in a recent article, entitled Generation Left Might Not Be That Left After All, populist rightwing answers to their disenchantment might cut through. In France, many young people have swung to the far right; in the UK, few are members of trade unions, which historically help craft anti-capitalist attitudes; while some classically rightwing sentiments coexist with leftish attitudes among many young people.

The rich – whose wealth surged during the pandemic – remain uneaten. But it is clear that young people see no rational incentive to back a system that seems to offer little other than insecurity and crisis.

Patents are preventing the manufacture of Covid-19 vaccines

 

The Poor and the Covid vaccine

Achal Prabhala and Leena Menghaney in The Guardian

As the UK’s vaccination programme was “knocked off course” due to a delay in receiving five million doses of the AstraZeneca vaccine from India, a far more chilling reality was unfolding: about a third of all humanity, living in the poorest countries, found out that they will get almost no coronavirus vaccines in the near future because of India’s urgent need to vaccinate its own massive population.

It’s somewhat rich for figures in Britain to accuse India of vaccine nationalism. That the UK, which has vaccinated nearly 50% of its adults with at least one dose, should demand vaccines from India, which has only vaccinated 3% of its people so far, is immoral. That the UK has already received several million doses from India, alongside other rich countries such as Saudi Arabia and Canada, is a travesty.

The billions of AstraZeneca doses being produced by the Serum Institute in India are not for rich countries – and, in fact, not even for India alone: they are for all 92 of the poorest countries in the world.

Except they’re now being treated as the sovereign property of the Indian government.

How did we get here? Exactly one year ago, researchers at Oxford University’s Jenner Institute, frontrunners in the race to develop a coronavirus vaccine, stated that they intended to allow any manufacturer, anywhere, the rights to their jab. One of the early licences they signed was with the Serum Institute, the world’s largest vaccine manufacturer. One month later, acting on advice from the Gates Foundation, Oxford changed course and signed over exclusive rights to AstraZeneca, a UK-based multinational pharmaceutical group.

AstraZeneca and Serum signed a new deal. Serum would produce vaccines for all poor countries eligible for assistance by Gavi, the Vaccines Alliance – an organisation backed by rich countries’ governments and the Gates Foundation. These 92 nations together counted for half the world – or nearly four billion people. India’s fair share of these vaccines, by population, should have been 35%. However there was an unwritten arrangement that Serum would earmark 50% of its supply for domestic use and 50% for export.

The deal included a clause that allowed AstraZeneca to approve exports to countries not listed in the agreement. Some countries which asked for emergency vaccine shipments from Serum, including South Africa and Brazil, were justified: they had nothing else. Rich countries like the UK and Canada, however, which had bought up more doses than required to vaccinate their people, to the detriment of everyone else, had no moral right to dip into a pool of vaccines designated for poor countries.

Paradoxically, when South Africa and India asked the World Trade Organization to temporarily waive patents and other pharmaceutical monopolies so that vaccines could be manufactured more widely to prevent shortfalls in supply, among the first countries to object were the UK, Canada and Brazil. They were the very governments that would later be asking India to solve their own shortfalls in supply.

The deal did not include restrictions on what price Serum could charge, despite AstraZeneca’s pledge to sell its vaccine for no profit “during the pandemic”, which led to Uganda, which is among the poorest countries on Earth, paying three times more than Europe for the same vaccine. (An AstraZeneca spokesperson told Politico that the “price of the vaccine will differ due to a number of factors, including the cost of manufacturing – which varies depending on the geographic region – and volumes requested by the countries”.)

As it became clear that the western pharmaceutical industry could barely supply the west, let alone anywhere else, many countries turned to Chinese and Russian vaccines. Meanwhile, the Covax Facility – the Gavi-backed outfit that actually procures vaccines for poor countries – stuck to its guns and made deals exclusively with western vaccine manufacturers. From those deals, the AstraZeneca vaccine is now the only viable candidate it has. The bulk of the supply of this vaccine comes from Serum, and a smaller quantity from SK Bioscience in South Korea. As a result, a third of all humanity is now largely dependent on supplies of one vaccine from one company in India.

Cue the Indian government’s involvement. Unlike western governments, which poured billions into the research and development of vaccines, there is no evidence that the Indian government has provided a cent in research and development funding to the Serum Institute. (This did not stop it turning every overseas vaccine delivery into a photo-op.) The government then commandeered approval of every single Covax shipment sent out from Serum – even, according to one well-placed source within the institute, directing how many doses would be sent and when.

The Indian government has not publicly commented on its involvement in the vaccine shipments and has refused requests for comment.

Last month, faced with a surge in infections, the Indian government announced an expansion of its domestic vaccination programme to include 345 million people, and halted all exports of vaccines. About 60m vaccine doses have already been dispensed, and the government needs another 630m to cover everyone in this phase alone. One other vaccine is approved for use – Bharat Biotech’s Covaxin – but it is being produced and utilised in smaller quantities. As more vaccines are approved, the pressure on Serum might decrease. For now, however, the bulk of India’s vaccination goals will be met by just one supplier, which faces the impossible choice of either letting down the other 91 countries depending on it, or offending its own government.

The consequences are devastating. To date, 28m Covax Facility doses have been produced by Serum for the developing world – 10m of which went to India. The second largest shipment went to Nigeria, which received 4m doses, or enough to cover only 1% of its population. Given the new Indian government order of 100m doses, further supplies to countries like Nigeria may be delayed until July. And given the Indian government’s need of 500m more vaccine doses in the short run, that date could surely be pushed out even further.

This colossal mess was entirely predictable, and could have been avoided at every turn. Rich countries such as the UK, the US, and those of the EU, and rich organisations such as Covax should have used their funding of western pharmaceutical companies to nip vaccine monopolies in the bud. Oxford University should have stuck to its plans of allowing anyone, anywhere, to make its vaccine. AstraZeneca and Covax should have licensed as many manufacturers in as many countries as they could to make enough vaccines for the world. The Indian government should have never been effectively put in charge of the wellbeing of every poor country on the planet.

For years, India has been called “the pharmacy of the developing world”. It’s time to rethink that title. We will need many more pharmacies in many more countries to survive this pandemic.

Are poor countries poor because of their poor people? Economic History in Small Doses 5

Girish Menon*

A bus driver in Mumbai gets paid around Rs.50 per hour whereas his equivalent in Cambridge gets paid £12 per hour. Using currency exchange rates, the Cambridge driver gets paid 24 times more than his Indian equivalent. Does that mean John the Cambridge driver is 24 times more productive than Om? If anything, Om would likely be a much more skilled driver than John because Om has to negotiate his way through bullock carts, rickshaws, bicycles and cows on the street.

The main reason why John is paid 24 times more than Om is because of protectionism. Some, British workers are protected from competition from workers in India, and soon from the EU, through immigration control.  (Technology has erased this protectionism in the relocation of many white collar jobs.) This form of protectionism goes unmentioned in the WTO (World Trade Organization) as countries raise their barriers to immigration of poor workers.

 Many people think that poor countries are poor because of their poor people. The rich people in poor countries typically blame their countries’ poverty on the ignorance, laziness and passivity of the poor. Arithmetically too, it is true that poor people pull down the national income average because of their large numbers.

 Little do the rich people in poor countries realize that their countries are poor not because of the poor but because of themselves. The primary reason why John is paid 24 times more than Om is because John works in a labour market with other people who are way more than 24 times more productive than their Indian counterparts. The top managers, scientists and engineers in the UK are hundreds of times more productive than their Indian equivalents, so the UK’s national productivity ends up being in the region of 24 times that of India.

In other words, poor people from poor countries are usually able to hold their own against counterparts in rich countries. It is the rich from the poor countries who cannot do that. It is their relative low productivity that makes their country poor. So, instead of blaming their own poor for dragging the country down, the rich of the poor countries should ask themselves why they cannot pull up the productivity and innovation in their own country,

Of course, the rich in rich countries need not get smug. They are beneficiaries of economies with better technology, better organized firms, better institutions and better physical infrastructure. Warren Buffet expressed it best:

 “I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong kind of soil. I will be struggling thirty years later. I work in a system that happens to reward what I do well – disproportionately well.”

 

* Adapted from 23 Things they don’t tell you about Capitalism by Ha Joon Chang

Does the WTO help a poor nation become rich? Economic History in Small Doses 4

 Girish Menon*

Today, when we look at the world that we live in, we find that Huawei (a Chinese technology company) is being subjected to a systematic campaign of defamation and discrimination among the US led group of developed countries. And the WTO watches on helplessly. Yet, in its “WhatWe Stand For” page the WTO (The World Trade Organisation) states it’s first principle as:

Non-discrimination

A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products, services or nationals.

The question this article attempts to explore is whether the WTO’s purpose is compatible with the desire of developing countries to join the ranks of the developed world.

 Let’s start with India and it’s Hindustan Motors (HM) company. Today HM’s cars are as ubiquitous as the dodo. Till the early 1990s it was so popular that it even enabled G D Birla to get a seat in heaven**. Ever since the Narasimha Rao government was forced to open up the Indian economy, after the economic crisis of the late1980s, HM has entered the books of Indian corporate history. The Indian government failed to protect HM because of the non-discrimination clause of the WTO and today there is no Indian car manufacturer visible on the horizon while her roads are choked with foreign brands.

The globalisation rhetoric dictates that countries stick to what they are already good at (theory of comparative advantage). Stated bluntly, this means that poor countries are supposed to continue with their current engagement in low-productivity activities. But their engagement in those activities is exactly what makes them poor. If they wish to leave poverty behind they have do the more difficult things that bring them higher incomes. And the WTO’s non-discrimination principle stops them from improving their earning capabilities.

 Today Toyota is the leading global brand in car manufacturing. It took Toyota more than 30 years of protection and subsidies to become competitive at the lower end of the car market. It was a good 60 years before it became one of the leading car makers in the world. It took nearly 100 years from the days of Henry VII for Britain to catch up with the Low Countries in woollen manufacturing. It took the US 130 years to develop its economy enough to feel confident about doing away with tariffs. Without such long time horizons, Japan might still be mainly exporting silk, Britain wool and the US cotton.

Unfortunately, poor countries are not allowed to adopt such time frames for developing their industries. The non-discrimination clause of the WTO demands that poor countries compete immediately with more advanced foreign producers, leading to the demise of their domestic firms before they can acquire new capabilities.

Like any other investment, investment in capability building is fraught with risk and does not guarantee success. Some countries make it and some don’t. And even the most successful countries will bungle things in certain areas.

However, economic development without investment in enhancing productive capabilities is a near impossibility.

 

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity

 

** When GD Birla died his secretary tried to get him a seat in Vaikuntha. The Dwarapalaka (gatekeeper) asked the secretary to state the reason why GD should be let into heaven.

The secretary: ‘GD is one of the biggest industrialists in India’.

Dwarapalaka: ‘Usually that involves doing acts which are not acceptable here. This is Vaikuntha; not some unquestioning tax haven for moneybags! Please let me know what he has done in the name of God’

The secretary: ‘GD has established many Birla temples all over India’

Dwarapalaka: ‘Birla is worshipped in these temples. Not good enough!’

The secretary: ‘GD is the owner of Hindustan Motors’

Dwarapalaka: ‘I am confused. How is that a case for entering heaven?’

The secretary: ‘Because whenever someone gets into an Ambassador car he says “Oh God” and whenever someone reaches her destination she says “Thank God”.

Dwarapalaka: That has definitely advanced the cause of God. Please ask him to come in’

This anecdote was first narrated by the late Sharu Rangnekar. It has been modified by the author.

We're not all in coronavirus together

‘The virus does not discriminate,” suggested Michael Gove after both Boris Johnson and the health secretary, Matt Hancock, were struck down by Covid-19. But societies do. And in so doing, they ensure that the devastation wreaked by the virus is not equally shared writes Kenan Malik in The Guardian

We can see this in the way that the low paid both disproportionately have to continue to work and are more likely to be laid off; in the sacking of an Amazon worker for leading a protest against unsafe conditions; in the rich having access to coronavirus tests denied to even most NHS workers.

But to see most clearly how societies allow the virus to discriminate, look not at London or Rome or New York but at Delhi and Johannesburg and Lagos. Here, “social distancing” means something very different than it does to Europeans or Americans. It is less about the physical space between people than the social space between the rich and poor that means only the privileged can maintain any kind of social isolation.

In the Johannesburg township of Alexandra, somewhere between 180,000 and 750,000 people live in an estimated 20,000 shacks. Through it runs South Africa’s most polluted river, the Jukskei, whose water has tested positive for cholera and has run black from sewage. Makoko is often called Lagos’s “floating slum” because a third of the shacks are built on stilts over a fetid lagoon. No one is sure how many people live there, but it could be up to 300,000. Dharavi, in Mumbai, is the word’s largest slum. Like Makoko and Alexandra, it nestles next to fabulously rich areas, but the million people estimated to live there are squashed into less than a square mile of land that was once a rubbish tip.

In such neighbourhoods, what can social distancing mean? Extended families often live in one- or two-room shacks. The houses may be scrubbed and well kept but many don’t have lavatories, electricity or running water. Communal latrines and water points are often shared by thousands. Diseases from diarrhoea to typhoid stalked such neighbourhoods well before coronavirus.

FacebookTwitterPinterest People in their shanties at Dharavi during the coronavirus lockdown in Mumbai. Photograph: Rajanish Kakade/AP

South Africa, Nigeria and India have all imposed lockdowns. Alexandra and Dharavi have both reported their first cases of coronavirus. But in these neighbourhoods, the idea of protecting oneself from coronavirus must seem as miraculous as clean water.

Last week, tens of thousands of Indian workers, suddenly deprived of the possibility of pay, and with most public transport having been shut down, decided to walk back to their home villages, often hundreds of miles away, in the greatest mass exodus since partition. Four out of five Indians work in the informal sector. Almost 140 million, more than a quarter of India’s working population, are migrants from elsewhere in the country. Yet their needs had barely figured in the thinking of policymakers, who seemed shocked by the actions of the workers.

India’s great exodus shows that “migration” is not, as we imagine in the west, merely external migration, but internal migration, too. Internal migrants, whether in India, Nigeria or South Africa, are often treated as poorly as external ones and often for the same reason – they are not seen as “one of us” and so denied basic rights and dignities. In one particularly shocking incident, hundreds of migrants returning to the town of Bareilly, in the northern Indian state of Uttar Pradesh, were sprayed by officials with chemicals usually used to sanitise buses. They might as well have been vermin, not just metaphorically but physically, too.

All this should make us think harder about what we mean by “community”. In Britain, the pandemic has led to a flowering of social-mindedness and community solidarity. Where I live in south London, a mutual aid group has sprung up to help self-isolating older people. The food bank has gained a new throng of volunteers. Such welcome developments have been replicated in hundreds of places around the country.

FacebookTwitterPinterest South African National Defence Force soldiers enforce lockdown in Johannesburg’s Alexandra township on 28 March 2020. Photograph: Luca Sola/AFP via Getty Images
But the idea of a community is neither as straightforward nor as straightforwardly good as we might imagine. When Donald Trump reportedly offers billions of dollars to a German company to create a vaccine to be used exclusively for Americans, when Germany blocks the export of medical equipment to Italy, when Britain, unlike Portugal, refuses to extend to asylum seekers the right to access benefits and healthcare during the coronavirus crisis, each does so in the name of protecting a particular community or nation.
The rhetoric of community and nation can become a means not just to discount those deemed not to belong but also to obscure divisions within. In India, Narendra Modi’s BJP government constantly plays to nationalist themes, eulogising Mother India, or Bhārat Mata. But it’s a nationalism that excludes many groups, from Muslims to the poor. In Dharavi and Alexandra and Makoko, and many similar places, it will not simply be coronavirus but also the willingness of the rich, both in poor countries and in wealthier nations, to ignore gross inequalities that will kill.

In Britain in recent weeks, there has been a welcome, belated recognition of the importance of low-paid workers. Yet in the decade before that, their needs were sacrificed to the demands of austerity, under the mantra of “we’re all in it together”. We need to beware of the same happening after the pandemic, too, of the rhetoric of community and nation being deployed to protect the interests of privileged groups. We need to beware, too, that in a world that many insist will be more nationalist, and less global, we don’t simply ignore what exists in places such as Alexandra and Makoko and Dharavi.

“We’re all at risk from the virus,” observed Gove. That’s true. It is also true that societies, both nationally and globally, are structured in ways that ensure that some face far more risk than others – and not just from coronavirus.

This virus is ravaging rich countries. What happens when it hits the poor ones?

Horror over the west’s failure to contain Covid-19 will pale by comparison if it sweeps the developing world asks Nesrine Malik in The Guardian 

 

‘The ebola epidemic of 2014 is still fresh in the mind in sub-Saharan African countries.’ A man wears a mask while shopping in Johannesburg. Photograph: Luca Sola/AFP via Getty Images


Though Africa has fewer coronavirus cases and a slower rate of infection than the UK, many countries in the continent have passed dramatically more extreme measures to prevent its spread than Britain has. In my birth country of Sudan, after only one case and one death was registered, all schools and universities were shut down. Several other nations, such as Egypt, have taken the ultimate precaution and closed their airports.

There is no denial here, no mixed messaging, and no unfounded promise of how soon we will send the virus packing.

The tough and timely action is borne less out of political maturity than it is bitter experience, and an awareness that already overburdened public healthcare systems cannot sustain an onslaught. The ebola epidemic of 2014 is still fresh in the mind in sub-Saharan African countries; it was an experience that showed prevention and containment are the only hope of fending off thousands of deaths. 

If we are concerned about the failure to contain the virus in western Europe and the US, multiples of that horror await in the developing world. With few means of medical intervention, and several other risk factors such as malnutrition, high population densities, communal living and lack of access to water and washing facilities, the rates of mortality could dwarf what has been seen so far in the west. And economically, the virus risks ushering in an ice age. There are no war chests, no stimulus packages, no insurance payouts.

There is little data about the impact in Africa of previous pandemics such as the 1918-19 Spanish flu (except from South Africa where, because of troop movements, 6% of the population perished). But we do have the experience of economically similar south Asian countries to go by. It is estimated that up to 30% of the entire fatal toll of the Spanish flu came from a single country, India. And in Africa it appears that the countries that suffered the highest casualties were those most exposed to global flows of people and capital – the ports or thoroughfares for troops on the move, and for sea and land labour.

There is something painfully predictable about how coronavirus was introduced to the continent. Well-off travellers to the rest of the world returned from holidays and business trips carrying the virus, as did infected tourists. In Egypt, the first cases of Covid-19 appear to be linked to one cruise ship, where locals who served the tourists contracted the disease.

The spread of the virus on the continent sits in the crosscurrents of travel and financial flows that expose African countries to the sharp end of globalisation – one where the flow of people is encouraged into the continent for business and tourism, and severely restricted out of the continent even for the wealthy and well connected.

It is the recurring theme of how the pandemic has played out so far. The poor, the uninsured, the disenfranchised, the information-poor and the less mobile are sitting ducks. Many western economies, including the US and the UK, have slowly pushed these people to the margins, while restricting employment benefits such as holiday pay, sick leave, and private insurance to an increasingly exclusive class. One of the reasons the British and US governments have been so slow to provide free testing, medical care and bailouts for those who’ve lost work is that these inequalities are now hardwired into the system. They cannot be undone overnight even when lives depend on it.

The global economy is set up in much the same way, with winners who hoard the spoils, and losers who scratch around for the leftovers. If wealthy single countries cannot scramble to save their own people, there is no hope for any effort to extend help to countries with a fraction of the resources.

But here is the tragic catch for those who think that this structural imbalance is not our problem. In this instance, national and international inequalities cannot persist without everyone losing. The realisation is just beginning to dawn upon lawmakers that the rich cannot be barricaded against the poor, no matter how high the barriers to the fortress are. Limiting the spread of the virus entails ensuring that everyone in the pool, be it local or global, is given the ability to test, self-isolate if need be, and receive treatment. 

Yes, to some extent this is a utopian aspiration. But it is also essentially pragmatic. We cannot extol the virtues of small government and global societies without grasping that the risk to the majority cannot be halted from spreading: viruses do not distinguish between classes and nationalities.

Just as work and public life cannot be shuttered for ever, borders cannot be closed indefinitely. African countries are moving fast against coronavirus, well aware that they are on their own. But barring a miracle, or a pandemic Marshall plan by wealthier countries, if the virus explodes in poorer countries, the cataclysm will engulf everyone.

Why Labour lost and progressive parties lose? Oligarchs are gaming democracy

‘Socialism for the rich’: the evils of bad economics

The economic arguments adopted by Britain and the US in the 1980s led to vastly increased inequality – and gave the false impression that this outcome was not only inevitable, but good writes Jonathan Aldred in The Guardian


In most rich countries, inequality is rising, and has been rising for some time. Many people believe this is a problem, but, equally, many think there’s not much we can do about it. After all, the argument goes, globalisation and new technology have created an economy in which those with highly valued skills or talents can earn huge rewards. Inequality inevitably rises. Attempting to reduce inequality via redistributive taxation is likely to fail because the global elite can easily hide their money in tax havens. Insofar as increased taxation does hit the rich, it will deter wealth creation, so we all end up poorer. 

One strange thing about these arguments, whatever their merits, is how they stand in stark contrast to the economic orthodoxy that existed from roughly 1945 until 1980, which held that rising inequality was not inevitable, and that various government policies could reduce it. What’s more, these policies appear to have been successful. Inequality fell in most countries from the 1940s to the 1970s. The inequality we see today is largely due to changes since 1980.

In both the US and the UK, from 1980 to 2016, the share of total income going to the top 1% has more than doubled. After allowing for inflation, the earnings of the bottom 90% in the US and UK have barely risen at all over the past 25 years. More generally, 50 years ago, a US CEO earned on average about 20 times as much as the typical worker. Today, the CEO earns 354 times as much.

Any argument that rising inequality is largely inevitable in our globalised economy faces a crucial objection. Since 1980 some countries have experienced a big increase in inequality (the US and the UK); some have seen a much smaller increase (Canada, Japan, Italy), while inequality has been stable or falling in others (France, Belgium and Hungary). So rising inequality cannot be inevitable. And the extent of inequality within a country cannot be solely determined by long-run global economic forces, because, although most richer countries have been subject to broadly similar forces, the experiences of inequality have differed.

The familiar political explanation for this rising inequality is the huge shift in mainstream economic and political thinking, in favour of free markets, triggered by the elections of Ronald Reagan and Margaret Thatcher. Its fit with the facts is undeniable. Across developed economies, the biggest rise in inequality since 1945 occurred in the US and UK from 1980 onwards.

The power of a grand political transformation seems persuasive. But it cannot be the whole explanation. It is too top-down: it is all about what politicians and other elites do to us. The idea that rising inequality is inevitable begins to look like a convenient myth, one that allows us to avoid thinking about another possibility: that through our electoral choices and decisions in daily life we have supported rising inequality, or at least acquiesced in it. Admittedly, that assumes we know about it. Surveys in the UK and US consistently suggest that we underestimate both the level of current inequality and how much it has recently increased. But ignorance cannot be a complete excuse, because surveys also reveal a change in attitudes: rising inequality has become more acceptable – or at least, less unacceptable – especially if you are not on the wrong end of it.

Inequality is unlikely to fall much in the future unless our attitudes turn unequivocally against it. Among other things, we will need to accept that how much people earn in the market is often not what they deserve, and that the tax they pay is not taking from what is rightfully theirs.

One crucial reason why we have done so little to reduce inequality in recent years is that we downplay the role of luck in achieving success. Parents teach their children that almost all goals are attainable if you try hard enough. This is a lie, but there is a good excuse for it: unless you try your best, many goals will definitely remain unreachable.

Ignoring the good luck behind my success helps me feel good about myself, and makes it much easier to feel I deserve the rewards associated with success. High earners may truly believe that they deserve their income because they are vividly aware of how hard they have worked and the obstacles they have had to overcome to be successful.

But this is not true everywhere. Support for the idea that you deserve what you get varies from country to country. And in fact, support for such beliefs is stronger in countries where there seems to be stronger evidence that contradicts them. What explains this?

Attitude surveys have consistently shown that, compared to US residents, Europeans are roughly twice as likely to believe that luck is the main determinant of income and that the poor are trapped in poverty. Similarly, people in the US are about twice as likely as Europeans to believe that the poor are lazy and that hard work leads to higher quality of life in the long run.

 

Ronald Reagan and Margaret Thatcher in 1988. Photograph: Reuters

Yet in fact, the poor (the bottom 20%) work roughly the same total annual hours in the US and Europe. And economic opportunity and intergenerational mobility is more limited in the US than in Europe. The US intergenerational mobility statistics bear a striking resemblance to those for height: US children born to poor parents are as likely to be poor as those born to tall parents are likely to be tall. And research has repeatedly shown that many people in the US don’t know this: perceptions of social mobility are consistently over-optimistic.

European countries have, on average, more redistributive tax systems and more welfare benefits for the poor than the US, and therefore less inequality, after taxes and benefits. Many people see this outcome as a reflection of the different values that shape US and European societies. But cause-and-effect may run the other way: you-deserve-what-you-get beliefs are strengthened by inequality.

Psychologists have shown that people have motivated beliefs: beliefs that they have chosen to hold because those beliefs meet a psychological need. Now, being poor in the US is extremely tough, given the meagre welfare benefits and high levels of post-tax inequality. So Americans have a greater need than Europeans to believe that you deserve what you get and you get what you deserve. These beliefs play a powerful role in motivating yourself and your children to work as hard as possible to avoid poverty. And these beliefs can help alleviate the guilt involved in ignoring a homeless person begging on your street.

This is not just a US issue. Britain is an outlier within Europe, with relatively high inequality and low economic and social mobility. Its recent history fits the cause-and-effect relationship here. Following the election of Margaret Thatcher in 1979, inequality rose significantly. After inequality rose, British attitudes changed. More people became convinced that generous welfare benefits make poor people lazy and that high salaries are essential to motivate talented people. However, intergenerational mobility fell: your income in Britain today is closely correlated with your parents’ income.

If the American Dream and other narratives about everyone having a chance to be rich were true, we would expect the opposite relationship: high inequality (is fair because of) high intergenerational mobility. Instead, we see a very different narrative: people cope with high inequality by convincing themselves it is fair after all. We adopt narratives to justify inequality because society is highly unequal, not the other way round. So inequality may be self-perpetuating in a surprising way. Rather than resist and revolt, we just cope with it. Less Communist Manifesto, more self-help manual.

Inequality begets further inequality. As the top 1% grow richer, they have more incentive and more ability to enrich themselves further. They exert more and more influence on politics, from election-campaign funding to lobbying over particular rules and regulations. The result is a stream of policies that help them but are inefficient and wasteful. Leftwing critics have called it “socialism for the rich”. Even the billionaire investor Warren Buffett seems to agree: “There’s been class warfare going on for the last 20 years and my class has won,” he once said.

This process has been most devastating when it comes to tax. High earners have most to gain from income tax cuts, and more spare cash to lobby politicians for these cuts. Once tax cuts are secured, high earners have an even stronger incentive to seek pay rises, because they keep a greater proportion of after-tax pay. And so on.

Although there have been cuts in the top rate of income tax across almost all developed economies since 1979, it was the UK and the US that were first, and that went furthest. In 1979, Thatcher cut the UK’s top rate from 83% to 60%, with a further reduction to 40% in 1988. Reagan cut the top US rate from 70% in 1981 to 28% in 1986. Although top rates today are slightly higher – 37% in the US and 45% in the UK – the numbers are worth mentioning because they are strikingly lower than in the post-second-world-war period, when top tax rates averaged 75% in the US and were even higher in the UK.

Some elements of the Reagan-Thatcher revolution in economic policy, such as Milton Friedman’s monetarist macroeconomics, have subsequently been abandoned. But the key policy idea to come out of microeconomics has become so widely accepted today that it has acquired the status of common sense: that tax discourages economic activity and, in particular, income tax discourages work.

This doctrine seemingly transformed public debate about taxation from an endless argument over who gets what, to the promise of a bright and prosperous future for all. The “for all” bit was crucial: no more winners and losers. Just winners. And the basic ideas were simple enough to fit on the back of a napkin.

One evening in December 1974, a group of ambitious young conservatives met for dinner at the Two Continents restaurant in Washington DC. The group included the Chicago University economist Arthur Laffer, Donald Rumsfeld (then chief of staff to President Gerald Ford), and Dick Cheney (then Rumsfeld’s deputy, and a former Yale classmate of Laffer’s).

While discussing Ford’s recent tax increases, Laffer pointed out that, like a 0% income tax rate, a 100% rate would raise no revenue because no one would bother working. Logically, there must be some tax rate between these two extremes that would maximise tax revenue. Although Laffer does not remember doing so, he apparently grabbed a napkin and drew a curve on it, representing the relationship between tax rates and revenues. The Laffer curve was born and, with it, the idea of trickle-down economics.

The key implication that impressed Rumsfeld and Cheney was that, just as tax rates lower than 100% must raise more revenue, cuts in income tax rates more generally could raise revenue. In other words, there could be winners, and no losers, from tax cuts. But could does not mean will. No empirical evidence was produced in support of the mere logical possibility that tax cuts could raise revenue, and even the economists employed by the incoming Reagan administration six years later struggled to find any evidence in support of the idea.

 

George Osborne, who lowered the UK’s top rate of tax from 50% to 45% in 2013. Photograph: Matt Cardy/PA

Yet it proved irresistible to Reagan, the perennial optimist, who essentially overruled his expert advisers, convinced that the “entrepreneurial spirit unleashed by the new tax cuts would surely bring in more revenue than his experts imagined”, as the historian Daniel T Rodgers put it. (If this potent brew of populist optimism and impatience with economic experts seems familiar today, that might be explained in part by the fact that Laffer was also a campaign adviser to Donald Trump.)

For income tax cuts to raise tax revenue, the prospect of higher after-tax pay must motivate people to work more. The resulting increase in GDP and income may be enough to generate higher tax revenues, even though the tax rate itself has fallen. Although the effects of the big Reagan tax cuts are still disputed (mainly because of disagreement over how the US economy would have performed without the cuts), even those sympathetic to trickle-down economics conceded that the cuts had negligible impact on GDP – and certainly not enough to outweigh the negative effect of the cuts on tax revenues.

But the Laffer curve did remind economists that a revenue-maximising top tax rate somewhere between 0% and 100% must exist. Finding the magic number is another matter: the search continues today. It is worth a brief dig into this research, not least because it is regularly used to veto attempts to reduce inequality by raising tax on the rich. In 2013, for example, the UK chancellor of the exchequer George Osborne reduced the top rate of income tax from 50% to 45%, arguing Laffer-style that the tax cut would lead to little, if any, loss of revenue. Osborne’s argument relied on economic analysis suggesting that the revenue-maximising top tax rate for the UK is about 40%.

Yet the assumptions behind this number are shaky, as most economists involved in producing such figures acknowledge. Let’s begin with the underlying idea: if lower tax rates raise your after-tax pay, you are motivated to work more. It seems plausible enough but, in practice, the effects are likely to be minimal. If income tax falls, many of us cannot work more, even if we wanted to. There is little opportunity to get paid overtime, or otherwise increase our paid working hours, and working harder during current working hours does not lead to higher pay. Even for those who have these opportunities, it is far from clear that they will work more or harder. They may even decide to work less: since after-tax pay has risen, they can choose to work fewer hours and still maintain their previous income level. So the popular presumption that income tax cuts must lead to more work and productive economic activity turns out to have little basis in either common sense or economic theory.

There are deeper difficulties with Osborne’s argument, difficulties not widely known even among economists. It is often assumed that if the top 1% is incentivised by income tax cuts to earn more, those higher earnings reflect an increase in productive economic activity. In other words, the pie gets bigger. But some economists, including the influential Thomas Piketty, have shown this was not true for CEOs and other top corporate managers following the tax cuts in the 1980s. Instead, they essentially funded their own pay rises by paying shareholders less, which led in turn to lower dividend tax revenue for the government. In fact, Piketty and colleagues have argued that the revenue-maximising top income tax rate may be as high as 83%.

The income tax cuts for the rich of the past 40 years were originally justified by economic arguments: Laffer’s rhetoric was seized upon by politicians. But to economists, his ideas were both familiar and trivial. Modern economics provides neither theory nor evidence proving the merit of these tax cuts. Both are ambiguous. Although politicians can ignore this truth for a while, it suggests that widespread opposition to higher taxes on the rich is ultimately based on reasons beyond economics.

When the top UK income tax rate was raised to 50% in 2009 (until Osborne cut it to 45% four years later) the composer Andrew Lloyd Webber, one of Britain’s wealthiest people, responded bluntly: “The last thing we need is a Somali pirate-style raid on the few wealth creators who still dare to navigate Britain’s gale-force waters.” In the US, Stephen Schwarzman, CEO of private equity firm Blackstone, likened proposals to remove a specialised tax exemption to the German invasion of Poland.

While we may scoff at these moans from the super-rich, most people unthinkingly accept the fundamental idea behind them: that income tax is a kind of theft, taking income which is rightfully owned by the person who earned it. It follows that tax is, at best, a necessary evil, and so should be minimised as far as possible. On these grounds, the 83% top tax rate discussed by Piketty is seen as unacceptable.

There is an entire cultural ecosystem that has evolved around the idea of tax-as-theft, recognisable today in politicians’ talk about “spending taxpayers’ money”, or campaigners celebrating “tax freedom day”. This language exists outside the world of politics, too. Tax economists, accountants and lawyers refer to the so-called “tax burden”.

But the idea that you somehow own your pre-tax income, while obvious, is false. To begin with, you could never have ownership rights prior to, or independent from, taxation. Ownership is a legal right. Laws require various institutions, including police and a legal system, to function. These institutions are financed through taxation. The tax and the ownership rights are effectively created simultaneously. We cannot have one without the other.

FacebookTwitterPinterest ‘There’s been class warfare going on for the last 20 years, and my class has won’ … US billionaire Warren Buffett. Photograph: Kevin Lamarque/Reuters

However, if the only function of the state is to support private ownership rights (maintaining a legal system, police, and so on), it seems that taxation could be very low – and any further taxation on top could still be seen as a form of theft. Implicit in this view is the idea of incomes earned, and so ownership rights created, in an entirely private market economy, with the state entering only later, to ensure these rights are maintained. Many economics textbooks picture the state in this way, as an add-on to the market. Yet this, too, is a fantasy.

In the modern world, all economic activity reflects the influence of government. Markets are inevitably defined and shaped by government. There is no such thing as income earned before government comes along. My earnings partly reflect my education. Earlier still, the circumstances of my birth and my subsequent health reflects the healthcare available. Even if that healthcare is entirely “private”, it depends on the education of doctors and nurses, and the drugs and other technologies available. Like all other goods and services, these in turn depend on the economic and social infrastructure, including transport networks, communications systems, energy supplies and extensive legal arrangements covering complex matters such as intellectual property, formal markets such as stock exchanges, and jurisdiction across national borders. Lord Lloyd-Webber’s wealth depends on government decisions about the length of copyright on the music he wrote. In sum, it is impossible to isolate what is “yours” from what is made possible, or influenced, by the role of government.

Talk of taxation as theft turns out to be a variation on the egotistical tendency to see one’s success in splendid isolation, ignoring the contribution of past generations, current colleagues and government. Undervaluing the role of government leads to the belief that if you are smart and hard-working, the high taxes you endure, paying for often wasteful government, are not a good deal. You would be better off in a minimal-state, low-tax society.

One reply to this challenge points to the evidence on the rich leaving their home country to move to a lower tax jurisdiction: in fact, very few of them do. But here is a more ambitious reply from Warren Buffett: “Imagine there are two identical twins in the womb … And the genie says to them: ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be born in the United States?’ … The people who say: ‘I did it all myself’ … believe me, they’d bid more to be in the United States than in Bangladesh.” 

Much of the inequality we see today in richer countries is more down to decisions made by governments than to irreversible market forces. These decisions can be changed. However, we have to want to control inequality: we must make inequality reduction a central aim of government policy and wider society. The most entrenched, self-deluding and self-perpetuating justifications for inequality are about morality, not economy. The great economist John Kenneth Galbraith nicely summarised the problem: “One of man’s oldest exercises in moral philosophy … is the search for a superior moral justification for selfishness. It is an exercise which always involves a certain number of internal contradictions and even a few absurdities. The conspicuously wealthy turn up urging the character-building value of privation for the poor.”