Rising tides, luxury yachts and leaky fishing boats

James Wickham: Everyone assumes that the aim of economic policy must be to return to "growth". But more than ever, we need to ask what sort of growth?

There is a growing awareness that conventional economic measures of growth are not necessarily related to quality-of-life and correlate with increased ecological damage. However, we also need to discuss the relationship or relationships between economic growth and inequality. The conventional wisdom is of course that "a rising tide lifts all boats". In the Celtic Tiger years everyone felt better off, even though income inequality remained constant or perhaps increased.

However, such discussions ignore the new role of the very rich in Ireland and the world. Traditionally, economists and sociologists have assumed that the very rich don't matter as individuals. Economists assume redistributing from the very rich will have negligible consequences overall, since the amounts of money involved are tiny once distributed across the rest of the population. Sociologists assume that what matters are social groups (e.g. "the service class"); they may recognise an elite but assume its members hold their positions as occupants of roles in a structure -- what matters is the role, not the person.

Today however individuals matter as individuals-- if they're very rich. The very rich are now economic agents in their own right. The wealth of somebody like Richard Branson or Michael O'Leary means that they have an impact as individuals, not as representatives of some larger corporation. This has also has implications, such as the importance of individuals of "high net worth" the banks, for economic policy and for philanthropy.

Since the 1970s in the USA and more recently elsewhere, the very rich have been pulling away from the rest of the society. In other words, they have been appropriating a greater share of the results of economic growth. In some cases indeed they have simply been appropriating or transferring resources to themselves. This appears to be the case for "salaries" at the top of the global financial services industry. According to the Financial Times (December 30, 2009) on Wall Street "About half of revenues are diverted to bonuses at many investment banks".
In economic history there have been periods and places where the rich have become richer simply by appropriating more resources: the palaces get bigger, the cottages get smaller. In Africa today the new palaces of the kleptocratic rulers go side by side with deteriorating living conditions of the masses. We are not there yet, but it's worth remembering that sometimes big yachts swamp little fishing boats...