Episode 2 of The Super-Rich And Us was broadcast on Thursday January 16th on BBC2. Written and presented by Jacques Peretti.
This is a truncated version of notes I took during the programme and much of it, although not in quotes, is translated almost verbatim.
Peretti reported that soaring imequality was a business opportunity for the wealthy to make money out of us. Britain’s inequality has risen every year this century. 85 people now earn the same as half the world’s population.
Peretti reported that people are incensed but they would be even more incensed if they knew this inequality wasn’t an accident, it was a plan. The growing prosperity of the super-rich is directly linked to the austerity we’ve been suffering for the last 5 years.
The plan began ten years ago in New York with the Citigroup Bank. The people at this bank worked out how to turn it into ‘a business opportunity’. It was set out in a document for investors. Citigroup realized there was an opportunity at the bottom of society, a chance to make billions from poor people.
The vast majority of people haven’t had a pay rise in ten years, pay has just not kept up with inflation.
The 1970s, by contrast, was the most egalitarian decade in history when the wealthiest 1 % earned less than 6% of the national income and was the lowest recorded level. Bankers’ pay was on a par with teachers and GPs. Aspiration was shared across society.
But the 1970s brought strikes and inflation. It began with the oil crisis in 1973 and as energy prices rose Britain endured black outs, power cuts and the 3 day week. The post-war boom was over and raw Capitalism was on its way back. What had been a stable and egalitarian society at the start of the decade was unravelling fast.
Insecurity was about to be harnessed into a new ideology. In the 1970s a new Capitalism emerged in New York formulated by two economists: Fischer Black and Myron Scholes which came to be known as the Black-Scholes equation. It involved the formula for predicting what the stock would do in the future – it involved gambling with a system but to win you needed to bet big. It involved embracing risk and the more people risked the more they could win. It gave Wall Street a new model of trading. Traders could get billions of dollars on what they called options, all based on the idea that risk was good. Risk was about to be rolled out into our lives. Another influential invention of that time was Dall’s invention known as ‘securitization’.
Taking risks drove profit but the risks that were being taken were with our debts. In the mid-80s, American banks came to Britain and the rules of Wall Street came to London. Small firms built on trust and tradition gave way to international banking groups. People borrowed a lot of money in the 80s. Britain experienced the illusion of unprecedented prosperity but there was growing household debt. Government policies guaranteed to get people into debt. People with mortgages couldn’t go on strike – policies were designed to reduce industrial action, hold down wages and control inflation.
“The finance industry and the debt industry are really the same thing,’ it was claimed by an expert from the London School of Economics. ‘To a large degree finance just means other people’s debts. They’re trading our debts with each other.’
In the 1980s, CEOs were employed to cut costs and paid handsomely to do it. We faced a ruthless business culture. The winners were the top 1% who saw their incomes rise steeply. The rest of us were about to undergo our own workplace revolution, an idea which came from Peters and Waterman in America. They advocated a stripped down workplace in which only the fittest would survive. It was designed to create a fierce competition for jobs and a cut-throat attitude. There was a new kind of insecurity as work was being destabilised. By the time of the second recession at the end of the 1980s an even harsher reality was emerging: anyone who was not part of the 1% was expendable, even middle management. This was potrayed in films like The Full Monty.
By the mid-90s, Britain was a changed society. The top 1% now earned 10% of the national income, nearly double its 1970s level. Bankers were no longer paid the same as GPs or teachers – a two-tier society was taking off.
The head of the recently privatised British Gas was criticised, even by Tony Blair. He was asked by TV reporters “why he was worth 25 times more than his staff”. Executive pay quadrupled between 1995 and 2010.
By the 2000s our society was unrecognisable from the relatively equal one of the 1970s. Sub-prime mortgages were bundled with ordinary mortgages but the subprime mortgages were phoney and could never be paid back. In 2007, as sub-prime homeowners in the US defaulted on their loans the whole edifice began to collapse, first in America, then in the UK. The mortgage lender Norther Rock were in trouble and share prices continued to tumble around the world after the collapse of Lehman Brothers. “The system built on risk had come crashing down.” The state needed to step in to bail out the banks across the globe. The government paid 375 billion pounds to prop up the banking system. The same amount of money given to British households would have meant 24 thousand pounds on every doorstep. But instead of putting money in our pockets to fuel consumer recovery the 95% of the money from the bail-out went to the super-rich. While the super-rich have seen their wealth increase since the crash, places like Wakefield have seen 6 years of stagnation and living standards below pre-crisis levels. Across the country there has been a growth of zero-hour contracts. The government talks about improving job statistics but in reality two thirds of the new jobs created since the crash are in self-employment meaning pay levels are low. Britain’s becoming a nation of freelancers, there are nearly 2 million freelancers. The epitome of this new world is micro-jobbing and searching websites that offer jobs for a day or even just an hour…there’s no guarantee of security or hours. The “PeoplePerHour” website is an example and has 300,000 active users signed up.
But when inequality gets too extreme it’s not useful for growth. The growing sense of injustice is being felt by more and more of us…the tension among the 99% is rising. Many believe the seeds of future violence are being sown.
America has even bigger inequality than Britain. The super-rich are the focus of anger and some of the 99% believe that it’s time to target inequality. There’s now a political tide for change. Powerful Americans from President Obama downwards talk about a threat to society if they do not address what he calls “the Great Divergence”. Even the super-rich are taking it seriously. Nick Hanauer, one of the first investors in Amazon and earning £10-£20,000 an hour recognises there’s a social gap between him and ordinary people. “That gap is very very corrosive because it decreases the amount of empathy that people at the top have for everyone else”. Ordinary American citizens argue that if the 99% stood up collectively this will be over tomorrow. Hanauer went on to say that “history shows us that if you make a society unequal enough it is gonna turn bad for everybody particularly for people like me”.
Meanwhile, here in the UK, the cracks are already showing. When riots broke out in 2011, for some it was about inequality and injustice. A secret report written by the Ministry of Defence predicted the riots. It stated that “inequality could lead to violence..”
40 years of widening inequality has left Britain with a fractured society. The richest 1% now earn over 14% of our total national income. The rest of society have become a business opportunity for the very few.