Inequality, Business Leaders And More Delusions On The Left

Simon Wren-Lewis

Those who think current levels of inequality are not a problem can skip this one.

The Blair governments did a lot to fight poverty, but were famously relaxed about inequality, or more specifically the earnings of the 1%. For many in those governments this reflected their own views, but it also reflected a political calculation. The calculation went as follows. To win, Labour needed to be seen as competent to run the economy. The media all too often look to business leaders to answer that question. So Labour needed to be business friendly. Now being business friendly should mean creating an environment that business can thrive in. However to get the approval of business leaders you also need to create an environment where business leaders can thrive personally, and they are very much part of the 1%. QED.

Labour today is not following this strategy. First, Miliband has said quite clearly that he sees tackling inequality as a major issue:

Now I have heard some people say they don’t know what we stand for. So let me take the opportunity today to spell it out in the simplest of terms. It is what I stood for when I won the leadership of this party. And it is what I stand for today. This country is too unequal. And we need to change it.

Second, it has two policies that directly impinge on the 1%: the mansion tax and restoring the 50p income tax band.

There are some on the left who dismiss these measures as marginal. One of the comments on my earlier post said that:

When it comes to the broad trend of ever greater inequality there really is no meaningful difference between the main parties.

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This seems to me a colossal tactical error. To see why, you only have to note what has happened over the last week in the UK. Various business leaders have proclaimed that a Labour government would be a disaster. Stefano Pessina, who among other things runs the Boots chain, declined to elaborate on why exactly Labour would be a disaster. In contrast, he was quite clear that the UK leaving the EU would be a big mistake, which of course is much more likely to happen under a Conservative government!

Is Ed Miliband anti-business? Simon Wren-Lewis suggests that business leaders might be the wrong people to ask. (photo CC BY 2.0 Fabian Society)

There is an obvious inference. Labour would not so much be bad for business, but bad for business leaders personally. (Another possibility is that they think Labour would be much tougher on business tax avoidance than the Conservatives, but saying this in public would be embarrassing.) They, unlike some on the left, recognise that Miliband is not Blair, and that there has been a key shift in the direction of Labour policy. So they will do what they can to stop Labour winning. Labour in turn has responded by attacking the tax avoidance practiced by many of these companies. This is the beginnings of a major battle.

There are at least two important implications. First, the non-partisan media need to understand what is going on. Getting business leaders to comment on the relative merits of the two main parties programmes is no longer a neutral decision – it is giving additional airtime to one side. Second, everyone who cares about inequality needs to realise the importance of this election. Inequality is a key election issue, and there is a very meaningful difference between the two main sides. Certain business leaders clearly understand that.

This blogpost was first published on MainlyMacro