The state of two nations

The US and British capitalists are gloating about how their economies are currently growing at 3-4% a year while Europe's big capitalist economies and Japan are hardly managing 2%. However, there is another side to this. Two recent reports show that the US and Britain also hold the record for the highest levels of poverty and social inequality. Capitalism only works for some.

World capitalist leaders are pondering their economic futures. The big debate now is whether the US economy will continue to grow sufficiently fast to restore jobs to those who lost them in the first three years of the Bush administration without renewing inflation. Connected to this is the worry that there is little sign of any strong economic recovery in stagnant continental Europe or Japan. And now there is the danger that record high oil prices could stop in its tracks the short Asian economic boom, pushing China and Japan into recession.

What comforts the economic leaders of American and British capitalism is the thought that at least it's a lot better for them than it is for the French, Germans or Japanese. The economies of Bush and Blair are currently growing at 3-4% a year while Europe's big capitalist economies and Japan are hardly managing 2%. Unemployment (on dubious official figures, it's true) is only 5% in the US and the UK, while it is double that in France, Germany, Italy and Spain and now at a record high in Japan.

So it seems the Thatcherite 'free market' model of capitalism that both Bush and Blair espouse is working over the 'social market' models presided over by Chirac, Schroeder and Koizumi. Doing away with decent pensions, health benefits, privatising transport, housing and education and ending any regulation of employers and businesses, while imposing draconian labour laws on workers, seems to work best for capitalism. What a surprise!

But what is not a surprise is the human cost of the free market model in the two largest capitalist nations of the world that have adopted it. Two very revealing reports have just been released that expose the poverty, inequality and social injustice of capitalism in Britain and America.

Raving Marxists or 'bleeding heart' liberals (as right-wing capitalist commentators might call them) have not written these reports. The first report on Britain has been published by the Institute of Public Policy Research (IPPR), a 'think-tank' that is supposedly close to the Blairite government. The second report on the US is published by the administration's own Bureau of Census. And they both draw on official data from their respective Inland Revenue and Employment departments to show the shocking state of millions of people in these two nations.

After seven years of a New Labour government, the IPPR reports that poverty is still with us in a big way in Britain. Indeed, in many areas, the level of poverty is worse under Labour than it was under Thatcherite Britain. In 2003, 22% of the population were living on incomes of less than 60% of average income and 23% of all British children were in poor households. The great plans of Gordon Brown to cut child poverty have made little progress. In 1998, the UK had the greatest share of poverty-stricken children in the EU of 15 countries. In 2003, Britain is still 11th, just ahead of Greece, Portugal and other much poorer EU nations. Britain's 23% of poor children compares to just 5% in Denmark, 10% in Sweden and 14% in Germany.

It's no better for old people in Britain: excluding housing costs, 21% of pensioners were in poverty in 1994. It's no different ten years later. And the number of working people without children who are in poverty has risen 20% over the same period. Most worrying is that more people in Britain who are poor, stay poor. In Britain, 11% of citizens were persistently poor (three out of four years), compared to an EU average of 9% and just 5-6% in Holland or Germany. And 25% were in and out of poverty. Once you are poor in Britain, you are likely to stay poor.

What is even more galling for most of us who just scrape by with a living and even for some of us who do slightly better than average is the huge inequality of income and wealth in Britain (and as we shall see in the US as well).

Under the New Labour government of Blair, those earning more than £107,000 a year (the top 1% of income earners) have increased their share of national income. And the top 10% maintained the 29% of all income that it held in 1997. In the past decade, average earnings for workers have risen 45%, but for the chief executives of the top 100 UK businesses (already fat cats) it rose 288%, or six times as fast! In the failing capitalist economies of continental Europe, the share of income for the top 1% has fallen.

Inequality of income has increased in Britain under Blair - it's official. But the inequalities in wealth are even starker than they are in incomes 'earned'. Wealth is twice as unequally distributed under capitalism in Britain and the US than income is. The richest continue to get richer. The top 10% of wealth holders have increased their share of Britain's wealth in property, shares, bonds and cash from 47% in 1990 to 55% now. The top 1% now own 23% compared to 18% in 1990. At the other end of the wealth ladder, the percentage of Britons that own nothing rose from 5% to 10%. Of those aged 16-24 years old, 56% have no assets at all.

There's always a lot of talk in Britain and the US about 'equality of opportunity' being more important than equality of income or wealth. If we create a society, Bush, Blair and Brown say, that allows everybody a chance of making a million or having a better life, then there's no need to worry about why some have much more than others. But of course, this is so much humbug. The reality is that under capitalism, if you are poor or even just average that's the way you are going to stay 99 times out of a 100. And if you are rich, you can bet you are going to stay that way.

Sons born to the richest 10% of fathers on average earn about 20% more than those born to the bottom 20%. Around three-quarters of children from the richest families get 5 or more passes in those GCSEs just taken, or more than twice the rate of those born in the lowest social classes. Currently just 11% of all university students (even after the expansion of college education under Blair) come from the poorest families.

So 'successful' British capitalism means a reality of the most extreme social injustice: more poor people, more children and old people in poverty, huge gaps in income and wealth between the richest and the poorest and between men and women, and little chance of going from rags to riches. And the poor suffer the most from crime (5% of people earning under £5000 a year were burgled compared to 2.5% for those earning more than £30,000). Finally, after life there is death. Life expectancy for the poorest Britons is an average four years less than for the richest Britons. It used to be a difference of only two years.

America is no better. In the latest report by the US government's Bureau of Census, it is revealed that, under George Bush, the number of Americans living in poverty has risen by nearly 1.5m in 2003, the third straight year of increase. Now nearly 36m Americans live in poverty (as defined very narrowly by the Bureau, meaning that you have to be virtually destitute to qualify as poor, earning just $6,000 each in a year!). That's 12.5% of the population. Child poverty is even worse. There are 13m American kids in poverty, or 17.6% of all children, up from 16.7%. These poverty rates, even as defined by the Bureau, are no better than they were in the late 1960s!

Incomes too have not improved. After taking account of inflation, average incomes have been flat under the Bush administration, while the rich continued to benefit from huge rises in earnings and tax cuts. Just as bad is the evidence that nearly 45m Americans have no health insurance in a 'free market' economy without a National Health Service and where hospital, doctor and drugs costs are astronomical. Don't get ill in the US.

When these facts are put before the ideologists of capitalism, they present two arguments to defend inequality. The first is that capitalism cannot work properly under a regime of equality of income and wealth. That would destroy the willingness of people to invest their capital and take risks to build businesses if all their gains were to be taxed away and all their wealth were to be redistributed to help those who had nothing or did not take any risks, namely working people. And second, it is pie in the sky to argue for equality.

The first argument is right. Capitalism does not work properly if the capitalists must finance a welfare state with decent pensions, housing, health service, schools, transport and living wages and proper labour laws. Those capitalist countries that continue to have at least some of these basic necessities, like France, Sweden or Germany are doing poorly in capitalist terms. Those that have hardly any of these things are doing better. But all are doing poorly compared to the needs of the majority.

The second argument is wrong. Capitalism may not work well without inequality and poverty accompanying it. But it is not pie in the sky to argue for equality because it is not a fanciful dream (as the capitalists imagine and many believe) that there is a better way of organising society.

Planned production, where investment and growth do not depend on rewarding a small clique of rich with profits for their 'risk-taking', is feasible. Indeed, it would be more productive as resources would go to those who contributed the most, and not to the unproductive layers of capitalist society that clog up productive potential (the bankers, advertisers, marketing, accountants, lawyers and 'entrepreneurs').

But that's another debate. Meanwhile the poor are still with us - and so are the rich.