Términos traducidos a partir de explicaciones

All this upward redistribution of income might have been justified, had it led to accelerated growth. But the fact is that

economic growth has actually slowed down since the start of the neo-liberal pro-rich reform in the 1980s. According to World Bank data, the world economy used to grow in per capita terms at over 3 per cent during the 1960s and 70s, while since the 1980s it has been growing at the rate of 1.4 per cent per year (1980–2009).

In short, since the 1980s, we have given the rich a bigger slice of our pie in the belief that they would create more wealth, making the pie bigger than otherwise possible in the long run. The rich got the bigger slice of the pie all right, but they have actually reduced the pace at which the pie is growing.

The problem is that concentrating income in the hands of the supposed investor, be it the capitalist class or Stalin’s central planning authority, does not lead to higher growth if the investor fails to invest more. When Stalin concentrated income in Gosplan, the planning authority, there was at least a guarantee that the concentrated income would be turned into investment (even though the productivity of the investment may have been adversely affected by factors such as the difficulty of planning and work incentive problems – see Thing 19). Capitalist economies do not have such a mechanism. Indeed, despite rising inequality since the 1980s, investment as a ratio of national output has fallen in all G7 economies (the US, Japan, Germany, the UK, Italy, France and Canada) and in most developing countries (see Things 2 and 6).

Even when upward income redistribution creates more wealth than otherwise possible (which has not happened, I repeat), there is no guarantee that the poor will benefit from those extra incomes. Increasing prosperity at the top might eventually trickle down and benefit the poor, but this is not a foregone conclusion.

Of course, trickle down is not a completely stupid idea. We cannot judge the impact of income redistribution only by its immediate effects, however good or bad they may look. When rich people have more money, they may use it to

increase investment and growth, in which case the long-run effect of upward income redistribution may be the growth in the absolute size, although not necessarily the relative share, of income that everyone gets.

However, the trouble is that trickle down usually does not happen very much if left to the market. For example, once again according to the EPI, the top 10 per cent of the US population appropriated 91 per cent of income growth between 1989 and 2006, while the top 1 per cent took 59 per cent. In contrast, in countries with a strong welfare state it is a lot easier to spread the benefits of extra growth that follows upward income redistribution (if it happens) through taxes and transfers. Indeed, before taxes and transfers, income distribution is actually more unequal in Belgium and Germany than in the US, while in Sweden and the

Netherlands it is more or less the same as in the US.3 In other words, we need the electric pump of the welfare state to make the water at the top trickle down in any significant quantity.

Last but not least, there are many reasons to believe that downward income redistribution can help growth, if done in the right way at the right time. For example, in an economic downturn like today’s, the best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher proportion of their incomes. The economy- boosting effect of the extra billion dollar given to the lower- income households through increased welfare spending will be bigger than the same amount given to the rich through tax cuts. Moreover, if wages are not stuck at or below

subsistence levels, additional income may encourage workers’ investment in education and health, which may raise their productivity and thus economic growth. In

addition, greater income equality may promote social peace by reducing industrial strikes and crime, which may in turn encourage investment, as it reduces the danger of

disruption to the production process and thus to the process of generating wealth. Many scholars believe that such a

mechanism was at work during the Golden Age of

Capitalism, when low income inequality coexisted with rapid growth.

Thus seen, there is no reason to presume that upward income redistribution will accelerate investment and growth. This has not happened in general. Even when there is more growth, the trickle down that occurs through the market mechanism is very limited, as seen in the above comparison of the US with other rich countries with a good welfare state.

Simply making the rich richer does not make the rest of us richer. If giving more to the rich is going to benefit the rest of the society, the rich have to be made to deliver higher investment and thus higher growth through policy measures (e.g., tax cuts for the rich individuals and corporations, conditional on investment), and then share the fruits of such growth through a mechanism such as the welfare state.