Wednesday, November 22, 2006

Assume the position

Like all their statements at the moment, today's suggestion from Greg Clark that the Tories follow Polly Toynbee rather than Winston Churchill when discussing poverty is more about positioning the party than hard policy. Clark actually said:

One can picture our nation as a convoy crossing the desert. Everyone may be moving forward, but if the distance between those right at the back and rest of the convoy keeps growing there comes a point at which it breaks up.

This is an image I’ve borrowed from a book by the Guardian columnist Polly Toynbee. I realise that this might be scene as unusual point of reference for a Conservative MP, but I make no apology for wanting a society that holds together or for believing in a Britain that remains united.

This is something that the Conservative Party as a whole must make crystal clear. Ignoring the reality of relative poverty was a terrible mistake. It allowed the Left to dominate the poverty debate for a generation and to copyright the issue of social exclusion. This was an absurd position for us to be in, Disraeli’s idea of One Nation is nothing if not a determination that no part of society should be alienated from the whole – in other words, socially excluded. In short, poverty is too important an issue to leave to the Labour Party and overcoming social exclusion is an essential ambition for a Conservative Government.
So what he is trying to do is place a concern about relative poverty in the conservative, One Nation tradition and relate it even to Adam Smith - who Clark suggests:
...defined what we now call relative poverty and social exclusion in his Wealth of Nations:
Even from the quotation Clark uses, this last is debatable. (That might be excessively polite - Smith would have choked on his porridge if someone had outlined the modern idea of "social exclusion" to him.) But Clark's tactic of appropriation is a staple of modern politics. Claiming prior ownership of an idea in order to reshape it in one's own image is entirely conventional today.

But the whole issue of wealth distribution is debatable. P.J. O'Rourke's Cato Institute speech here is worth a read, but I think falls below his usual standard of argument.

A much more interesting argument, rooted in an understanding of technology, can be seen here:
Will technology increase the gap between rich and poor? It will certainly increase the gap between the productive and the unproductive. That's the whole point of technology. With a tractor an energetic farmer could plow six times as much land in a day as he could with a team of horses. But only if he mastered a new kind of farming.
...the rate at which technology increases our productive capacity is probably polynomial, rather than linear. So we should expect to see ever-increasing variation in individual productivity as time goes on. Will that increase the gap between rich and the poor? Depends which gap you mean.

Technology should increase the gap in income, but it seems to decrease other gaps. A hundred years ago, the rich led a different kind of life from ordinary people. They lived in houses full of servants, wore elaborately uncomfortable clothes, and travelled about in carriages drawn by teams of horses which themselves required their own houses and servants. Now, thanks to technology, the rich live more like the average person.
I'd like to propose an alternative idea: that in a modern society, increasing variation in income is a sign of health. Technology seems to increase the variation in productivity at faster than linear rates. If we don't see corresponding variation in income, there are three possible explanations: (a) that technical innovation has stopped, (b) that the people who would create the most wealth aren't doing it, or (c) that they aren't getting paid for it.
You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford get rich, he'll hire you as a waiter at his next party. I'm saying that he'll make you a tractor to replace your horse.
The interesting thing about this argument is that is understands the effect of technology as a lever, as a multiplier. In a technology-based economy, relatively equal distributions of wealth are a sign of ill health, not a desirable outcome. Technology boosts the standard of living of the poorest, but it boosts the wealth of the richest by a far greater factor. And that's fine - everyone is better off. The economy is not a zero sum game.

I'm not going to bad-mouth Polly Toynbee, that would be a redundant exercise since so many people have done it so well and so often elsewhere. Nor am I going to criticise the Conservative Party for their frantic re-positioning. It worked for New Labour. Successive election defeats demoralise political parties.

It is strange, though, to find myself contemplating voting Tory only if I believe they have been lying to gain electoral advantage.

No, no... that way lies madness. My brief excursion into UKIP territory ended when I realised that many of their members have a somewhat, ah... relaxed attitude to fascists. What we need, is a Libertarian Party that is willing to fight elections.


Anonymous said...

Agreed - there's plenty of economists who have argued that the rise in US inequality since the 1980s is due to technical progress - just google "skill biased technical change."
But is this a necessary or just accidental fact? It's theoretically possible that software could eventually replace lawyers, accountants and even bosses. If so, technical progress would reduce inequality.

Peter Risdon said...

That's missing the point: in your hypothetical case, the income of whoever produced the software that replaced lawyers or accountants would be greatly above that of anybody else. This is why the people who produce the software that has so far replaced most of the accountants' and solicitors' clerks are among the richest people in the world.

This inequality is necessary because technology acts as a lever - it is a multiplier, not an adder; it makes differences that are geometric, not arithmetic. Its absence would mean people were no longer innovating and producing new technology that operates like this.

Serf said...

You need rich people in your society

....As consumers as well. Nearly all the new products and services that we use, as well as improvements in existing ones, start off ins expensive niche markets. Competition then drives down costs until they are within everyone's reach.

Inequality now means, buying your Plazma TV a few years after the super rich bought theirs.