Liam Byrne, in his concluding moments as chief secretary to the British treasury, wrote a handover note to his successor. He has regretted it ever since. His brief message – “Dear Chief Secretary, I’m afraid to tell you there is no money” – has haunted him. It has been regularly used to taunt him and the Labour Party, and to attack their record of economic management.
In the introduction to this work, the author frankly states that this book is the message he wishes he had left. Byrne opens by calling on us “to summon the moral imagination to refresh fraternity and build the coherent amity required to modernize both the state and the market for new times”.
This effort is needed as wealth has changed, in the United Kingdom and globally. The total wealth of the UK, during the 1970s, was about four times the value of the income from work. By 2021 this ratio stood at 10.
There are many causes for this significant change. Political decisions favouring those with assets and pensions play a critical role. Tax-avoidance strategies and the lobbying of governments for personal gain also have a big impact. The passing of valuable assets from one generation to the next is also a crucial factor.
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This book is particularly strong in describing how the recent policies of central banks have affected the distribution of wealth. It suggests that “low interest rates are the closest we have come on earth to alchemy, benefitting pensioners and homeowners. The author argues that most gains in the value of pension wealth, and all of the increase in house prices since 2000, are caused by low interest rates.
A critical factor in the growth of the super-rich is that very many of them sell goods, services or celebrity that others, in great numbers, want to consume. It is not all luck, rich parents and dodgy dealings
Yes, low interest rates and the large amounts of additional money printed by banks (or quantitative easing), have benefited asset owners. However, these are the same policies that eased the disastrous consequences of the global financial crisis and helped the return of economic growth and the protection of jobs. Their absence could have triggered further catastrophe.
Counterfactuals rarely make convincing arguments in political debate, but these points should be acknowledged.
Similarly, a critical factor in the growth of the super-rich is that very many of them sell goods, services or celebrity that others, in great numbers, want to consume. It is not all luck, rich parents and dodgy dealings.
This book is distinctive in lucidly explaining important policy choices that determine the functioning of markets. It is emphatically correct in describing how economies are not some freely floating exchanges formed by the mighty and impersonal forces of competition and choice.
There is no “celestial marketplace”, instead “markets and their institutions are imperfect because they are social creations, designed by flawed human beings who wield the factor missing in the market supremacists’ equations: power”.
States fundamentally shape markets by use of regulations, the protection of property rights and the use of competition policy. The State is neither neutral nor absent – it is a hugely powerful actor that shapes the operation of economies. Institutions matter.
Byrne takes a bleak view of their impact, contending that “we created institutions with rules ... which create not only value for society but rents for a lucky few”.
This is a harsh assessment. The state has grown, in size and scope, across many western democracies. Life expectancy has increased in many countries. The quality and availability of education has improved. Changes in life sciences and digital technologies have changed and could yet transform our lives. States, in most cases, have played a positive role in these changes.
The great French economist Thomas Piketty inspires this work with his masterpieces on capital and inequality. This book could have been enhanced by the inclusion of other prominent research on inequality
Despite this, we underestimate the power of the state. This power underpins the recommendations for change in the concluding chapters. This policy agenda is broad and, occasionally, radical. It makes the case for greater prioritisation of innovation and research funded by a reformed pension sector.
Such change would be accompanied by the launch of a fund to transform the savings of the state into an investment fund. Irish efforts to achieve this receive many positive references.
The great French economist Thomas Piketty inspires this work with his masterpieces on capital and inequality. This book could have been enhanced by the inclusion of other prominent research on inequality.
For example, the work of Branko Milanovic, on how global inequality is falling despite inequality in many countries increasing, is a natural companion to the work of Byrne.
Similar works are strong on rhetoric, weak on theory and poorer on how to change. While the analysis is occasionally incomplete, it is elegantly argued with suggestions that merit serious consideration.
This book will improve any public debate on the future of democracies and equality.
Paschal Donohoe is the Minister for Public Expenditure and president of the Eurogroup
