One of the oldest and most fundamental claims made for capitalism is that in the long run it makes everyone better-off. The rich get richer, but so do the poor. The gap may widen and inequality get worse: but the wealthier the society in absolute terms, the less absolutely poor those at the bottom.
In recent years this proposition-the so-called trickle-down effect-has come in for a good deal of flak. Too many people sleeping in doorways, too many African states sliding into destitution. On the pre-New Labour left, it became axiomatic that the trickle-down effect was a con: a bogus promise that everything will come right in the end, provided that fat cats are allowed to carry on getting fatter.
Until recently, I never took this very seriously. After all, Marxists have always argued that the tendency of capitalism is to make the poor poorer-to the point where they are too starved to work the machines. Why should Marx have been less wrong about that than he was about everything else?
So I was taken aback by a conversation I had with a couple of relatives in a pub at Christmas. Neither is remotely Marxist: one is a Church of England cleric; the other a software manager. To my surprise, both dismissed the trickle-down hypothesis out of hand. Both took it for granted that, as Marx had predicted, the poor were indeed getting poorer.
This is not a trivial issue. If capitalism has nothing to offer the worst off, it loses moral standing and starts to resemble what its enemies have always proclaimed it to be: a licence to rob.
A little history is in order here. The earliest version of the trickle-down theory I know dates from the 1730s. In his Moral Essays, Alexander Pope writes scathingly of the huge sums squandered by the rich on their country houses. The one redeeming feature, he argues, is that the money is being spread around: "Yet hence the poor are clothed, the hungry fed;/Health to himself, and to his infants bread,/The labourer bears: what his [the landlords] hard heart denies,/His charitable vanity supplies."
The point is that it does not matter that the landlord is a greedy bastard. There is a benign mechanism at work whether he likes it or not. Forty years before The Wealth of Nations, Pope is making the case for the invisible hand.
This is a proposition which ought to be empirically verifiable. The trickle-down theory has been around for a quarter of a millennium. In the meantime, what has actually happened to the way people live?
Shortly after my conversation in the pub, I happened to visit Robert Owen's textile mills at New Lanark, on the upper Clyde. Built in the late 1700s, the mills were designed on philanthropic principles: light, airy and safe, with good housing, schooling and recreation for the workers and their families.
One of the workers' houses has been restored to the living conditions of about 1810. It consists of a room about 10 feet square, with a fire at one side and bunk beds stacked against the opposite wall. That, with a table and some chairs, was it-for a family of six or eight. And this was capitalism at its most enlightened. What did that leave for the less fortunate?
If that seems too remote, take the case of an aunt and uncle of mine from the West Highlands of Scotland. When I first remember them, in the 1950s, they lived in two rooms and a kitchen on the top floor of a tenement. One room was uninhabitable through damp, and the bed was in the kitchen. There was no bath, no hot water and the common toilet was down a flight of stairs. Of course, they had no phone or television.
This is not a hard luck story. They saw themselves as comfortable enough, and the view down the loch was magnificent. When they were cleared out into a modern council house, my aunt was inconsolable. And indeed, they were scarcely paupers. My uncle was a shepherd-one of the better-paid jobs on a West Highland farm-and my aunt did occasional part-time work around the town. The point is, rather, that no employed person in Britain lives like that today. With luck, nobody ever will again.
The unemployed are a somewhat different issue. Those who have neither jobs nor assets are not strictly part of the economy. Their standard of living depends on grants made by their fellow citizens, or on self-interested insurance arrangements made against the risk of falling on hard times. That is, the question of distribution comes down not to the workings of the economy, but to political choices. You may believe that, in today's Britain, unemployment benefit is too low. That does not make it the inevitable outcome of a capitalist system. It is open to voters, within such a system, to change their political priorities.
As with individuals, so with nations. The Asian tigers, such as South Korea, are now in crisis. Even so, you will still find elderly people in Seoul who are bewildered by the speed at which prosperity has been thrust upon them in recent decades. To take a more homely example: when I first visited Sicily 30 years ago I was appalled, in my soft-hearted British way, by how emaciated the cats were. Today they are sleek. Even in poorer parts, such as the old quarter of Syracuse, people put dishes of sardines out at street corners. A generation ago, such people were hard pressed to feed their families.
Perhaps it is time to attempt a more refined version of the trickle-down hypothesis. The argument is not that under capitalism everyone prospers; that is demonstrably false. It is rather that in a fully functioning market economy, all those participating in it will enjoy rising living standards in the long run. At first sight, there is one notable exception even to that. In the US, by most calculations, the wages of the lowest paid have fallen in real terms over the past 20 years. Meanwhile the wages of the richest have risen astronomically, thus rubbing salt in the wound. While this last part is hardly gratifying, it is not strictly relevant. Nobody ever said the trickle-down effect would promote equality: merely that even those at the bottom of the ladder would be somewhat better-off.
So why has this not happened in the US? There are two answers. First, the US job market is far more fluid than Europe's. Some research suggests that while the lowest-paid jobs are occupied by new entrants to the workforce-by immigrants or school leavers-they do not stay there very long. Within five or ten years, most are earning much closer to the average. (A British parallel might be with university students, who get smaller grants than 20 years ago. This does not mean that they get paid less after they graduate.) Second, the drop in the lowest wages in the US may prove temporary-there is some evidence that these are at last creeping up again. It remains puzzling that they should have been so weak during the US's biggest boom in generations; but for the purposes of the argument, the long term is a lot longer than 20 years.
It is true that there are places in the US where much of the population is housed in trailer parks, washing dishes and clearing tables for the minimum wage. This kind of life is grim, but quite recently it was a lot worse. Take away the television and radio from these trailers. Strip away electricity and running water and knock a few holes in the roof. Banish access to basic healthcare and education. The result would be not unlike the pioneer cabins of 150 years ago, as portrayed in all those John Ford westerns. We come back to the basic fact: nobody in the US lives like that any more.
This is no paean of praise for capitalism. Its progress is not triumphal, but juddering and uneven. Even the Blair government, which appears to be a qualified convert to trickle-down, believes the effect must be supplemented by state-sponsored "push-up"-all those exclusion units and hit squads for failing schools.
Over the long term, there are also periods when the poor slip backwards. One reason why many people in Britain and the US remain sceptical about the trickle-down effect is that we had just such a period in the 1980s. I found it sobering, late in that decade, to re-read Henry Mayhew's London Labour and the London Poor. When I had first read it, in the 1960s, the book had struck me as a Victorian entertainment. The poor devils Mayhew described-the mudlarks scavenging by the Thames, the street clowns, the watercress sellers-were too remote to be real. Twenty years on, there was an ugly sense of relevance. People in London hawking flowers to passing motorists. People in Manhattan lugging sackfuls of empty drink cans, fished out of bins for their redemption value of five cents apiece. But that does not disprove the hypothesis. The ascent of man, in economic terms, has never been a straight line. A martian visiting the US in 1932 would have inferred that capitalism was finished. Many intelligent Americans made just that inference at the time. Marx did the same on the basis of his findings in the 1840s. Both were wrong for the same reason: they extrapolated a short-term trend.
So everything is all right, then? Obviously not. Life has its casualties and always will. But I do not think I will see in 21st century Britain, as I saw in Glasgow 40 years ago, middle-aged people stunted and bow-legged from the rickets they suffered as malnourished children. For every case of hardship and misery today there was a worse case a century ago-and worse still a century before that. It may not be much, but it is in the right direction.
