Rising inequality and financial crises: why greater equality is essential for recovery

Document type
Lansley, Stewart
Centre for Labour and Social Studies
Date of publication
1 May 2012
Think piece
Poverty Alleviation Welfare Benefits and Financial Inclusion
Social welfare
Material type

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This paper argues that if the UK is to achieve a sustainable recovery from the current financial crisis, the wage share needs to be restored to postwar levels and the great concentrations of income and wealth broken up. Historical evidence suggests a strong link between inequality and instability. The two most damaging recessions of the last century – the Great Depression of the 1930s and the Great Crash of 2008 – were both preceded by sharp rises in inequality. The 1929 Crash not only brought the Great Depression, it led to the wholesale reinvention of economics. Today, in contrast, it is largely business as usual. Across the globe, the great wealth divide has continued to grow. In the UK, real wages have fallen by seven per cent in the last two years – and are still falling – while personal fortunes at the top are continuing to rise. If the risk of near-permanent stagnation is to be avoided, this fundamental imbalance needs to be restored. The great concentrations of income and wealth need to be broken up – as they were from the 1930s - and the wage share restored to the post-war levels that brought equilibrium and sustained stability.

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