Blickpunkt Großbritannien Büro London December 2009 HOW SOARING INEQUALITY CONTRIBUTED TO THE CRASH The economic meltdown has been widely attributed to a combination of global imbalances, excessive bank leveraging, reckless financial risk-taking and ex­cessive personal debt. But these headline explanations are only part of the sto­ry. The immediate triggers of the current crisis have their roots in the much more deep-rooted economic, social and political upheavals of the last thirty years. Widening inequality became a key ingredient in the growing fragility of the British(and US) economy and played a central role in the build-up to the credit crunch and the subsequent recession. Stewart Lansley* By the late 1970s the post-war consensus that combined strong government and a commit­ment to social solidarity had broken down. Sus­tained economic success gave way to ‘ stagfla­tion ’ – a dangerous mix of rising unemployment and rising inflation. With increasing instability in the 1970s blamed on the failures of managed capitalism, a contrasting political and economic ideology emerged that saw a weakened role for the state and an enhanced role for markets. This shift quickly came to dominate policy mak­ing in the UK and the United States and while the belief in the ‘ social market` continued for longer in most of continental Europe, the shifting *Stewart Lansley is the author of Life in the Mid­dle: The Untold Story of Britain ’ s Average Earn­ers, TUC Touchstone Pamphlet, 2009, and co­author of Londongrad: From Russia With Cash, The Inside Story of the Oligarchs, 4 th Estate, 2009. Anglo-Saxon consensus came to have much wider global repercussions. From the early 1980s the central social and economic trends of the previous three decades – falling poverty, reduced inequality and spread­ing employment and social opportunities – were set on a reverse course, most notably in the UK and the United States. Over the next 25-years, the proceeds of rising prosperity were much less equally shared than they had been in the post-war era. Poverty and inequality rose sharp­ly in both nations. Along with the poor, middle income groups were also left increasingly be­hind in the battle for the spoils of rising prosperi­ty. In contrast, the super-rich were suddenly free to accumulate fortunes at levels not seen since well before the Second World War. Friedrich-Ebert-Stiftung London Office 66 Great Russell Street London W C1B 3BN Phone:+44(0)20 7025 0990 Fax:+44(0)20 7242 9973 e-mail: info@feslondon.net website: www.feslondon.org.uk