Power: An Economic Lens on Class and Conflict

‘Wealth is power, and power is the only thing about which contemporary culture cares.’ This emulates the idea of a metaphorical social hierarchy in the 21st century, where the wealthy outweigh the poor in influencing societal and economic decision-making. To fully facilitate an approach in answering this question, we must embark upon the key definitions of the term ‘power.’ Derek D Rucker, penning his perspectives on social power via an article at ScienceDirect, states that ‘although social power and social class are conceptually distinct, they are both defined, in part, through control over resources.’ Whereas according to a resource such as Britannica, power is defined as the ‘capacity to influence, lead, dominate or otherwise have an impact on the life and actions of others in society.’ As 20th Century French philosopher Michel Foucault suggests, ‘power is not an institution’ rather a ‘certain strength we are endowed with; it is the name that one attributes to a complex strategic situation in a particular society’.

In the UK, the want for economic change is yet characterised by the conflicted views between social classes, albeit thoroughly less than 1900s. For example, a significant trade union representing poorer working-class individuals are the Trades Union Congress, who have been at the forefront of advocacy of economic reform. This includes improvement in workers’ rights, raising the minimum wage to reduce disparities in income nationwide and wider investment in public services. Conversely, a prominent trade union on behalf of the wealthier classes is the Association of British Insurers, which act as a lobbying group to support the insurance industry in the UK and represent professionals and businesses. They often rally for expansionary fiscal policies such as lower cooperation tax and deregulation in the financial sector to align with their overarching aim- ‘driving change to protect and build a thriving society.’ From this comparison itself, one can deduce a broad-ranging pattern. While lower class trade unions (e.g. organisations representing workers’ class) push for more personal, social reform, the upper class organisations attempt to prompt change in favour of firms and finances.

Income Distribution: In December 2020, the London School of Economics released a study guided at the detrimental impacts of tax cuts. After looking at 50 years of contractionary fiscal policy across 18 OECD countries, the conclusion met the idea that this contributed to greater inequality nationally. Between 2018 and 2019, as an example, the top 1% of UK adults received 15% of fiscal income, a remarkable 9 % rise from the 1980 financial year. Consequently, this does create embark upon the question: is progressive taxation crucial to reduce income inequalities across the UK?

First, as we lay the premises for this argument, we must define the key term. A progressive taxation involves a tax rate that progresses as taxable income rises. On the one hand, as embraced by American economist Arthur Laffer, who worked under the Regan Economic Policy Advisory board, was the justification against progressive taxation. Adapted from the Financial Times, this reasoning constitutes that taxing the rich further will only contribute to ‘tax exiles.’ This will simply incentivise more and more wealthier individuals to flee abroad, leading to a national ‘brain drain.’ On the contrary, those in favour of poverty-stricken areas and the lower class nationally may support progressive taxation, perhaps even pushing for taxation to become even more progressive. In theory, the concept remains that the conflict in interest between the two social classes divide their economic opinions even further. The benefits gained from wealthy classes through a more regressive taxation may exacerbate income inequality, whereas the progressive taxation implemented today could contribute to a lack of productivity in the economy in the long-term.

Social Dynamics: In 2023, a survey carried out by Kings College London discovered that 39% of individuals in the public felt that the ‘very rich (top 1%)’ had the most power in the UK. Furthermore, when asked about long-term consequences of a potential crisis, 54% opted for ‘the super rich having unfair influence on government policies’ over ‘rising levels of corruption’ which stood at 49%. This brings upon the concept of limitarianism. In defense of this theory, which promotes the inclusion of upper limits for income and wealth for the super rich, one could argue that citizens may not relate to each other as equals in an ‘inclusive society’ where there is an underlining discrepancy between their monetary means. Today, in a world that fully supports the equality between different classes and backgrounds, a societal barrier will not only create a psychological divide in individuals’ heads over a theoretical hierarchy, but also further strain the government’s policy making. Take this premise, where an individual earns 8 figures per annum and another minimum wage. Their realities are so different, it also feels surreal to fit in the other’s shoes- this is what will create a social hierarchy in the modern era. Then again, however, limitarianism would also deter all economic incentives from skilled workers, similar to the brain drain, which will negatively impact aggregate supply in the economy, causing an economic recession to the wider nation.

Now linking this with the question derived, would this manifest in economic outcomes directly? Partially. As per the international monetary fund have suggested, yes, political economists strive to identify relevant groups and their general interests, which certainly does influence their decision-making. A key quote summarising my initial findings into this investigation comes from The Golden Rule: ‘whoever has the gold makes the rules.’ This could include powerful industries, labour unions and wealthy individuals. Albeit truthful in some way, to my understanding, power is not necessarily equivalent to wealth in 2024.

Again, referring to the International Monetary Fund provides a premise that stamps a vital idea to this argument. According to the article, Americans pay roughly three times the world would pay for sugar. Despite the handful of sugarcane plantations in comparison to the 330 million sugar consumers in the country, subsidies and trade barriers have raised the price of the commodity substantially. The article states that ‘concentrated interests predominantly win over diffuse interests in a political economy.’ Whilst in theory the minority of sugar producers should incur losses compared to the majority of sugar consumers spread out over the USA, the opposite is the reality. Organised lobbying and funding over a range of states has thoroughly influenced policy-making economically. This point proves the pro-argument, that alternating power dynamics in society do indeed manifest in economic decisions, not only in the UK but also overseas.

This concept is etched further in American controversy. The Power Elite in the USA are the CEOs of major financial firms, ‘the very top echelons of the 300,000 wealthy investors who make up the 0.01% of America who collect 60% of the capital gains.’ Furthermore, they ‘use their influence to block attempts to limit leverage of large financial institutions, maintaining the carried interest tax treatment.’ Again, this scathing article from Robert Lezner on behalf of Forbes implies the discrepancy of influence between the working class whose views are constantly ignored and the Power Elite whose opinions are seldom disregarded.

Inflation: The impact of inflation varies significantly depending on the individual’s incomes. There is a vivid divide socially based on the reactions to a rise in inflation. In theory, if a country’s inflation rises, there will be a blatant contrast between the wealthy and the poor. For lower income groups, rising prices may mean that they have a lower disposa[i]ble income and hence less purchasing power as a whole. This will profoundly hinder ability to satisfy both needs and wants, hence having to settle with lower-quality substitutes, for example. This may prompt lower class groups to push for measure that will support their purchasing power. On the other hand, higher income groups may be more insulated from inflationary pressure, hence more unlikely to advocate for economic change in policy-making. Once again, central bank policies may inordinately affect different social classes. For example, expansionary monetary policy to promote economic growth may be suitable for businesses to borrow in the form of loans and encourage widespread investment. Likewise, a rise in interest rates would increase cost of borrowing rather incentivising firms to save. This could be beneficial for lower income households and pensioners, whose main source of income is derived from saving.

A Foresight: Overall, the intertwined relationship between power and conflict in society do altogether manifest in both micro and macro economic outcomes, particularly decision making. However, my overarching stance concludes that this is inherent rather than intentional. The government’s aims are to satisfy the public’s needs, and in economic policy-making, this is to promote economic growth, lower unemployment and reduce the income distribution gap (primarily when regarding this particular question). As for micro-economic outcomes, the bargaining power and ability to negotiate is a fascinating dynamic that alternates between the upper class (in the favour of business) and the lower class (in favour of the workers themselves). Whilst on a macroeconomic level, regulation and fiscal policy is the primary factor determining in the social split between different classes. Therefoee, in summary, power and conflict at both personal and broader levels shape the differences between economic decisions, and can further influence outcomes made by policy-makers.