Is inequality starving the economy?
Exploring the evidence base for how wealth inequality undermines growth, and what we can do about it, with the Academy of Social Sciences
We’re all looking for growth these days, but the debate is far from settled on the key questions, not least:
What kind of growth, and who for, and to what end?
What are the main barriers to growth? Is the problem our regulatory and planning regime, or does our stagnation and lack of productivity have deeper roots?
What is the relationship between growth and inequality? Do we need to grow before we tackle inequality, or (as we argued in June), do we need to tackle inequality before we can deliver sustained growth?
We have argued recently that high levels of wealth inequality are not only morally troubling but are actively damaging economic growth. This is a view that is held by increasing numbers of economists, who are questioning the orthodox view that economic inequality is a necessary side-effect of (or precondition to) economic growth. From obstructing the supply of talent, ideas and capital, and distorting consumer demand, to undermining competition and subverting public investment, an emerging evidence base suggests that inequality can hinder growth and prosperity.
There’s growing interest among many politicians in the idea that our economy is based on wealth extraction more than wealth creation, enriching the few at the expense of everyone else. The fact that we live in a society in which what you own (or inherit) has more influence than what you earn represents a failure of the social contract, which can only be bad news not only for growth, but also for social cohesion and faith in democracy.
With that said, the evidence base about the links between inequality (of wealth, in particular) and economic growth remains contested, in part because of a lack of clarity about what aspects or impacts of wealth inequality are being considered, and in relationship to which elements (or theory) of growth. And we certainly need to continue to build up the evidence base. For example, we lack detailed regional and local breakdowns of wealth stocks and flows, and information about assets owned by the very richest in society. We also need more detailed causal evidence about how, for example, policy capture by the very wealthy affects economic growth both directly and indirectly (such as by undermining political decision-making), and about how wealth inequality incentivises hoarding profits over reinvesting them in productive capacity. And we need more robust evaluations of the potential effectiveness of a wide range of relevant policy interventions, drawing on evidence from overseas as well as on qualitative and quantitative research in the UK.
The Campaign for Social Science (part of the Academy of Social Sciences) and the Fairness Foundation convened an invitation-only expert roundtable on 11 July 2025 to discuss the evidence base for the relationship between wealth inequality and economic growth in the UK, and to consider the most effective policy responses.
We’ve just co-published a short policy briefing that summarises the evidence base and the discussion at the roundtable, which you can read here and download here.
Here’s our quick Fairness Foundation take on five ways in which wealth inequality undermines economic growth, each one helpfully illustrated by a health metaphor:
Reducing demand. Just as malnutrition starves the body of energy, the concentration of wealth in few hands reduces consumer spending power, increases poverty, and drives up household debt, weakening demand and stalling growth.
Wasting talent. Like cholesterol that clogs up the body’s arteries, inequality is a barrier to good grades and good jobs for millions of people, blocking the flow of talent and ideas, and so damaging innovation and productivity in our economy.
Extracting wealth. Just as parasitic infections siphon nutrients from the body, some companies and individuals control huge assets and charge others ‘rents’ to use them, extracting wealth at the expense of genuine wealth creation.
Skewing investment. Like poor blood circulation that deprives key organs of oxygen, when too much investment flows to one sector (such as real estate) at the expense of more productive sectors, genuine wealth creation and economic growth suffers.
Undermining competition. Just as a weakened immune system leaves the body vulnerable to disease, wealth inequality increases market concentration. Oligopolies reduce competition, increase prices, and suppress innovation and growth.
We’re planning to do more work to map the evidence base for these links - and gaps in it - over the coming months. If you’re aware of evidence in any of these areas that we might have missed in the reports that we’ve published over recent months, or have ideas for how to fill some of the evidence gaps, please get in touch.