We need to resurrect the 'Diamond Commission' on Wealth Distribution set up by a previous Labour government

According to the Office of National Statistics the net worth of the UK amounted at the end of 1997 to £3,100bn - roughly £50,000 for every man, woman and child.

Net wealth of UK household sector
	1987	1991	1995	1996	1997
Life assurance and pension funds	24%	26%	35%	35%	36%
Residential buildings net of loans	35%	32%	23%	24%	23%
Securities and shares	10%	11%	15%	15%	17%
Notes, coins and deposits	16%	17%	17%	16%	15%
Non-marketable tenancy rights	9%	8%	5%	5%	5%
Other fixed assets	6%	5%	4%	4%	4%
Other financial assets net of liabilities	1%	1%	1%	1%	1%
Total (£bn*)	2,515	2,800	2,979	3,159	3,582
Source: Social Trends 1999 *at 1997 prices

If you try to break this down by net ownership, the result is not instructive. The net worth of the public sector is very small. For central government it is actually negative. The net worth of corporations is also treated as negative (Economic Trends, November 1998).

The statisticians admit that these valuations are extremely uncertain and the government has launched a drive to improve them. But the conclusion is likely to remain that virtually all the national net worth is owned by householders.

Unfortunately, this netting out removes most of what is interesting. Corporations are legally owned by their shareholders, but many of these are now institutional funds, which are themselves held in trust for ordinary citizens. Thus to say anything interesting you have to move away from the national balance sheet, look at individual sectors and accept the double counting involved. This is what Dominic Hobson has done in a massive new study.*

For all its weight, it is surprisingly difficult to put down. Its strength lies in the history and analysis of many national institutions replete with telling incidents. Most of the jokes about its size could have been avoided if it had been published in two simultaneous volumes.

It ought to have been called A Financial Anatomy of Britain. Even that may not have done it justice. For Hobson goes well outside the strictly financial when he has something to say. I learned most from the chapters on education. In a fascinating aside on "Middle England" he remarks: "People did not vote New Labour to modernise Britain or embrace change, but to put an end to both."

Coming to more conventional financial topics, the author reminds us how recent has been both the rise of the institutional investor and the cult of the equity. In 1913 ordinary shares accounted for 3½ per cent of the assets of life offices. Until well after world war two the bulk of City funds went into Government stock or overseas bonds.

Mr George Ross-Goobey, pension fund manager of Imperial Tobacco, caused great controversy by recommending the cult of the equity in the 1950s and was barred by the Institute of Actuaries from teaching students about investment.

There have also been big changes in the relative role of different financial institutions. The greater part of the value of British equities is now held by pension funds and insurance companies. But the pension funds themselves are, in historical terms, a fairly recent arrival, reflecting the growth of corporate pensions in the last few decades.

Hobson does not consider that these institutions perform particularly well, either in giving the ordinary citizen genuine participation in corporate wealth or as a spur to efficiency. He is particularly scathing about the failures of the insurance companies and the banks.

He regards the Lloyds insurance market, with its long tradition of unlimited liability, as an anachronism. And he does not believe that the pre-eminence of corporate pension funds can survive the shift away from defined benefits to defined contributions.

He also makes a very thorough examination of business "fat cats". On the whole he accepts popular criticisms but he explains that excessive rewards derive not only from the processes of privatisation but from the bureaucracy of corporate business itself.

The author is even able to rationalise the greater public tolerance of still higher rewards for people such as pop singers, sports personalities and film stars. He argues that these personalities compete in a genuine market. In the corporate sector, by contrast, directors' rewards are too often fixed by committees of non-executive directors, who are usually executive directors of other companies, and who tend to think that people like themselves are worth every penny they get.

There is an eloquent quotation from Sir Owen Green, former chairman of BTR, who argues: "There is absolutely nothing to be said against entrepreneurs or pop stars creating personal wealth through their own talent, direct from the general public. But in many large companies the people at the top are really a type of functionary - the culture and strategy are already set."

Unlike most other writers who lay bare modern capitalism, Hobson has no wish to retreat into state ownership or more official intervention. Indeed, he traces many of the unjustified perks in business and the professions to the intrusion of government.

In his heart, he would like to restore direct control by individuals over the corporations that they now own via a chain of intermediaries. His instincts are on the side of the shareholder and the taxpayer against both government and corporate bureaucrats.

Nevertheless, he regards the attempt of the last Conservative government to use privatisation to restore individual share ownership as mistaken. It undoubtedly widened ownership by increasing the number of shareholders, but failed to deepen it as the small investor share of total holdings continued to fall.

Nor has he time for fashionable nostrums such as stakeholder ownership or even corporate governance. He regards the former as an attempt to install the "manager as philosopher-king". Moreover, most of the demands of the various committees on corporate governance have been met "but with no discernible results".

Hobson has no objection to the existence of really rich individuals. But he is suspicious of many of the justifications for their existence. He cites chapter and verse to show how relatively small their contributions to good causes really are.

His own justification is on the lines of that of free market philosopher Friedrich Hayek, that the existence of sources of patronage and innovation outside government or corporate bureaucracy is a source of support for all sorts of desirable activities which could not otherwise get off the ground - from the journal Prospect to dozens of football and rugby clubs.

Here we come up against the limits of what can be done without a more "macro" approach. Does the wealth of the few trickle down in one way or another to other sections of the population, or is it now so large as to contribute to the plight of the poor?

An earlier "Old Labour" government which came to office in 1974 was pledged to bring about "an irreversible redistribution" to "ordinary workers and their families".

It appointed a standing Royal Commission on the Distribution of Income and Wealth, under Lord Diamond, a former chief secretary to the Treasury, who could drive home most eloquently accounting home truths such as "You cannot get a quart out of a pint pot."

The general tenor of his reports was that there was not much to be gained by squeezing the better off any further and that there were risks in trying. The popular view is that all that has now changed and that the rich have become so rich that there really would be substantial gains for the rest of us in squeezing them quite hard. We badly need a revived Diamond Commission to give this question the subtle and long-term analysis it needs.

*The National Wealth: Who Gets What in Britain, HarperCollins, 1,350 pp, £29.99.