No capitalism without egalitarianism?

Long, long time ago, when as a freshly-minted graduate I was working in Whitehall, I attended a conference called "Modernising movements in the Middle East". (For further context, this was before OPEC engineered its first oil shock). The crowd was the usual mix of academics, private sector execs and civil servants.

At some point I plucked up the courage to pose a question to one of the distinguished men of letters. I asked him to comment on my view that until the countries of the Middle East developed a more egalitarian economy, it would be difficult for them to sustain economic growth. I viewed the essentially mercantilist nature of those economies at that time as inconsistent with producing the gains in employment and mass consumption that drive modern economies in the "West", and I wondered what it would take to trigger the type of transformation that the Industrial Revolution created in Europe.

The professor was not hugely impressed by my question, but I still rather like it, and I think it still holds water. One thing that's quite clear is that the surge in oil prices, in the 1970s and on several subsequent occasions, has not been enough to trigger the sort of changes I had in mind. In 1970 Saudi Arabia was a poorish country with one product; in 2007 it's a rich (but unequal) country with one product.

My reason for bringing up this ancient history is that I am wondering if recent developments in capitalist economies, especially the huge shift in income and wealth toward the already-rich, may ultimately prove self-defeating. We seem to be moving away from an economy driven by rising living standards and mass consumption, toward one in which we rely on the excesses of the ultra-rich to keep things moving -- a return to the mercantilist era, in fact.

A piece today by James Harding in the business section of the Times notes that a lot of senior finance types are selling their personal equity holdings. They fear that the fallout from the US sub prime debacle (note to self: time for another anti-Greenspan diatribe) will undermine US consumption and bring the world economy to a standstill. There was a startling statistic: for the average earner in the UK, discretionary spending power has fallen by 25%, as a result of rising prices for food and energy and rising local tax bills. This problem is not about to get better. Thanks to ethanol mania, food and energy price rises are increasingly tied together, and there can be no doubt that the clean-up costs for the current flooding will add to the pressure on local taxes.

These things are happening at the same time as the media, with the Times in the forefront, are stuffed with stories about conspicuous consumption by the rich. But if the average family in the US, UK and elsewhere is forced to cut back, how big a yacht will Roman Abramovich have to build to keep the economy moving?