Economic Inequality

Over the last three decades most societies have experienced a marked rise in economic inequality. In the UK, the top one per cent’s share of net income increased from 4% in 1978 to 10% in 2000.

Inequality in wealth is more difficult to measure, but it is undoubtedly starker. According to one estimate, in 2002 the top one per cent owned 23% of ‘marketable wealth’ (that is, wealth that can be sold).

The political implications of this trend, such as the ability of wealthy individuals and corporations to unduly influence government decision-making, have attracted criticism. There has also been considerable concern with the social implications of economic polarisation - mental health problems, educational attainment, drug and alcohol abuse, crime etc. And there have been questions as to whether the magnitude of some sources of remuneration is really merited (bankers’ bonuses a topical example).

But by and large, it has been accepted that the growing gap between the rich and the poor is economically desirable, as the prospect of high material reward incentivises ambition, enterprise, and hard work – characteristics vital to generating wealth for society as a whole. Rising inequality and rising prosperity go hand in hand.

There is still much to learn about the relationship between the two, but it does not appear to be the case that all economic groups benefited during the rise in inequality (‘a rising tide lifts all boats’). In general, income has soared for those at the top while wages grew marginally, if at all, for much of the rest of the population. In addition, the empirical evidence does not suggest a consistent correlation between rising income inequality and economic growth.

Indeed excessive inequality may have been a factor in the ongoing economic crisis. In The Cost of Inequality, Stewart Lansley observes that both the current ‘Great Recession’ and the Great Depression of the 1930s were preceded by exorbitant increases in inequality.

A focus of Lansley’s analysis is the share of returns that accrue to wages (labour) and profits (capital). For years after the second world war, both grew in tandem. However, when profits began to decline in the 1970s, rising wages and the trade unions that helped to secure them came under attack. In essence Lansley contends that the readjustment in wages, necessary to revive profitability, has gone too far. Wages have stagnated, undermining the ability of societies to consume what they produce (“a consumer society without the capacity to consume”), and therefore creating the conditions for recession - an outcome postponed for a time by the assumption of unsustainable debt. At the same time the surpluses created by huge profits were used to fuel asset bubbles, particularly in housing. In addition, income has transferred from taxpaying wage earners to areas of the economy characterised by high levels of tax avoidance, undermining the public finances.

If the idea takes hold, it will be interesting to see how a politics develops around the goal of a more equitable distribution of wealth. The equality movement in Northern Ireland has challenged many aspects of the labour market - differential unemployment rates between Catholics and Protestants, disparities in pay between women and men, discrimination in the workplace against people with disabilities - but it has not questioned inequalities in wealth per se. In essence it has advocated equal opportunity to unequal outcomes.

Establishing a policy programme will be a key challenge. A stronger focus on ‘levelling the playing’ field at birth can only achieve so much as a child’s life chances are profoundly influenced by the economic circumstances of the parents. In other words it is difficult to reconcile equality of opportunity (for children) with inequality of outcome (for adults). The idea of returning to the redistributive policies of the post-war era lacks ambition and imagination, and is politically improbable. Ed Miliband has proposed the idea of ‘pre-distribution’ which appears to involve engineering the economy in order to achieve a more equitable distribution of wealth, thereby mitigating the need for redistribution ‘after the fact’, for example through taxation. But we await the specifics on that. The idea of a ‘living wage’ appears to have some promise and has been endorsed by the mayor of London, Boris Johnston.

Perhaps there are lessons to be learned from the more equitable forms of economic ownership and distribution operating in the social economy. Certainly, the voluntary and community sector should take a strong interest in, and position on, this issue - the economic consensus of recent times has not served the interests of many sections of society, and particularly the most disadvantaged.


The opinions, views or comments in this article do not necessarily reflect any views or policies of NICVA.

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