Is society waking up to the damage that inequality does to us all?
Jo Alexander, who’s currently working as an Associate of the April 2017 cohort with A Blueprint for Better Business , reflects on economic inequalities, their extent and implications for our society.
Economic inequality is a topic that I’m noticing everywhere at the moment.
In early September a colleague and I, from A Blueprint for Better Business, went to see Vince Cable MP talk about ‘Inequality in the UK’ at the Resolution Foundation. In the same week, I also discovered an excellent TED talk by Edward Wilkinson about ‘How economic inequality harms societies’. And finally, a friend gave me a book about global inequality ‘Our world to change’, which is full of terrifying facts, such as ‘the richest 1% of the world’s population own 50% of global wealth’!
These sources all agree on one point: that growing inequalities, like those we have seen in the UK, must be reduced because it harms both our society and our economy. The impacts affect everyone, including the wealthy, so surely this means that there should be political will from all sides to do something about this? However, the more difficult question seems to be: how we should go about bringing this inequality down?
Inequality has been growing:
In the 1970s, the UK was one of the most egalitarian societies, but after decades of widening differentials in earnings growth, we are now the most unequal country amongst our European peers. Research by the Resolution Foundation predicts that inequality will get even worse as further benefits cuts are impacting low income households.
Over the last 20 years the value of the FTSE 100 has barely risen, while executive pay has increased by more than 400%, demonstrating that the connection between pay and performance has broken down. Vince Cable pointed out there is so much focus on the statistics related to the top 1% because it gets people going on the issue, but it’s a useful way to start the conversation about the larger, more urgent problem of poverty. Vince Cable also highlighted the growing divide between generations; people under the age of 25 have, on average, no net assets, in comparison, 26–44 year olds have around £75 000 in assets, which grows to £430 000 for 55–64 year olds. Some of this difference in wealth is to be expected as people accumulate assets throughout life, but the divide has been growing as a result of our dysfunctional housing market.
Social harm:
Edward Wilkinson demonstrates that, in developed countries, there is a strong correlation between income inequality and social health. In unequal societies such as ours, we have lower life expectancy, social mobility, educational attainment and trust and we see higher rates of obesity, teenage births, infant mortality, imprisonment and mental illness. Vince Cable pointed out a striking example of social inequality in the UK, where neighbouring wards of Glasgow have a 20 year difference in life expectancy, the greatest difference in Europe.
Economic harm:
Inequality does economic harm through unproductive rent seeking activities, it contributes to financial instability, feeds asset bubbles and weakens demand for goods and services, contributing to the stagnation in our Economic growth.
So what are we going to do about this? If we look at other countries for inspiration we can see two different approaches. Scandinavian countries like Sweden use income taxes to narrow the gap between rich and poor, whereas Japan has a culture that favours maintaining greater income equality before tax. Vince Cable suggested that there is a third way, which is to focus tax reforms based on people’s wealth rather than (or in addition to) income, such as Inheritance tax and Council tax, which will serve to reduce wealth inequality, which is far greater than income inequality. In addition, we need to find ways to reduce tax evasion from individuals and businesses, so that we are all making a fair contribution to the society that we live in.
I have been left wondering… do tax reforms really go far enough in tackling this issue? Maybe we need to examine how our views of economics and business may have contributed to the pickle that we find ourselves in? Maybe we could even redefine how these systems should be serving society’s needs?
