Combating the disease of extreme inequality

Blog posts

5 Mar 2020

Peter Reilly, Principal Associate

When Duncan Brown and I were asked to write a book chapter[1] on pay equality from an organisational standpoint I was dubious because the book’s aim was to consider complete pay uniformity irrespective of job or location.

The chapter has been written and in IES fashion it balances arguments between the proponents and opponents of pay equality. We will summarise our argument closer to publication date. Instead, I wanted to point to three things  that have recently influenced my thinking on equality.

Firstly, my wife and I went to see the Oscar-winning South Korean film Parasite. Its theme is the relationship between masters and servants, between upstairs and downstairs (literally). It contrasts the wealth of the employers with the struggling lives of the employees. Yet as one reviewer has pointed out, the servants collude in the maintenance of inequality by playing the capitalist game and by ‘having no concept of class solidarity’[2].

One striking feature,  was though the film has elements of farce and exaggeration and despite its Asian origins, it was very recognisable; but to a world of my grandmother (who was a household maid), of the Victorian and Edwardian age that we thought had ended after the Second World War, when Hartley Shawcross, the Labour government’s Attorney General, announced to the House of Commons: ‘We are the masters now’[3].

My impression that at least income equality improved post war is borne out by the statistics. The income share of the top 10 per cent of the population fell from nearly 35 per cent in 1938 to 21 per cent in 1979. However, this trend has reversed such that in the Thatcher years the proportion of income taken by the wealthiest decile moved back to about 27 per cent and is now over 30 per cent.

The same picture is to be found across much of Europe: the top 1 per cent of incomes grew over twice as fast as the bottom 50 per cent, especially between 1980 and 2000. Poverty statistics, too, show a similar picture. After a short period of poverty reduction between 2000 and 2007, about a fifth or more of Europeans now live in relative poverty (defined as 60 per cent of the European-wide median income).

Whilst these figures may describe in dry economic terms the rise of inequality, the political consequence may be growing populist protest and success for nationalist, authoritarian parties in the Western world. These developments seem to be driven partly by a reaction of those ‘left behind’ to economic change, facing inequalities caused by globalisation[4].

Reading the Guardian’s economic editor on ‘deglobilisation’ is the second of my recent influences. Larry Elliot argues that governments are now concerned with international cybercrime, intellectual property theft and threats like the Coronavirus (and terrorism and climate change). Companies, he says, are worried about their extended global supply chains exposing them to costs and reputational threats.

Safeguarding jobs at home and repatriating overseas jobs have become issues for governments and employers alike. Brexit, and perhaps Johnson’s election victories in the North of England, were also achieved because part of the electorate wanted the deleterious effects of globalisation tackled. As Elliott writes: ‘there is a limit to how long people will put up with the rich getting richer while their [consumers’] living standards are stagnating’.

My third recent influence was a philosophy book by Julian Baggini[5]. He considers equality in a chapter on ‘harmony’ arguing in favour of ‘hierarchy’ against claims that it has become a ‘dirty word’. Baggini contends that ‘eliminating hierarchies of expertise and experience would entail the absurd pretence that everyone  knows the same and has the same skills as everyone else’. So, assuming rewards follow expertise and experience, this indicates appropriate criteria for justifying ‘acceptable’ inequality, but not its level.

This got me looking again at John Rawl’s ‘Theory of Justice’[6] which offers an economic account of inequality. He argued that a doctor’s salary and that of a grocery clerk can be different if this is the only way to encourage people to train as doctors, thereby sustaining medical care to the advantage of everyone including the least advantaged. In this model the labour market determines the degree of inequality so long as a social good is delivered.

Rawls combines this theory with a requirement that everyone should have a reasonable opportunity to acquire the economically necessary skills. When he was writing there was a lively political debate on whether the government’s goal should be to provide this equality of opportunity (the traditional Tory position) or work harder to achieve equality of outcome (as Labour proposed through redistributive taxation and weighting public expenditure towards the economically disadvantaged).

In this globalised economy, equality of opportunity may be insufficient for those at the bottom of the pile to compete effectively: there are too many obstacles to overcome. This was shown fictionally in Parasite and factually in the government’s Social Mobility Commission’s report last year. Social mobility has stagnated: ‘being born privileged still means you usually remain privileged’ in type of employment and wage levels. Social class, gender, ethnicity, and geographic location are stubbornly resilient determinants of personal prosperity.[7] As to equality of outcome, early results from the Finnish experiment in introducing a universal basic income have been described as ‘disappointing’ with labour market effects ‘negligible’.

Does this mean that we are doomed to suffer continuing income inequality despite historic low levels of unemployment and belatedly rising real wages? My recent reading suggests not only doubts over the extent that the economy is delivering for all, but also that, whilst we may have plausible philosophical explanations for some degree of income difference, we currently lack workable policy solutions to deal with ‘extreme’ inequalities. Meanwhile, Parasite wins all the prizes!

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.