For many years the researchers Richard Wilkinson and Kate Pickett have been investigating the relationship between wealth, inequality, and measurements of a good society. The measurements of a good society would be low levels of crime, low levels of teenage pregnancy, good health in terms of long life expectancy, low levels of obesity – and many other measures besides.
During their research they have published books on this, and finally they published the book “The Spirit Level“, which has had the biggest impact of all.
There are many countries that are poor, and clearly they need economic growth in order to ensure that their populations can satisify their basic needs in life.
There are some countries, including the UK, which are rich enough to acheive that. When you compare these countries that have reached that level of prosperity, then when you plot a graph with wealth on one axis and quality of life measurements on the other, there is no obvious relationship.
From a certain level, a society does not become better simply because it becomes richer.
Yet when you plot the quality of life measurements against the levels of inequality, the correlations are remarkebly strong. And this is not just between countries, it is within them too. Nick Clegg often remarks how life expectancy alters from the prosperous suburbs of Sheffield to that of the inner city. The relationship is more likely to be to do with the levels of inequality rather than the quality of service from the NHS.
In The Spirit Level, the comparisons are made between the states of the US and the same trends are found there as well. Vermount and New Hampshire are the best places to live there, being more equal and having the best statistics for quality of life, whilst Alabama, Mississippi, West Virginia and Louisana are the worst for the opposite reasons.
Of the 20 countries compared, Portugal, the US and the UK have the worst statistics of all, whilst the best are from Japan, Sweden, Belgium, the Netherlands and Denmark.
The book is worth buying and goes into far more detail than I possibly can here.
The point of course is that relative inequality matters. If you consider that a Liberal society is one where more is spent on colleges and less on prisons, then less inequality will help bring that about.
As far as the UK is concerned, levels of inequality increased dramatically during the premiership of Margaret Thatcher, and have not improved since, even under Labour.
Since the publication of the Spirit Level, Richard Wilkinson and Kate Pickett have set up the Equality Trust pressure group which has been campaigning hard to put their case. Indeed when I invited them to speak at a Hackney Lib Dem event, they were happy to do so, despite being based near York. For the general election they are encouraging everyone in general, and candidates for elections (both general and local) in particular to sign their Equality Pledge. You can see the signatories here.
Many Greens, Labour and Lib Dems – including Vince Cable – have already signed it. Even some Conservatives and UKIP candidates have supported it.
But this is NOT a soft option pledge. It means we are committing ourselves to reversing a 30 year trend that up until now has not been taken seriously by the governing parties.
There were some ideologues that influenced the Thatcher government in the 1980s who argued that wealth creation is more important than reducing inequality, and that inequality did not matter as long as the poorest did not get any poorer. This was known as the trickle down effect. However the popularity of the trickle down effect was aided by a media who sought to demonise benefit claimants – the poorest members of society – so that they got even poorer as a result. Even today it is often tempting for politicians to attack “dependency” in order to win votes and seek to make life even more miserable for these people.
For Liberal Democrats our tax politicies aim to redistribute wealth by taxing the poor less and the rich more. The emphasis on mutualism in which there is more industrial democracy ought to also improve the lives of working people and reduce income disparity. Redistribution of wealth may well have other economic benefits; those with low wealth would spend more if they had more, whilst those with high wealth would keep a large part of that wealth rather than spend it.
Historically the question of equality has been a fundamental one in politics, and always high on the liberal agenda, notably the people’s budget of 1909, the Keynsian economics that rescued the British economy from the 1930s depression and the 1942 report Social Insurance and Allied Services by William Beveridge. Liberals should be making the case for equality as strongly today as they have done before during these historical periods where we were proved to be right.
I am pleased to see that many Liberal Democrat Voice readers have already signed the pledge, and I would urge you to do so as well.
Geoffrey Payne is the events organiser for Hackney Lib Dems
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8 Comments
I would sign, except that the evidence that they provide is far from “compelling”. It is an elementary mistake to try to draw policy implications from a cross-section study. A simple example: if you want to study whether a new drug works to reduce the incidence or symptoms a some disease, you don’t just compare a treated group with a control group once, you follow them over several years. But Wilkinson and Pickett only use data from one point in time. I completely fail to understand why they don’t do a proper study over time, which would actually allow us to draw some proper conclusions.
From what I have read so far, their evidence does not show any effect on social outcomes from changing the level of income inequality in society. But that is the sort of effect we need to justify policy interventions aimed at reducing inequality. So far all they have shown is that some countries have nice societies and also have low inequality (e.g. Scandinavian countries and Japan) and others have nasty societies and high inequality (e.g. USA). But that could be the result of historical or cultural factors that cause both inequality and high rates of teen pregnancy, high crime rates and low recycling rates and so on.
I have explained the problems with their statistics in a couple of comments on earlier LDV posts here and here.
Quite frankly, I don’t understand why such schoolboy errors in statistical inference have become so incredibly influential. In the economics faculty where I study I would be surprised if Wilkinson and Pickett’s work got passed if it had been submitted as a thesis or dissertation.
In your previous comment you mentioned that you bought the book but hadn’t read it yet.
If you had have read it, you would have found that they have indeed researched the historical data.
So I suggest you read the book before you denounce their findings.
Incidently I am not aware that anyone has published any research to suggest that the alternative hypothesis is more likely to be true. Maybe you know otherwise, but unless you do I see no reason for assuming the alternative hypothesis is in fact more likely to be true.
That extreme wealth inequality leads to all sorts of social problems seems to me a reasonable proposition but is redistributing wealth the best way to tackle these problems? On the face of it nothing could be more obvious and yet Labour’s best efforts (not very good I grant you) have failed. I think the real underlying problem is one of POWER inequality that we are overlooking. Fix that and the wealth inequalities will reduce very fast.
For example the reason that CEOs can pay themselves excessive amounts is that shareholders and employees (whether unionised or not) have too little power. In such circumstances it is not difficult for a CEO to award themselves obscene amounts by gutting the company. This may be by ‘saving’ money on the R&D budget or trashing pension benefits as per Kraft/Cadbury. Kraft boss Irene Rosenfeld was awarded a 41% increase bringing her 2009 pay to $29 million for her “exceptional role in the Cadbury transaction” and her “commitment to fiscal discipline”. Presumably that means failing to do due diligence! She will be long in comfortable retirement before the consequences really bite back.
For another example consider ‘big retail’. It now operates in a regulatory framework that permits, and in practice encourages, deceitful pricing verging on the outright fraudulent. Supermarket customers are routinely shaken down and finish up paying up to 33% more than they ought in the UK. Needless to say this is a cost burden that falls disproportionately on the poor. Meanwhile suppliers are crushed by the oligopsony power of the big players. Hence big retail is a powerful motor of wealth inequality but the reason that this is so springs from underlying power inequalities in both the supplier-facing and customer-facing markets in which they operate.
Liberal Eye makes a key point. Labour have failed to reduce inequality because all their well-meaning activists who would have liked to do so, do not have the power. Their government has been captured by the rich.
Charles Kennedy famously said that Britain does not need three conservative parties. Sadly, there are people around who take the opposite view, that it is vital the Britain has three conservative parties, because otherwise the Lib Dems might get somewhere, offer a real alternative, and change things!
It must be because there’s an election on .. I’m agreeing with David Allen again! 😯
If we tackle inequalities of power, then inequalities of wealth will look after themselves.
@Geoffrey,
I have read some of it (unfortunately revision is taking up most of my time at the moment), and I did see some information on trends over time, specifically on stress levels reported by American college students since the 1950s, which shows a big rise. But from what I can see on their website, the data they use for the famous graphs and regressions are only from one year in each case, as they show on this page on their website. Every single dataset except for the one on social mobility is a cross-section, i.e. only covers one point in time.
Wilkinson and Pickett acknowledge that they (and other researchers) have not done very much research on the relationship between inequality and social outcomes over time, but their argument that “It is of course impossible that the two would appear related at successive points in time unless they changed together over time” is flawed.
Several different cross-section studies all showing a significant correlation between (say) income inequality and low life expectancy don’t provide adequate evidence that it is inequality that lowers life expectancy. For this you need to use panel data (follow a group of countries for several years). You should also control for factors that might affect life expectancy, such as access to healthcare. But none of Wilkinson and Pickett’s regressions seem to have any controls in at all!
A Swedish economist has shown that the negative relationship between inequality and life expectancy disappears if you use panel data and control for nutritional intake and number of doctors per thousand population. (Incidentally, he controlled for GDP per capita as well, but that has no significant impact if nutrition and doctors are included – it’s not wealth that improves life expectancy, but investing in access to healthcare and ensuring access to food.) His article is in Swedish, but there is a revealing table summarising the results on page 4 of this pdf.
As he points out, the Gini coefficient of inequality grew from 27 to 32 in the UK under Thatcher’s premiership (for comparison, current Gini coefficients for Sweden and the USA are 25 and 37 respectively). A casual extrapolation of the coefficient on the inequality term in the simple cross-section regression (column 1) would lead us to the conclusion that the increase in inequality under Thatcher shortened life expectancy by 1.2 years, which would be unpleasant if true.
But by using country dummy variables to switch to looking at the effect within countries (column 2), and adding a time trend (since we would expect life expectancy to improve over time holding other factors constant, because of medical advances), we find that the impact of inequality is ten times smaller and much less statistically significant (column 3). Controlling for GDP per capita, doctors per thousand population and nutritional intake (column 6) makes the coefficient on inequality both tiny and statistically insignificant (i.e. quite likely to be zero). The coefficient on GDP per capita is also insignificantly different from zero, while the coefficients on doctors and nutrition are both large and highly statistically significant (less than a 1% chance that they are in fact zero).
I’m sorry to descend into jargon, but I believe in evidence-based policymaking and I study this sort of thing at university. The idea that inequality is bad for society is plausible, but so is the idea that cannibis is a dangerous gateway drug. In both cases we need to base policy on evidence before making interventions that could do more harm than good (e.g. criminalising recreational cannibis users like Alan Johnson has done, or engaging in social engineering to reduce income inequality).
I submitted a long comment this morning, I think it may be stuck in the spam filter.
Comment now posted. Thanks, and sorry again for its length!