Professor David Hulme tackles the problem of rising global inequality.
Over the past few years there has been a wealth of research demonstrating the perils of inequality – both in the rich world and in developing countries. Studies have shown that increasing levels of inequality bring greater social problems and can act as a brake on economic growth.
Relatively rapidly, inequality has gone from a fringe concern to major policy issue, with Barack Obama, the business elite of Davos and the Pope all lining up to decry its effects on society. The current draft of the UN’s Sustainable Development Goals, designed to follow on from the Millennium Development Goals at the end of this year call for a reduction of inequality within and between countries. The new goals will be applied universally, so the UK or USA will be expected to adopt them in the same way that Malawi or Bangladesh will (while allowing for local context).
However, while there’s a broad consensus identifying the ills of inequality, there’s little agreement on the type and scale of policy changes required to reverse the trends.
Into this vacuum has stepped Sir Tony Atkinson, a longstanding doyenne of inequality research, with his new book ‘Inequality: What is to be done?’ At a recent event in Manchester, Atkinson presented his 15 detailed policy solutions for any government that’s serious about addressing inequality. His aim is to prime the debate with a dose of optimism, demonstrating there are range of feasible options available to tackle the problem.
The standard prescription for tackling inequality is to invest in education and skills training. Atkinson is right to argue that while this should be supported, it is not sufficient in isolation to reduce inequality levels. Many governments have been doing it (to a greater or lesser degree) while inequality has continued to rise. Significantly reducing high levels of inequality requires a more assertive – and perhaps controversial approach.
Atkinson groups his solutions under three areas. The first, taxation and redistribution, is perhaps the most conventional. He argues that one of the main contributing factors to reduction in inequality in post-war decades was existence of progressive income tax system and expansion of post-war welfare state. But since 1980 there has been an unwinding of redistributive policies with adverse distributional effects. From mid-1990s the reduced redistribution capacity was the main source of widening household income gaps. Joining forces with Charlotte Church, Atkinson calls for much higher top rates of income tax and also more progressive taxation of property. He proposes significantly increased child benefits and more radically, a citizen’s income based on participation in society.
In order to return levels of inequality to those of the early 1980s, Atkinson argues that welfare and taxation policies are not sufficient. He proposes a radical overhaul of the employment market, starting with a plea for governments to reaffirm a commitment to achieving zero unemployment. To ensure this was achieved, governments would act as ‘employers of last resort’, echoing the Indian rural employment guarantee scheme.
Atkinson observes that wealth is now much more evenly spread than 100 years ago, but there has not been a corresponding spread of control over economic decision making associated with capital. In this area he calls for a more fundamental rebalancing of power between workers, consumers and companies to ensure that the distributional impacts of policies and decisions is considered on a par with promoting competition. He cites the current TTIP trade negotiations as a clear example of where corporate interests are being privileged over those of the population at large. Other key proposals include implementing a minimum inheritance for people turning 18, funded by greater taxation on wealth and for governments to take a beneficial share (though not control) of strategic national industries.
This is an important book – at the very least in terms of opening up the space for a more honest debate about what it takes to reduce inequality. The majority of Latin American countries have significantly reduced their levels of both poverty and inequality over the last 10 years, with many adopting the type of policies proposed by Atkinson. As he says, “the solution is in our hands” and increasing levels of inequality are not inevitable in our globalised world.
While some accuse Atkinson of simply trying to turn the clock back to the 1970s, it’s clear that we can’t let ourselves be trapped by current economic orthodoxy if we want to effectively tackle inequality – as The University of Manchester aims to with its prioritisation of global inequality as a leading research theme. If the UK and other developed countries are committed to supporting the Sustainable Development Goal on reducing inequality, much more ambitious and indeed radical action is required. A significant body of research suggests it wouldn’t just help to reduce poverty; it would also make us happier and healthier.
For many years, examples of ‘best practice’ policy making in international development have been transferred from rich countries to poor. But when it comes to inequality, the tables have turned and western nations should look to the example being set by Latin American countries. Inequality is patently an issue where the West doesn’t know best.
