‘I believe the president is very concerned about minorities. We rich are a minority, you know.’
Our hypothesis in The Spirit Level (summarized in the Prologue to this book) was that it is not just any or all problems that were related to inequality, but specifically those with social gradients. We tested this by looking at different death rates.416 As predicted, we found that death rates and causes of death that are more common among the least well-off (like heart disease, respiratory disease and infant mortality) were much more common in more unequal societies; those with no social gradient, like breast and prostate cancer, seemed unrelated to inequality. This tendency for bigger income differences to increase the health inequalities between social groups has since been confirmed by other researchers.417 If problems related to social status get worse where income differences are bigger, that strongly suggests that the processes responsible for social gradients are made more powerful by larger income inequalities. Rather than being separate from all the varied indications of class and status, greater income inequality strengthens their divisive hold on us, making societies more hierarchical.
2. Inequality affects social mixing
Countries with bigger income differences tend to have less social mobility: as we saw in Chapter 6, people are more likely to remain in the classes they were born into because larger income differences increase class barriers, make the social hierarchy more rigid and opportunities for children even more unequal. Similarly, marriages across class differences become less common as income differences increase. And as part of that same picture, the residential segregation of the rich and poor also increases.418 These three points all indicate that greater inequality means that people in different social classes are more separated from each other: the cultural, social and physical divisions all grow wider. Our lives become increasingly defined and restricted by class and status, and the social fabric damaged for everyone. Research now shows that in more unequal societies, the correlation between people’s incomes and the class they feel they belong to becomes stronger. At the same time, more people identify themselves as having lower social status.419
3. Inequality affects social cohesion
In Chapters 1 and 2, we saw that levels of status anxiety increase in more unequal societies. We all become more worried about each other’s judgements of where we stand in society, and as a result, many find social contact increasingly stressful and awkward and so become more likely to ‘keep themselves to themselves’. Where there is greater inequality, community life is weaker and levels of interpersonal trust decline – almost certainly because the stress of status insecurity makes people withdraw from social engagement. And as inequality makes social life more stressful, people increasingly make use of drink and drugs to allay their anxieties so that they can relax in each other’s company. Hence, drug abuse is, as we saw in Chapter 4, more common in more unequal societies.
4. Inequality increases anxieties about status
We have also discussed the evidence of the psychological responses to higher levels of anxiety about social evaluation. As people battle with their own lack of confidence and low self-esteem, depression and anxiety disorders increase. Less predictable, though understandable in the light of research into the Dominance Behavioural System, are the higher rates of schizophrenia and psychotic symptoms in more unequal countries. These conditions contribute to the link between inequality and mental illness that we first showed in The Spirit Level and which has since been confirmed by the numerous studies we described in Chapters 2–4. This connection shows that inequality damages social interaction and our sense of ourselves in relation to each other.
We saw in Chapter 3 that there is also a tendency for people to respond to a heightened social evaluative threat by flaunting their merits and achievements rather than being modest about them. This is shown most clearly in the higher levels of ‘self-enhancement’ – of rating yourself more highly than others – widespread in the more unequal societies. Internationally comparable data on narcissism are lacking, but we saw in the USA that narcissism became more prevalent as inequality increased.
5. Inequality heightens consumerism and conspicuous consumption
The fifth and final evidential link that larger income differences increase our concern with status, centres on consumerism and the importance of money. Because people tend to use money to show what they are worth, increases in status anxiety mean that money becomes even more important in more unequal societies. People work longer hours, get into debt more and are more likely to go bankrupt. Conspicuous consumption, which is, after all, self-enhancement by economic means, increases in more unequal societies.420-422 The heightened concern with social status and desire for self-advancement is also evident in data showing that students in the more unequal US states are more likely to cheat to get good marks – by buying term papers on the internet – than are students in more equal states.423
The very positive reverse side of this body of evidence is that it points to important new policy levers for improving the quality of life and well-being of the vast majority of the population. We now know how to reduce the power of class and status. Whole societies could be liberated from a hierarchical social structure that encourages people at each level in the status hierarchy to exclude those below them. Much of the nastiness which feeds social anxiety and lack of confidence could be brought to an end so that social life could regenerate.
IS THERE A RIGHT AMOUNT OF INEQUALITY?
We cannot say exactly by how much income differences must be reduced to maximize well-being. What we do know is that, rather than levelling off among the more equal countries, both our own Index of Health and Social Problems and the UNICEF Index of Child Well-being show a continuous rate of improvement from the most unequal to the most equal developed countries. This suggests that the benefits of greater equality persist at the very least up to the levels of equality found in the Scandinavian countries, which are among the most equal developed countries. Beyond that we have no data and so cannot say what happens. However, by the time the most unequal countries have reduced income differences to those levels there will, perhaps, be examples of countries that will show if it is worth going further.
What level of equality is desirable may also differ in different contexts. For example, in societies with high levels of geographical mobility, which lack settled communities, greater equality is likely to be even more important than it is in more stable societies. The weaker community life is, the more important it becomes to avoid additional sources of social division.
In the more equal of the rich developed societies, incomes of the richest 20 per cent of the population are between three-and-a-half and four times those of the poorest 20 per cent. In the more unequal, like the USA and UK, the gap is around twice as large. The implication is that the more unequal countries should aim to at least halve the income differences between the top and bottom 20 per cent. Although this would reduce inequality only to levels experienced in the 1960s and early 1970s, it is clear that this could not be achieved quickly simply by tweaking top tax rates and social security benefits.
PREVIOUS MAJOR CHANGES IN INEQUALITY
Given the substantial benefits, in terms of encouraging and enabling environmental sustainability and improving well-being for entire populations, you might expect that reductions in income differences would be easy to achieve. But the distribution of income and wealth reflects crucial aspects of the distribution of power in any society, and the efficacy of an idea or policy is in itself no guarantee of its implementation. To understand the task that lies before us we must first examine the forces which have led to major changes in income distribution in the past.
Figure 9.1 shows the long-term trends in income inequality among a group of rich countries. The major changes between 1930 and 2014 are illustrative of a broad pattern widely shared across the developed world, and are not a reflection of short-term factors such as the business cycle. Inequality was high until the 1930s, when
a long decline began – exactly when varies by five to ten years from country to country and from one measure of income inequality to another. The trend continued downward until sometime in the 1970s. But from around 1980, or a little later in some countries, inequality started to grow again until, by the early twenty-first century, some countries had returned to levels of inequality not seen since the 1920s.
Figure 9.1: Trends in the income share of the richest 1 per cent.
This overall pattern – the initial long decline and later increase in inequality – reflects the strengthening, and then the weakening, of the labour movement, and the political ideology which accompanied it. If you take the proportion of the labour force in trade unions as a measure of the strength of the labour movement’s influence as a countervailing voice in society, the relationship with inequality is very clear. Figure 9.2 shows the relation between inequality and the proportion of the labour force in trade unions in sixteen OECD countries at various points between 1966 and 1994.424
Figure 9.2: Where trade unions are weaker, inequality is greater. Data from sixteen OECD countries, 1966–94.424
When and wherever trade union membership is lower (towards the left-hand side of the chart), inequality is higher. This relationship has been found repeatedly in trends over time in a number of different countries. Figure 9.3 shows that as trade union strength increased in the USA, levels of inequality declined – and then rose again as trade union strength reduced.425
The connection between trade union membership and inequality should not, however, be seen as if it were simply a reflection of the ability of trade unions to gain higher wages for their members. Instead, the relationship indicates the wider waxing (and later waning) of the influence of progressive politics as a whole. What shaped the distribution of wealth and income was the strength of a set of values in society – most obviously expressed in the ideology and politics of the labour movement. Accompanying it was also the fear of communism and the worry that the economic depression of the 1930s would be interpreted as the collapse of capitalism that Marx had predicted. During the Great Depression, when President Roosevelt introduced the New Deal to the USA and dramatically reduced income differences, he explained to industrialists and the rich that it was necessary to reform the system in order to preserve it. Indeed, he is sometimes regarded as having saved capitalism from itself. Reductions in inequality were, then, the product both of a collective movement that brought people together with some shared sense of identity and purpose, and the perceived threat that movement posed. The millions of people who suffer the effects of current inequality have so far failed to make up a progressive political force, united by a common cause, with demands which must be met.
Figure 9.3: Changes in trade union strength and inequality in the USA, 1918–2008.425
Until the end of the 1960s, communist central planning was often thought – despite its other faults – to be more efficient, and to produce faster economic growth rates (according to CIA estimates) than capitalism. It was only with the declining economic performance of the USSR and its satellite countries in the 1970s and 1980s that this view was reversed. The rise in inequality since around 1980 is largely attributable to the political power of the neoliberal ideology espoused and promulgated by President Reagan and Margaret Thatcher. Legislation was passed in one country after another to weaken trade union power. Utilities, transport and mutual companies were privatized, leading to a rapid widening of pay differences within them, and taxes on the wealthy were dramatically cut.
There was, however, an unexpected effect of reducing – sometimes by as much as half – top tax rates from above 80 per cent. Rather than moderating the growth of top pre-tax incomes, it had the opposite effect. Because the rich were allowed to keep a higher proportion of any increase in their income, additions to their pre-tax incomes suddenly became much more desirable. The result was a strong tendency, shown across OECD countries, for the rich to gain faster increases in their pre-tax incomes where governments had cut top tax rates most dramatically: the bigger the reductions in top tax rates, the faster the subsequent increase in the pre-tax incomes of the rich.426 High top tax rates had functioned as a partial wage cap; once they were removed, the wealthy benefitted from both a reduced tax burden and more rapid gains in their incomes before tax. Given their stated purpose of boosting economic growth, the irony is that reductions in top tax rates have now been found to be associated with lower growth rates. An IMF research report finds not only that inequality is bad for growth (as we pointed out in Chapter 6), but also that redistribution is not damaging to growth.270
The central role of politics – as opposed to ‘market forces’ – as the driver of the major changes in inequality (illustrated in Figure 9.3) is confirmed by experience elsewhere. The World Bank makes the same point in a 1993 report on the eight countries which used to be known as the ‘tiger economies’: Japan, South Korea, Taiwan, Singapore, Hong Kong, Thailand, Malaysia and Indonesia.427 It describes how, with well-publicized programmes of ‘shared growth’, these countries all reduced their income differentials during the period 1960–1980. Policies variously included land reform, subsidies to reduce fertilizer prices and boost rural incomes, wealth sharing programmes, large-scale public housing programmes, and assistance to worker co-operatives. The World Bank report then considers why their governments pursued these more egalitarian policies. It says that, in each case, governments reduced inequality primarily because they faced challenges to their legitimacy, often from communist rivals, and needed to win wider popular support. South Korea faced ideological competition from North Korea, for example; Taiwan and Hong Kong faced the claims of China; and communist guerrilla forces operated widely. So here, as in the rich developed countries, it is a mistake to assume that the main changes in inequality over the last century have resulted simply from impersonal market forces driven by globalization or technical change rather than from political and ideological processes.428 It is not a matter of impersonal economic forces beyond our control; politics and policy have played a central role in determining the distribution of income.
THE POLITICAL PENDULUM
Recent political reversals have led many to feel despondent about the prospects of progress. High levels of inequality have caused political polarization, much as they did in the 1920s. Paul Krugman describes how in the 1960s and ’70s there was a large overlap in voting between Republicans and Democrats in the US Congress, but with the growth of inequality that has now completely disappeared.428 A similar process of political polarization is also evident in Europe. The resurgence of the far right and the far left has been fuelled not only by those victims of inequality who abandoned the establishment parties of the centre left, which had long since abandoned them, but also by the development of more antisocial values across more unequal societies as a whole. Donald Trump was elected President of the United States by a minority of voters, and perhaps Bernie Sanders, despite calling himself a socialist, would have had a better chance of beating him than Hillary Clinton.
The recent rejection of centrist parties by voters on both the left and right suggests a sentiment more fundamental than the considerations that determine which way they turn in any particular election. Political commentators are united in identifying a deep-seated desire for change, although ideas as to what that change should be seem comparatively few on the ground. One of the key ideas that Marx took from his analysis of history was how the development of the industrial system of production forced fundamental changes in the social and political organization of society. It isn’t necessary to be a Marxist to recognize that, while our own system has changed out of all recognition, we have been drawn into a global network of total interdependence, and that technological advances have transformed our economies and lives. Despite this we manifestly have not been ushered into a new post-capitalist, post-scarcity world. Instead, the new productive system continues to be organized in a way which would be immediately recognizable to people two centuries
ago.
Despite unprecedented levels of physical comfort we suffer a huge burden of unhappiness and mental illness. The so-called meritocracy, which frames our aspirations and defines success, turns out to be an anachronism based largely on a falsehood. International relations continue to be conducted as if it was better to spend so much on military forces, whose use is so often counterproductive, rather than on developing international co-operation and mutual support. And for lack of an adequate framework, we fail to deal with a growing list of international problems, including climate change, the increasing flows of desperate refugees and migrants, the undemocratic and unbridled power of multinationals, the need for enforceable international law, and the $21–32 trillion (20–30 per cent of the world’s annual product) which the Tax Justice Network estimates is hidden in tax havens. Though on each issue it is easy to see at least the direction in which progress lies, the changes we need are daunting in their enormity.
There are, however, signs that the sands are beginning to shift. World carbon emissions have at last reached their peak and ceased to rise, but because we continue to tip 36 billion tonnes of carbon dioxide into the atmosphere each year, far more than it can absorb without increasing the planet’s temperature, the challenge before us remains very severe.
The Inner Level Page 26