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Is inequality iniquitous?

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Mark Easton | 15:59 UK time, Wednesday, 27 January 2010

So what's wrong with inequality? As today's National Equality Panel (NEP) report [3.7MB PDF] puts it:

"[S]ome might argue that inequalities... are inevitable in a modern economy, or are functional in creating incentives that promote overall economic growth."

But a look at the international comparisons suggests there is nothing inevitable about wide gaps between rich and poor in developed nations. Britain's inequality is well above the average for OECD nations, far greater than Sweden, Denmark, Holland, France or Germany.

Graph showing income inequality between OECD countries

And today's report derides the idea that inequality boosts economic performance.

"Comparisons... with other equally or more economically successful countries, but with lower inequality, undermine arguments about the inevitability or functionality of the extent of the inequalities in the UK that we document. Moreover, the view that greater equality would stifle diversity has to be set against the counter view that it is inequality that suppresses the ability of individuals to develop their talents."

All the political parties are signed up to the idea of "equality of opportunity" but there is less unanimity on the need to diminish the gap between rich and poor. The NEP argues, however, that you cannot have one without the other:

"Where only certain achievements are valued, and where large disparities in material rewards are used as the yardstick of success and failure, it is hard for those who fall behind to flourish.
"Wide inequalities erode the bonds of common citizenship and recognition of human dignity across economic divides. A number of analysts have pointed to the ways in which large inequalities in the kinds of economic outcome we look at are associated with societies having lower levels of happiness or well-being in other respects, and to the social problems and economic costs resulting from these."

Table showing index of health and social problems

Research by the University of Nottingham [748KB PDF] shows that greater inequality is linked to more kids dropping out of school; more violent crime; more people ending up in prison; more babies dying and more mental illness. There is also a strong correlation between greater inequality and less social mobility as well as less trust. It seems that the more equal a society, the happier it tends to be.

It is inevitable, I suppose, that people have been leaping to microphones to suggest that today's report is an indictment of the current government. Certainly, the evidence suggests that Labour has not delivered on Tony Blair's 1997 promise that "the new Britain is a meritocracy".

But social change takes at least a generation to achieve, far longer than the Parliamentary cycle. In that sense, it is too early to say whether the current government has made any meaningful progress.

Income (as opposed to social) inequality is arguably easier to address through the tax and welfare systems. If one looks at, say, full-time weekly incomes for men over the past forty years, one can see three distinct phases.

Graph showing full-time weekly earnings at 2008 prices

The 70s saw the income gap relatively stable and narrow. The 80s and 90s saw the gap between rich and poor widen significantly and the noughties saw stability return, albeit without any sign of the income chasm narrowing.

The problem for the politicians is that measures to reduce social or income inequality will always be controversial because they mean neutralising the advantages of wealth - a prospect that those with money and influence will fight hard against.


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