Tuesday, 31 August 2010

Comparing inequality

In an article published in last Friday's Western Mail, I argued that tackling relative poverty involves not just mitigating its effects on individuals, but addressing the levels of income inequality within our society.

The graph below shows an international comparison of income inequality. (There are, as Churchill famously said, lies, damned lies, and statistics, so there's some explanation of the derivation of the numbers behind this graph at the end of the post.)

The differences are quite striking, with the UK and the USA coming out as two of the most unequal societies in the comparison group.

It's probably no surprise to most that the Scandinavian countries group together at the lowest end. These countries have traditionally opted for a redistributive approach to policy, with higher levels of taxation and benefits being used as mechanisms to ensure greater income equality. Indeed, broadly speaking, the countries with the lowest levels of income inequality tend to be at the higher end of the tax tables – and vice versa.

Not everyone will draw the same conclusions, of course; but two simple conclusions that I draw are that high levels of income inequality are not a pre-condition for economic success, and that tax and benefit policies can be an effective way of reducing income inequalities if followed consistently over the long term.

But the most important factor is about cultural acceptance of high levels of inequality. The 'most equal' societies tend to be those where there has been a long term acceptance of the need for governments to ensure a greater degree of equality.

The problem for Wales is that without that long term political consensus at a UK level on the need to reduce inequality, tackling relative poverty in ways which depend on taxation and benefits policy will always be vulnerable to a change in government and spending priorities. And that's one of the reasons why I think we need to do more to make the philosophical case for reducing inequality, and entrench support for that proposition in our policy making, rather than conduct the argument solely or primarily around specific policy proposals.

I don't doubt that an independent Wales would be more likely to look to the Scandinavian countries for inspiration than to the US; but whilst we remain tied to the UK, we will probably continue to see inequality moving towards US levels.

Notes on graph: The numbers are based on UN data, lifted from Wikipedia (because they had them laid out in an easy to use format!).

I've omitted a large number of countries so as to focus the comparison on those countries whose economy is most comparable to the UK. It's an approach which is open to criticism, of course, but I think that most people would agree that it makes more sense to compare the UK with this group of economies than with either former Soviet bloc states, or African countries, for instance.

There are different ways of measuring the level of income discrepancy, and the results would vary slightly depending on the approach chosen, but having tried it with several of the indicators, the results between this group of countries look broadly the same whichever is used. The particular one I've selected is the '10:10' ratio – the ratio of the household income of the richest 10% compared to the household income of the poorest 10%. (I should also note that it doesn't mean that there are not much larger disparities between the top 1% and the bottom 1%; it's just a simple way of trying to compare overall levels of inequality in different societies.)

1 comment:

Welsh Ramblings said...

How telling that Ireland, where successive governments have pursued almost Thatcherite economic policies, is significantly more equal than the UK which has allegedly had a "Labour" government for the past 13 years.