Posted on 21 January 2015
This article was written by a University of York academic and originally published at The Conversation, a website providing analysis, research, news and ideas from leading academics and researchers.
Views expressed in the article do not necessarily represent the views of the University of York.
When the great and the good met at last year’s Davos event to discuss the major global challenges to prosperity and well-being, it was clear that one theme dominated all others – inequality.
But has anything changed since then? Before last year’s event, Oxfam found that 85 people have as much wealth as half of the world. This year that figure has been updated to just 80.
Identifying the wealth of the richest is no easy task, a lot of it is likely to be hidden in the shadows and, as a result, the data used may be imperfect. But Oxfam’s report represents a reasonable, robust approach and shows just how wide the gap now is between the rich and the rest of us.
It is not just on a global level that inequality has reached staggering levels. Within a number of developed countries, most notably the US and UK, extreme inequality has stretched society to breaking point. New figures from the Equality Trust have found the combined wealth of the richest 100 families in Britain has increased by at least £15bn since the recession. In a separate report, the Joseph Rowntree Foundation suggested nearly four out of ten households with children, or 8.1m people, live below an income level regarded by the public as the minimum needed to participate in society.
To most right-minded people, this level of inequality is appalling. More importantly, it really does matter. When we published The Spirit Level almost six years ago, we found what many people knew instinctively: that more unequal societies such as the UK have higher rates of violent crime, lower life expectancy, poorer mental and physical health, worse educational outcomes and a whole range of social ills of greater magnitude than the more equal ones.
Some suggested correlation not causation – that the social ills matched inequality but were not caused by it – but when we returned to look again recently, we found that the body of evidence strongly suggests that income inequality affects population health and well-being.
We also now know the dangers of inequality go even further. Last month the OECD added to the mounting evidence that high levels of inequality also harm economies, suggesting that inequality reduced the UK’s growth between 1990-2010 by 8.6%.
Of course, GDP is a pretty terrible measure of well-being when taken alone. Last year the UK experienced some small growth, but real wages fell across the board leaving many struggling to make ends meet. For those obsessed with “increasing the size of the pie” as a way to alleviate poverty, this research should be a wake-up call.
The reality is that relentlessly focusing on growth at the expense of inequality is self-defeating in the long run – and allowing income gains for those at the top rather than the bottom half of society results in a less wealthy society overall. The IMF went even further when it said that redistribution has an important role to play in reducing inequality and increasing growth.
Irrespective of the huge amount of data and research supporting inequality reduction, what this is really about is the society we want to live in. If we want to return to a Gilded Age with unimaginable wealth for some and poverty for many more, where a minority are feted as superstars and the rest of us seen as worthless, we’re going about it the right way. But if we accept that everyone should contribute to the success of a business, economy and society then we need a drastic change of direction.
In our more considered moments, we realise that the extreme inequality we see in this country and in other developed nations hurts us all. It damages society by breaking the bonds between us, leading to more stressful lives and a plethora of social conditions. That’s why 80% of us agree that gap between rich and poor is too wide. It’s why even some of the super-rich such as Warren Buffett, Bill Gates and Rupert Murdoch have voiced concerns.
Undoubtedly the causes of inequality are complex, and so are the solutions. But there are practical ways to reduce inequality that can be introduced now. On a global scale tax avoidance continues to be both deeply unpopular and exceptionally damaging to developed and developing nations.
The UK should take a lead on this. For a start we can insist that foreign multinationals pay more tax on the profits from the billions of pounds worth of business they do in the UK. But we can also help reduce international tax avoidance by toughening up the UK’s anti-tax haven rules so they deter tax dodging abroad and at home. The Controlled Foreign Companies rules should be strengthened, and the revisions that were made in 2013 should be scrapped as they adversely affect poor countries.
We can also reduce inequality at home with a series of simple measures. Council Tax is hopelessly regressive, requiring the poorest to pay a far higher proportion of their income than the richest. There was much bleating from wealthy celebrities when talk of a mansion tax first arose, but self-interested opposition to fairer tax on property should be resisted. All parties need to consign Council Tax to the dustbin and replace it with a progressive property tax.
We cannot discount higher tax on the incomes of the richest 1%. Again, special interest lobby groups and think tanks are adept at perpetuating myths of inevitable economic meltdown should we require the very richest to pay their fair share in tax. But there is a wealth of evidence that slightly higher tax on the rich can also lead to lower salaries before tax, with highly paid executives less inclined to bargain for sky-high salaries when they know more will be paid back.
Perhaps most importantly, we need political leaders of all parties and persuasions to sign up to a genuine commitment to reduce extreme inequality.
At this year’s event in Davos, there is a danger that those meeting will convince themselves that the job has been done, or that inequality is on the wane. But the reality is that while talking tough on inequality our politicians and business leaders have done very little to address it.
The evidence that large income differences have damaging health and social consequences is very strong and in many countries inequality is increasing. Narrowing the gap is vital to improve our health and well-being. We just need those meeting in Davos to recognise this and act.