What can Northern Ireland pragmatically do to decrease social inequality?

So yesterday began with the publication of a report from the OECD which found an unerring correlation between greater equality and greater economic growth. The finding is new, but not necessarily a surprise.

The gap between rich and poor is at its highest level in most OECD countries in 30 years. Today, the richest 10% of the population in the OECD area earn 9.5 times more than the poorest 10%. By contrast, in the 1980s the ratio stood at 7:1. The average incomes at the top of the distribution have seen particular gains.

However, there have also been significant changes at the other end of the scale. In many countries, incomes of the bottom 10% of earners grew much more slowly during the prosperous years and fell during downturns, putting relative (and in some countries, absolute) income poverty on the radar of policy concerns.

Not surprising because as Richard Wilkinson and Kate Pickett found in their book The Spirit Level, greater equality in societies appears to correlate to all manner of positive benefits. In his 2011 TED talk in Edinburgh Wilkinson gave a number of illustrations using various indices of health and social problems seen against measures of income spread…

He also notes that

The average well-being of our societies is not dependent any longer on national income and economic growth. That’s very important in poorer countries, but not in the rich developed world. But the differences between us and where we are in relation to each other now matter very much.

So what’s going on? In 2011, Wilkinson speculated

I think I’m looking and talking about the psychosocial effects of inequality. More to do with feelings of superiority and inferiority, of being valued and devalued, respected and disrespected. And of course, those feelings of the status competition that comes out of that drives the consumerism in our society.

It also leads to status insecurity. We worry more about how we’re judged and seen by others, whether we’re regarded as attractive, clever, all that kind of thing. The social-evaluative judgments increase, the fear of those social-evaluative judgments.

Interestingly, some parallel work going on in social psychology: some people reviewed 208 different studies in which volunteers had been invited into a psychological laboratory and had their stress hormones, their responses to doing stressful tasks, measured.

And in the review, what they were interested in seeing is what kind of stresses most reliably raise levels of cortisol, the central stress hormone. And the conclusion was it was tasks that included social-evaluative threat — threats to self-esteem or social status in which others can negatively judge your performance. Those kind of stresses have a very particular effect on the physiology of stress.

The OECD’s work seems to show that these social effects transfer across as a block to economic growth. Now, it’s hard to reliably infer positive causalities. But the paper usefully challenges market orthodoxies that have become embedded in government thinking over the last 30-40 years.

The OECD report notes a couple of factors in particular worth highlighting:

The relative income of the lower middle class is a key factor. The biggest factor for the impact of inequality on growth is the gap between lower income households and the rest of the population. The negative effect is not just for the poorest income decile but all of those in the bottom four deciles of the income distribution. These findings imply that policy must not (just) be about tackling poverty, it also needs to be about addressing lower incomes more generally.

Redistribution does not hinder growth. The most direct policy tool to reduce inequality is redistribution through taxes and benefits. The analysis shows that redistribution per se does not lower economic growth. Of course, this does not mean that all redistribution measures are equally good for growth. Redistribution policies that are poorly targeted and do not focus on the most effective tools can lead to a waste of resources and generate inefficiencies.

Conclusions include:

It is not just poverty or the incomes of the lowest 10% of the population that inhibits growth. Instead, policymakers need to be concerned about how the bottom 40% fare more generally. This includes the vulnerable lower-middle classes who are at risk of failing to benefit from and contribute to the recovery and future growth.

Anti-poverty programmes will not be enough. Not only cash transfers but also increasing access to public services, such as high-quality education, training and healthcare, constitute long-term social investment to create greater equality of opportunities in the long run.

Policy also needs to confront the historical legacy of underinvestment by low income groups in formal education. Strategies to foster skills development must include improved job related training and education for the low skilled, over the whole working life.

And as ever, Chris Dillow is on hand to point out that market liberalisation has been followed by a steady tumble in productivity since the reform era of the 1980s.

Okay, so as a devolved unit, there’s not a lot Northern Ireland do about redistributive income or tax policies to address inequality.

But experience in the US suggest that work can be done in education. The Strive Project in Cincinnati was used a few years ago as a case study where it was found that “large-scale social change comes from better cross-sector coordination rather than from the isolated intervention of individual organizations“.

Far from needing a trojan horse, that requires as Matthew Taylor suggests

a new type of leadership – one that is adamantine in its commitment to an optimistic and progressive vision for Britain Northern Ireland but open, inquiring, humble and adaptive in discovering how to mobilise behind that vision.

Most public debate circle around instruments, commission for this and that, measures to ensure equality which are shrugged off at the first sign of a negative outcome for the home team. Accordingly impacts are isolated, ill-defined and weak. Much of NI’s sporting success for instance has come in spite rather than because of public policy.

There is no such thing as perfect equality. We already knew that inequality exists, but we know it is bad for all of us… The question is, what are our politicians going to do about it?

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  • Korhomme

    There have been quite a lot of books and articles recently, all saying the same thing; that inequality is associated with social problems, and that (in the West) inequality is increasing.

    Historically, inequality was worst at the start of the Great War, and we have more or less returned to this level now. It was the cost of the war that for the first time seems to have taxed the rich significantly. After WW2, there were “30 glorious years” when taxation, specially for the rich, was high, but there was (almost) full employment, security and growth. It’s only since the Reagan/Thatcher “reforms” from 1980 onwards—neo-liberal policies, privatisation, the market is always right idea (from Hayek) that things have worsened. Yet all the major political parties in the UK still support this theory; only the Greens seem to be Keynesians. Until there is a major shift in political thinking, I fear that things will only continue to worsen.

  • Practically_Family

    It might be slightly more germane to ask “if” our politicians are going to do anything about it.

  • Billy Smith

    The most sensible policy response is available to Stormont, and that is to invest more in high quality evidence-based early years education – and properly to coordinate policy and programmes across Departments with Education clearly in the lead. Research across many countries shows that this yields a plethora of social and economic benefits as well as reducing inequalities. It takes more than one electoral mandate to deliver the benefits, but this should not matter.

  • Kevin Breslin

    Why does it matter if our local politicians in devolution are Keynesian or Hayekian as we’ve got no control over monetary or taxation policy? Our only real fiscal levers are spending and borrowing from a constrained pot of money, we can’t be Hayekian because we don’t control interest rates, we can’t be Keynesian either because we don’t control currency. Our borrowing and spending are at a regional level falls below the macroscopic economics of both Hayek and Keynes.

    Perhaps we need to be looking at micro-economists here.

  • Sharpie

    In Northern Ireland there are plenty of people who know exactly what to do about every social issue we face. There are thousands of educated, well informed, experienced people in every sector from energy to education to farming to manufacturing who have ideas and know how. I dare say there are even many in the Civil Service who know what needs to happen. All this potential isn’t mobilised.

    The ostensible reason is that politicians have their eyes firmly on another ball. They operate from a failure demand – don’t do something that will lose votes! Changing the status quo loses votes – from closing schools, little hospitals, car lanes. As a result millions are spent propping up old projects – even as new ones come on stream.

    Also change is difficult to make happen, we mostly react to events rather than shape them. I heard a good insight to this. Go now and change your cutlery drawer to somewhere else in the kitchen, or try to. You will notice that it is hard, causes a lot of discussion, and probably disagreement. Change is hard to make happen.

    We desperately need an approach where all the talents can be loosened up to go work on the problems and I guarantee you within months of that happening you’d find that there is very little here that we don’t know how to resolve with the resources to hand.

    Teaching the leaders how to loosen up their grip on micro management of money and decision making – well that’s the real challenge.

  • MainlandUlsterman

    I agree with Billy.
    Also: push the Living Wage big time.
    In reality it’s more of a national and global issue than a particular NI problem – and its a huge shift that’s needed. The main thing NI voters can do is when we get to the General Election, don’t vote for any party willing to prop up further Conservative management of the economy. They are ideologically committed to small government doing as little as possible, laissez faire, and won’t challenge vested interests. They aren’t even trying to tackle this because they don’t believe inequality is an issue. These are trickle-down economics shysters.
    They may well be willing to throw some money at the very poorest – noblesse oblige and all that – but as Wilkinson says it’s the ‘bottom’ 40 per cent who need to be addressed, not just fire-fighting on the breadline (though the right don’t do much of that either). Osborne et al just aren’t interested in going there. He has his GDP growth figures and as far as he’s concerned, that equals success. He doesn’t like that the GDP growth is only benefitting a minority I’m sure, but he doesn’t care enough to do anything serious about it.

  • barnshee

    “Historically, inequality was worst at the start of the Great War, and we have more or less returned to this level now. It was the cost of the war that for the first time seems to have taxed the rich significantly. After WW2, there were “30 glorious years” when taxation, specially for the rich, was high, but there was (almost) full employment, security and growth”

    After each of these cataclysmic event there was inevitably a
    1 A big swing to the” left”
    2 A shortage of labour. Capital- in whatever its form -government or business- has to bid higher to get access to the now limited supply of labour. This is a pattern repeated for centuries.

    The conspiracy theorists suggest that the open door policy post 1945 to -particularly- West Indian and Irish immigrants-was “Capital” inspired to mitigate labour shortages.

    Economics is cruel- we now have built up a labour surplus exacerbated to some degree by immigration. Capital is free to go where it wants. Short of confiscatory taxation or ” nationalisation” of private assets we are stuck with the status quo. Our next door neighbour has had its problem partially “solved” by the emigration of sections of its population.

  • barnshee

    “The most sensible policy response is available to Stormont, and that is to invest more in high quality evidence-based early years education ”

    What changes do you propose to the present education systems?
    Have they been costed -how would they be funded?

  • Old Mortality

    The ‘Keynesian’ consensus (not something that Keynes would necessarily recognize) had a limited life because governments could not bring themselves to reduce public expenditure when an economy was growing rapidly, as Keynes would have prescribed, to avoid inflation. The consequence was a secular growth in fiscal deficits. The last Labour government was a classical example, hurling money at the NHS and dissipating the strong fiscal position inherited from the Tories while the UK economy was booming. It was Gordon Brown who began the absurd habit of describing as ‘investment’ money stuffed in the pockets of doctors and nurses.

  • Ian James Parsley

    This is one of the best pieces I’ve seen on here for a while.

    Two additions, if I may.

    1. This demonstrates the current Welfare System is not working and, in any case, expecting Welfare alone to solve inequality is ludicrous. Note, the average income of the top 20% in the UK is 15 times the bottom 20%; this falls to 4 times after tax and welfare. Yet the gap is growing anyway. We are being lazy by suggesting crude welfare can fix this, yet we are doing almost nothing to tackle inequality in reality.

    2. Even this piece doesn’t (and can’t reasonably) get to the reality of social exclusion as it is experienced. Discussions of inequality, poverty and social exclusion generally consist of educated professionals discussing statistics and saying how awful they are. They never (with the arguable exception of Belfast Barman) discuss the experience, the decisions which are forced on people, or even the range of underlying causes many of which aren’t anything to do with finance.

    Until we start discussing the real interventions required in education, skills, addiction, indebtedness and so on, we will get nowhere. Artificial financial interventions from government on high can only tackle (inadequately) the symptoms not the causes.

  • Ian James Parsley

    A lot of people, not just politicians, rely on failure demand.

  • Ian James Parsley

    The Living Wage is an artificial financial intervention which would cause wage inflation (and then general inflation) thus rendering itself useless.

    It will take a lot more detailed and long-term intervention (see my post above) to resolve low pay.

  • Ian James Parsley

    Great points. As Jonathan Edwards said about losing his faith, sometimes you have to come to the conclusion that “just because something’s unpalatable doesn’t mean it’s untrue“.

    The Greens aren’t Keynesian by the way. I don’t recall them demanding lower public spending during the “boom”, as Keynes would.

  • Ian James Parsley

    We could have tax powers if we wanted. Funny how there are only some particular ones we want – and that everyone wants to do the popular thing with those (reduce them)…

    But taxation has almost nothing to do with inequality. It can solve symptoms but not causes (see my main post), at least not if you want to get elected in a free democracy!

  • Korhomme

    Oh, indeed. Gordon Brown boasted about an end to boom and bust, yet did no saving when times were good.

    But I’m one of those who had money stuffed into their pockets; even now, the income of medics is less in real terms than before the NHS. Nye Bevan and Lord Moran agreed the pay, more or less on the back of a fag packed. Moran had little knowledge of the real world, even if his brother was a GP in Barrow-in-Furness. Bevan later said that he was prepared to pay the docs up to three times more than Moran agreed.

  • Superfluous

    Keynes argued that no more than 25% of GDP should ever be spent by Government – try to find a Keynesian who agrees with this now… the Guardian is going nuts because the Tories are suggesting that it be reduced to 35%!

  • Korhomme

    The wars brought women into the labour force; men returning from the front expected to get their jobs back.

    Even in the 1950s, married women were not employed by the BBC or as teachers—I think, though I’m not certain, that it was illegal to employ married women as teachers.

    And in the 1950s, around 15% of school leavers went to Uni, and about 15% of those that did were women. Today, more than 50% go, and more than half of these are women. Now, a bachelor’s degree is the equivalent of A-levels in the past—so many people are over qualified but under experienced.

    What we don’t have is the apprenticeship system that Germany and Switzerland have; a rigorous period with exams and diplomas.

    One of N Ireland’s problems is the size of the public sector; it’s much greater than in other parts of the UK. Growth etc in normal conditions requires the private sector to create jobs. And real growth isn’t the product of consumers buying stuff and services using their credit cards.

  • delphindelphin

    Is this rise in inequality not due to globalisation and automation/IT totally changing the world of work?
    The options NI have are limited to economic micro- management. The larger economies and trading blocks obviously have more influence, but the globalised financial sector appears beyond effective regulation. The problem is I don’t see it getting any better- someone tell me I’m wrong.

  • barnshee

    “Even in the 1950s, married women were not employed by the BBC or as teachers—I think, though I’m not certain, that it was illegal to employ married women as teachers.”

    By the 50`s the banks were the big discriminators – women lost jobs on marriage and in NI no “living in sin” (tho I knew a few who did -for a year or two until children appeared)

    The attitude to teachers was pernicious with females iaid less than male equivalents

  • Superfluous

    During those 30 glorious years my mother lived in a 2 bedroom terrace house in the New Lodge area of Belfast with 4 other siblings and 2 parents – there was no central heating and luxuries like a telephone were out of the question. Now (still living in the New Lodge, the 5th poorest district in Northern Ireland) she takes a package holiday to Spain about 3 times a year before coming home to a lovely warm home, with machines to wash her dishes and clothes, an inside toilet – and a 50 inch TV to keep her entertained.

  • MainlandUlsterman

    Can be balanced out by tax rises for better off, so no overall inflationary effect? I’m not an economist but I am a bit skeptical to say the least of arguments saying paying least well off a bit better are economically impossible.

  • Superfluous

    “What can Northern Ireland pragmatically do to decrease social inequality?”

    First of all I will assume we are talking about equality of outcome – which is a very difficult thing to fix, without serious (and maybe unworkable) incursions on civil liberties – I’ll try to explain why (nicking a couple of ideas/quotes from elsewhere).

    The philosopher Robert Nozick once simplified the problem by showing how inequality of outcome can come from perfect equality of opportunity. Nozick suggests, that at first you set the initial distribution of income and wealth according to whatever pattern you consider just – a perfectly equal distribution, if you like. Now (in his example) the American Basketball season begins. Those who want to see Michael Jordan play deposit five dollars in a box each time they buy a ticket. The proceeds in the box go to Jordan. (In real life, of course, Jordan’s salary is paid by the owners, from team revenues. Nozick’s simplifying assumption – that the fans pay Jordan directly – is a way of focusing on the philosophical point about voluntary exchange.) Since many people are eager to see Jordan play, attendance is high and the box becomes full. By the end of the season, Jordan has $31 million, far more than anyone else. As a result, the initial distribution – the one you consider just – no longer obtains. Jordan has more and others less.

    But this new distribution arose through wholly voluntary choices. Who has grounds for complaint? Not those who paid to see Jordan play; they freely chose to buy tickets. Not those who dislike basketball and stayed at home; they didn’t spend a penny on Jordan, and are no worse off than before. Surely not Jordan; he chose to play basketball in exchange for a handsome income.

    So from Nozick’s example we go back to our question – how do we create a more equal society? Well, we either stop people from using their free will ‘in the wrong way’, for instance by buying Harry Potter books and turning JK Rowling into a billionaire – or we simply tax JK Rowling a lot and give the money back to the people who bought her books. Neither of these seem quite satisfactory – on the one hand we are impinging on the free will of millions to use their money the way they like – on the other we are punishing someone for their success. Taking both of these scenarios into consideration people will probably choose the later utilitarian option – make one person suffer a loss for the benefits of the millions… only we live in a marketplace of states – and there’s plenty of states who will welcome talented citizens or productive businesses (even UKIP are only suggesting that we block those with no talents – they will happily poach the rich or talented from other countries) – so if you push the later option too far then the famous person will run off to another less egalitarian state.

    So here is how we got to the modern nation state – the Tories know that taxes on middle-to-top earners could have a negative effect, making other states more competitive (I should know, I live on the Isle of Man) – Labour make noises to the contrary, but they also see the same problem – that business and talent and people who create wealth can leave – that in a Globalised world you need to compete with other countries, and actually cater for inequality, rather than prevent it…

  • Old Mortality

    ‘And real growth isn’t the product of consumers buying stuff and services using their credit cards.’

    Certainly not in NI where most of any additional consumer spending is on goods produced outside the province. Real growth depends on producing things that other people want to buy at a price they are willing to pay.

  • Old Mortality

    I see your point, Superfluous, unless your mother has got lucky in the lottery. But surely package holidays to Spain are not usual among New Lodge residents, otherwise welfare reform is more urgent than I had supposed.

  • Korhomme

    And in the 1960s the “pill” was only available to married women; I guess there was a big trade in cheapo wedding bands.

    I doubt if society here has moved on much since then 🙁

  • Superfluous

    Well, you should see some of the deals my mother texts me about… (£200 for two to Benidorm!!?). Without getting too deep into it – some people I know on benefits really can go for a few holidays per year – although they won’t exactly be luxurious (“it’s fine if you mostly stay out of the hotel”)

  • Paddy Reilly

    The telephone, dish-washer, washing machine and television are the result of advances in technology and have nothing to do with the implementation of Reagan/Thatcher “reforms”.

  • Superfluous

    They were no where near as easily affordable before slit-throat price competition from globalisation/open markets arrived.

  • Paddy Reilly

    The Spanish package holiday can probably be laid at the
    monetarists’ door: given that a third of Spain is unemployed, they will be leaping at the chance to service a New Lodge holidaymaker.

  • Ian James Parsley

    Basically, if you suddenly raise pay for people currently on £7/hour to £8/hour, then what are you going to do with people currently on £8/hour? You’ll increase their pay too. You’ll then pass on those costs to the consumer (that’s to say, the taxpayer in the case of the public sector).

    If you really want to move everyone to at least £8/hour, you have to ensure everyone has the skills to contribute to the economy to that value.

    Of course, the welfare system takes account of this in income tax credits and so on; as does the income tax system in its allowance. That way, the cost is not passed on to the consumer so has no inflationary effect (though it is still passed on to the taxpayer – which is why skilling people up is in the taxpayer’s interests).

    It’s the harsh reality Barnshee has talked about elsewhere on the thread.

    Crazy (and inflationary) CEO pay is another matter, of course – and an absolute outrage.

  • Ian James Parsley

    Keynes was of course writing in a very different era. The government share of GDP was 13% in the UK on the eve of WW1. By some calculations it is now 47% (albeit including nationalised banks), close to Sweden’s…

  • Ian James Parsley

    Yes, the “no more boom or bust” line was the unforgivable one. Brown was no Bevan!

  • Sharpie

    You are totally right. In our system we reward (with status and money) the hero leader who knows everything about everything and who can manage to make massively complex stuff work all by himself. Nothing like crisis to show your mettle.

    Unfortunately unless there’s a flood outside or a stampede of buffalo there’s no point in applying crisis tactics (act first and question later).

    How to stand back and be reflective of a subtler analysis – i.e. what is the cause and who needs to work together to resolve it, what is long term success? is the missing chapter in the MBA handbook.

  • Mister_Joe

    In 1966, my girlfriend worked for the N.I. Civil Service. When we got married, she had to leave as the firm policy was “No married women allowed”.

  • Kevin Breslin

    Even regional tax and spend which the Isle of Man has isn’t really macroeconomics. In terms of tax cut populism, that’s not inherently true. The right wing led UK government coalition has increased VAT, council tax, landfill taxes while the right wing led Irish government has introduced a universal social charge, increased VAT and council tax as well. Only tax cuts we’ve seen have been in income tax and the abolition of certain property taxes.

  • Kevin Breslin

    Arguably the biggest tax increase under the UK government has been in tuition fees 300%, with fees also being introduced to ROI as well.

  • mickfealty

    I’m personally not against the living wage as a way of waking people up to otherwise ignored realities. Yet pure focus on top policies ignores where social agency is likely to arise from.

    The thing about the Cincinnati project is that it is both generative and emergent, qualities generally held to be purely libertarian, free market and rightist. It ain’t necessarily so.

  • Kevin Breslin

    No reason for a party of environmentalists to want a major boom, indeed Greens should oppose the concept of increasing aggregate demand where it does not produce sustainable resource cycles. Unfortunately so should we all. The big problem I think in economics is that the only thing that it is designed to economise is money, not the priced resources it pays for. Perhaps inflation and taxation could be treated in a laissez faire approach to cut consumption or tax breaks should be earned by those who promote sustainability.
    Public spending cuts would be suggested by many Green Party activists … Corporate welfare, Military spending, Roads
    and other construction projects, even agriculture subsidies.
    Conservative and UKIP spokes people do increase public spending for things that they want primarily policing and enterprise subsidies.

  • Old Mortality

    ‘Okay, so as a devolved unit, there’s not a lot Northern Ireland do about redistributive income or tax policies to address inequality.’

    Actually there is, come to think of it. I’d be surprised if the public sector in NI does not provide more than 50% of the highest earners, which include the outrageously remunerated legal aid parasites. David Ford has already done a bit in this direction, but perhaps another squeeze would be appropriate. After that you could take a look at doctors, judges, senior civil servants, police officers etc.