The gap between rich and poor

This week, the OECD issued a press release headlined ‘Governments must tackle record gap between rich and poor’. The report it heralded focused on the causes of growing inequality in OECD countries and was instructive in many respects.

Contrary to the popular narrative of the left, it shows that inequality has less to do with alleged 'neo-liberal economics' than it does a range of social changes that have occurred in the last thirty years, many of which should be welcomed. For example, the OECD identifies the rise of flexible working hours, self-employment, the growing number of single-headed households and technological advancement as contributing factors. Alas, the latter has not been matched by a commensurate improvement in education, leading the OECD to suggest that ‘the evolution of earnings inequality across OECD countries over the past few decades could be viewed mainly as the difference between the demand for and supply of skills.’ (p. 31)

Few would argue that technology and flexible working hours are unmitigated evils in themselves. Is not the latter crucial if we are to achieve the much lauded work-life balance and help people, especially women, to get back into work? The OECD would like to see governments prioritise job creation, education and social mobility. Who wouldn't? These are sound priorities at any time and we do not need the rhetoric of egalitarianism for us to see them as beneficial. Unfortunately, the OECD seems to view them less as valuable ends in themselves, but rather as ways of achieving the one true goal of bringing down the Gini coefficient.

Having been persuaded that tackling inequality should be the main objective of policy, the OECD laments the fact that welfare payments have failed to keep up with earnings and calls for urgent action to boost benefits. This might reduce inequality in the short term, but if unemployment benefits are pegged to median wages there will come a time in any growing economy when worklessness becomes more appealing than work. The real scandal, surely, is not that the unemployed receive a fraction of the income of Mark Zuckerberg and Lionel Messi, but that we have so many people out of work in the first place.

We can all see that the scale of youth unemployment in Europe is malign and socially destructive. That it might also lead to greater inequality is a side issue unless one believes the theories set out in The Spirit Level which portrays inequality as the cause, rather than the effect, of a host of health and social problems. By the rationale of this new breed of egalitarian, radical wealth distribution will, by some magical process never before witnessed in history, improve social mobility, increase recycling, fight cancer, lower mental illness, prevent homicide and reduce infant mortality.

Judging by its press release, the OECD has indeed converted to this new religion:

‘Increasing inequality penalises everyone, as Richard Wilkinson and Kate Pickett argue in their book The Spirit Level – the narrower the gap between rich and poor in a society, the better off everyone in that country is in terms of elements such as health, compared with societies where the gap is wider.’

A think-tank of the OECD's standing might be expected to test such a radical hypothesis, rather than relying on a sociological tract, however popular it may be at Islington dinner parties. Interestingly, the OECD's data are largely ignored in The Spirit Level, as are a number of the countries it represents. So fragile is the evidence in the book that even slight changes in methodology undermine its central claims. By Wilkinson and Pickett’s own admission, if the OECD’s measures of inequality are applied to their graphs, the crucial correlations with life expectancy and mental health disappear.

Furthermore, the OECD’s Better Life Index – which combines material living conditions and quality of life measures – shows that ‘more equal’ countries do not score higher than ‘less equal’ countries. Nor are there associations between inequality and the OECD’s measures of life satisfaction, life expectancy, social support networks and other variables. Put bluntly, the OECD has to reject its own data in favour of some questionable graphs by two left-wing political campaigners for it to endorse the inequality hypothesis.

 

The OECD's report makes grim reading for Spirit Levellers. Taken as a whole, the gini coefficient for the OECD zone has risen from 0.29 to 0.316 since the 1980s. Would it be rude to point that the same period also saw a significant decline in crime, homicide and infant mortality, as well as large rises in life expectancy? The solitary piece of good news for self-styled egalitarians is that one - but only one - of the countries studied in The Spirit Level managed to reduce inequality over this period and so, according to the theory, should now be enjoying greater social cohesion, less violence, better mental health and all the other benefits of a 'more equal' society. Which is this lucky nation? Step forward, Greece.

You nailed it Chris. Superb post. Mark P.

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