Inequality: the right's problem

Are trends in UK inequality more of a problem for the right than left?

I'm prompted to ask by the fact that recent years have seen two different trends. On the one hand, there's been increased equality between the moderately well-off and the moderately badly off: the 90/10 and 80/20 ratios for post-tax income have fallen back to 1980s' levels. But on the other hand, top incomes have risen; although the share of incomes going to the top 1% (Excel) has fallen since the recession, it is twice what it was in the mid-70s.

One could argue that both these trends should worry the right more than the left. After all, luck egalitarians and Marxists, for different reasons, thought capitalism was unjust 30-40 years ago; subsequent developments won't have changed their minds. The right, however, should be disquieted.

They should be concerned by the relative decline of the middle class partly because a narrowing gap between them and the worse off dampens incentives to work harder or get an education, but also because, historically, a healthy and optimistic middle class has been the bedrock of freedom.

It might be no accident that the relative decline of the middle class has led to anti-market attitudes: not only do the majority of people favour immigration controls, but sizeable minorities of social classes ABC1 support controls over rents and even food prices (41% and 33% respectively according to one poll (pdf).)

It's also reasonable for free marketeers to be concerned about rising top incomes.

In this context, the statistics are meaningless. A given level of inequality can arise from processes which free marketeers would think benign, such as differences in choices over work and savings or the emergence of superstars, as in Nozick's famous Wilt Chamberlain example. Or it might arise though processes they would deplore, such as rigged markets or cronyism. What matters is not the level of inequality but rather how it arose.

And it's plausible that at least some of the rise in inequality is due to the latter. Bankers have been (increasingly) well-paid since the 80s because they have exploited the implicit state subsidy they get from banks being too big to fail. And the fact that CEO pay has risen without obvious improvements in corporate performance is consistent with the possibility that corporate governance failures have facilitated increased rent-seeking within what are, in effect, centrally planned economies*.

The very fact that a rising income share of the 1% has been followed by a worsening macroeconomic performance (in the sense of slower growth in GDP per head) since the 90s should alert us to the possibility that malign processes have been behind the rise in inequality. This might perhaps (only perhaps (pdf)) be because the state subsidy causes finance to become too big (pdf) with detrimental effects on growth; or because the managerialism that raises bosses' incomes strangles productivity and innovation or because inequality reduces the trust which is necessary for decent economic growth.

Now, I concede that generalizations here are unhelpful; from a free market perspective, a rise in inequality because of the emergence of a J.K. Rowling is less troubling than an increase due to cronyism. I fear, though, that some rightists' efforts to defend inequality don't make this distinction sufficiently clear.

* One counterargument to this is the paper (pdf) by Nick Bloom and colleagues which claims that rising US inequality is due to increased inequality between firms rather than between workers in the same firm. I'm not sure what to make of this. If, say, a bank subcontracts its cleaning work, intra-firm wage inequality falls whilst inter-firm inequality rises. But has anything substantive really happened? For other criticisms of this paper, see here (pdf) and here.

Comments

[TickyW]

Very interesting!

I notice the JRF and other right wing think tanks are seeking free market solutions to poverty. Perhaps they should consult you for guidance :-)

The current welfare state is not designed around luck-egalitarianism. If it were, I suspect the "skiver-striver" narrative would lose its punch and more support for the welfare state would follow, perhaps even from right wing think tanks.

A welfare state built around luck-egalitarianism, which I believe is Rawlsian, would seek to compensate those disadvantaged by nature or by birth, eg disability, or being property/land-less. It would not pay out-of-work benefits since these are not based around natural or uncontrollable disadvantages. People without property would not be left destitute, however, as they would be compensated for being disadvantaged. Those who own property have the resources to look after themselves.

The compensation could be by way of a targeted (not universal) and generous basic income which would enable those disadvantaged in the labour markets to take up low-paid jobs, should they choose to do so. Unlike under IDS's so called "welfare reforms" compensatory benefits would not be sanctioned. And the clawback would be 20% (assuming the tax-free personal allowance was abolished), for those taking up employment, and not 65% as planned under Universal Credit

Is it not disadvantage, and not poverty or inequality, that needs to be tackled? Are not the wrong targets of poverty and inequality being aimed at by the current welfare benefits system (and by right wing think tanks)? I believe so - after all, inequality in a properly functioning market can be a just desert. Compensating for disadvantage caused by nature or by birth is a better way of redressing social and economic unfairness, I suggest.

Despite the apparent attractiveness of a welfare system based around luck-egalitarianism, I suspect there might be an awful lot of right wing whingeing once it is realised that the privileges and subsidies accruing to wealthy property owners might be at risk!

[Matt Moore]

"A given level of inequality can arise from processes which free marketeers would think benign, such as differences in choices over work and savings or the emergence of superstars, as in Nozick's famous Wilt Chamberlain example. Or it might arise though processes they would deplore, such as rigged markets or cronyism. What matters is not the level of inequality but rather how it arose."

Yep yep yep. But honestly, that just means that free marketeers shouldn't worry about measured inequality, but rather measured market freedom. Inequality doesn't directly measure anything I care about, nor is it the best proxy for anything I do care about.

[Deviation From The Mean]

"Inequality doesn't directly measure anything I care about, nor is it the best proxy for anything I do care about."

You wouldn't be saying that if you had just come back from a week in Tunisia!

I don't know how many academic studies people want to show that more equal societies result in better economic and social outcomes. I guess some people are just fundamentalists and that is all there is to it. Or perhaps sociopaths?

The strange thing about this article is that it appears to subscribe to the view that the real struggle is between state and the individual, which is an unusual position for a Marxist! I think in Capital Marx makes the point that the deleterious affects over over work, which capital inevitably brings about, is only counteracted by society interjecting.

Whatever the problems are the 'free market' is surely not the answer! Even the capitalist system can see that. The free market is simply a utopia that never existed, a tool of apologists and internet psychopaths like Matt Moore.

"Psychopathy (/saɪˈkɒpəθi/), also known as—though sometimes distinguished from—sociopathy (/ˈsoʊsiəˌpæθi/), is traditionally defined as a personality disorder characterized by enduring antisocial behavior, diminished empathy and remorse, and disinhibited or bold behavior. It may also be defined as a continuous aspect of personality, representing scores on different personality dimensions found throughout the population in varying combinations."

[greg]

"What matters is not the level of inequality but rather how it arose." said the master to the slave.

Right. Great inequality can only be attained through fraud and force, and can only be maintained through fraud and force. The 'free market perspective' is just smoke to cover the crime.

Everything the capitalist does is to enhance his wealth. That he often no longer has to actually invest in society to do so is why growth is slowing, and the rest of us are increasingly worse off.

The wealthy should be concerned for the well being of the rest of society, for the same reason the dwellers in the top of a tower should be more concerned for the soundness of the tower's foundations, than the brightness of gilding on the plumbing.

[Luis Enrique]

"Inequality doesn't directly measure anything I care about, nor is it the best proxy for anything I do care about."

this sort of claim only makes sense if you are very sure that there is nothing zero-sum to economics, because if you think that the rich largely get rich at the expense of the rest, then inequality is obviously something to care about because it affects absolute incomes.

[Metatone]

The right believe that the economic system is automatically self-correcting. Therefore they don't care about anything you are writing about here. The market will sort it out, if it needs sorting out.

As for politicians on the right, they'll only start caring about the hollowing out of the middle class (for example) when it starts costing them votes...

[Dave Timoney]

Perhaps you give too much weight to the idea that the "right" is made up of "free marketeers" who laud superstars and decry cronyism.

The primacy of property (whose "ladder" obscures actual income scales) and the associated privileging of inheritance would suggest that the dominant strain of thought on the right today is distinctly pro-inequality and little cares how it arose. I believe this is called conservativism.

[econ man]

Nice post, thank you

[spencer]

The Bloom paper uses a terrible methodology to reach their conclusion.

they calculate a median income for each firm and compare the medians but provide no support to the idea that there are numerous ways to get the median they compare.

[Laban Tall]

"If, say, a bank subcontracts its cleaning work, intra-firm wage inequality falls whilst inter-firm inequality rises. But has anything substantive really happened?"

Yes - terms and conditions for the cleaners will get worse. Much of the point of outsourcing consists of doing things to the workforce you'd be ashamed to do yourself. The classical example is the Queen in Snow White, who subcontracts the 'care' of Snow White to the huntsman.