THIS CHAPTER EXPLAINS WHY INEQUALITY MATTERS. FIRST IT DISTINGUISHES between the problems of inequality and those of poverty. Because there is sometimes a trade-off between inequality and poverty, it is important to understand which problems reflect the former and which the latter.
The analysis here suggests that there are two particular problems associated with inequality as opposed to poverty. The first of these is the sense of despair from which those who fear that they and their descendants face an increasing exclusion from society may suffer. The second is the loss of cohesion that emerges as society becomes increasingly divided. The loss of cohesion can lead to various problems, one of which might be a scale of political partisanship that can make a country ungovernable.
The end of the chapter looks at the development of a new dynamic in London and other parts of the world (especially Sweden) – a sort of grunge chic – where excessive conspicuous consumption is frowned upon and the rich self-consciously try to live a similar lifestyle to poorer people using public transport and the public health services. It argues that in egalitarian societies people react against those who try to behave as if they are different and that there are centrifugal forces making for cohesion. Such a greater degree of homogeneity of behaviour can make for better policymaking (if the articulate middle classes use public services, they tend to be less tolerant of bad service) and can reduce partisan behaviour.
Inequality and poverty
The difference between problems caused by poverty and those caused by inequality depends on whether making poorer people better off will solve them. If making poorer people better off will solve the problems, then they are essentially problems of poverty. If the problems come as a result of the breadth of the gap between different people in the pecking order, then they are problems of inequality.
It is often claimed that differences in health outcomes reflect health inequality. In most cases they do not, reflecting instead simple lack of access to healthcare and medicines that would cure diseases. Making people better off would largely solve these problems, even if inequality remained the same.
There is, however, a different category of health problems of poorer people in wealthier economies that seems to reflect psychological factors rather than the simple cost of medicine.
Some indication of the ability to confuse health problems caused by inequality with those caused by poverty can be seen from the widely respected State of Child Health report in the UK which provides a comprehensive list of 25 measures of the health of UK children, ranging from specific conditions such as asthma, diabetes and epilepsy, to risk factors for poor health such as obesity and a low rate of breastfeeding, to child deaths.1 The data provide an ‘across the board’ snapshot of child health and well-being in the UK.
The report concludes ‘Nearly one in five children in the UK is living in poverty and inequality is blighting their lives, with those from the most deprived backgrounds experiencing much worse health compared with the most affluent. Despite some improvements in the health of UK children over the last decades, there is clear disparity with Europe, and major cause for concern.’
The quick jump from poverty to inequality in the statement makes it likely that the reporting of the study confuses the two. It is possible that making poor people richer might solve some of these problems. But one also suspects that lifestyle issues, which are discussed below in the context of status and loss of it, are more important. While not all lifestyle issues are to do with relative position and hence inequality, one’s position in the pecking order in a society can be a factor affecting health.
Positional goods
The economist Fred Hirsch coined the phrase ‘positional goods’ to describe goods which are in limited supply and which command a premium because of their special quality.2 They are only available to those who want them so much that they will outbid anyone else. Housing in the most desirable locations in the world is probably the best example.
The London housing market shows this. The best houses are quite quickly being taken over by rich foreign buyers. One often suspects that complaints about inequality by London-based government employees and by journalists reflect the loss of access to the best houses that at one point were affordable for the likes of them but now are priced way beyond their reach.
I have always used Fred Hirsch’s thinking as good investment advice and bought assets such as houses and classic cars on the basis that the supply was limited. When I moved into a terraced house in Regent’s Park in 1991, 15 of the 18 houses in the terrace were owned by other people of British origin and (as I discovered subsequently) the other person bidding for the house which I bought turned out to be the then Prime Minister, Mrs Thatcher. Previous owners of the house included the Chairman of the Scottish Banks and the North British Railway company that built the Forth Bridge (he was also an MP) and the former Chief Economist of the Colonial Office.
In my 26 years in the house there has been only one journalist living in the terrace (admittedly he was editor of The Times) and no civil servants other than my wife. But now 14 of the owners are of foreign descent, and only four British, though the foreign owners do generally work and have increasingly strong roots in the UK as bankers or entrepreneurs of some other kind and indeed are active socially in the local community.
Globalisation has meant that many buyers of such property are now from abroad. Those that are domestic tend to be entrepreneurs, bankers or lawyers. Not long ago they might have been members of the chattering classes like academics, journalists and civil servants. There is no god-given law that says that such people should live in fancy houses. But if their expectations are unsatisfied, it would be understandable if they felt the system wasn’t working for them. And these are people who are skilled at making themselves heard. So the result of their unsatisfied expectations is likely to be quite loud complaints against the system.
It is realistic to blame these effects on inequality, though many of them particularly relate to the combination of inequality and globalisation.
Other positional goods which are likely to be affected in a similar way are unique items such as works of art and classic cars. It is not widely known that the most comprehensive index for art prices, from Artprice.com, shows art prices in most currencies sharply down from their peak in January 2008 (the dollar index is down 30%). But at the same time the top prices paid have risen. At the time of writing the highest price ever paid for a work of art is $450,312,500 paid in November 2017 for Leonardo da Vinci’s ‘Salvator Mundi’. In 2008 the record price ever paid was $164.5 million for Jackson Pollock’s ‘No.5, 1948’. So while the prices of ordinary art are falling, the top prices are rising by not far short of a factor of three, yet another indicator of rising inequality.
The fact that only the very richest have access to those goods in limited supply might not appear to be a major social problem. Arguably no one has a right to smart London houses or Leonardo paintings. And if different rich people can access them today from those who could a few years ago, does it really matter? Even if the group hit most is made up of the vocal chattering classes such as people working in the public sector and journalists.
But the problem with inequality and positional goods becomes more serious if the London housing market is looked at in total. In The Flat White Economy I drew attention to housing in London having become so expensive that people were being forced to share bedrooms with those other than partners. And the Parliamentary report on the state of housing in the UK3 makes the following points:
(1) There has been a reduction in the number of 25- to 34-year-olds owning homes in England. In 1991, 67 percent of this age group owned homes, but this had fallen to 36 percent by the year ending 2014. Over the same period, home ownership among 16- to 24-year-olds fell from 36 percent in 1991 to 9 percent in 2014.4
(2) In 2015, the Cambridge Centre for Housing Planning Research published research on the number of young people, aged 16 to 24, experiencing homelessness. The study found that during 2013-14 83,000 homeless young people had been accommodated by local authorities or homelessness services. It also estimated that there were ‘around 35,000 young people in homeless accommodation at any one time across the UK’.5
(3) Our new research into housing affordability for generation renters shows that buyers may now have to save for 19 years in order to buy their first home (assuming the deposit has to be raised entirely from their own savings without family assistance). In 2000, the same group would have been able to buy after saving for just 6 years; and in 1990 it took only around 2 years.6
It is because housing is in scarce supply with its supply affected by planning controls and rent controls that it becomes a positional good where your ability to buy or rent is not a function of your absolute ability to pay but of your ability to pay relative to other people. Hence if housing is made scarce, income inequality leads to housing inequality. There is a fuller discussion of the impact of planning and rent controls in Chapter 14.
Alienation
The concept of social cohesion emerged with industrialisation. To quote from a highly referenced study by Larsen:7
In Durkheim’s (1858-1917) terms, the question was what could replace the so-called mechanical solidarity found in pre-modern societies – the solidarity that is established among people who are similar. This similarity could be both material: similar work, housing and food; and non-material: similar beliefs, morality and feelings. Durkheim labelled the non-material part of the community the conscience collective, which is the academic origin of the term ‘social cohesion’. Pre-modern societies were according to Durkheim characterized by a sizeable and strong ‘collective consciousness’, which typically had a strong religious fundament, so that any deviation from the moral codex was typically interpreted as a religious violation. Thus, strong norms of right and wrong and intense monitoring in small communities upheld non-material similarities. Or using the provided definition of social cohesion, the strong religious fundament and close monitoring made the member of society believe that they shared a moral community that enable them to trust each other.
Durkheim developed the concept of ‘anomie’ where individuals lose their relationship with society in his major book, The Division of Labour in Society.8 Alienation, which is much the same concept, was at the core of Marx’s work and again associated with the rootlessness resulting from industrialisation.
A more literary and less intellectual description comes from the former Conservative Prime Minister Stanley Baldwin in his speech to the annual dinner of the Royal Society of St George at the Hotel Cecil on 6 May 1924:9
And there comes into my mind a wonder as to what England may stand for in the minds of generations to come if our country goes on during the next generation as she has done in the last two in seeing her fields converted into towns.
To me, England is the country and the country is England … The sounds of England, the tinkle of the hammer on the anvil in the country smithy, the corncrake on a dewy morning, the sound of the scythe against the whetstone, and the sight of a plough team coming over the brow of a hill, the sight that has been seen in England since England was a land and may be seen in England long after the Empire has perished and every works in England has ceased to function, for centuries the one eternal sight of England.
Earlier he argues ‘The Englishman is all right as long as he is content to be what God made him, an Englishman, but gets into trouble when he tries to be something else.’
There is a sense of social breakdown associated with change, particularly with the move to the city from the countryside. Marx sees this as an opportunity; conservatives as a threat. But both make the same analysis of change and alienation and can be contrasted with old-fashioned Liberals who are much more enthusiastic about change.
Unfortunately for those who dislike it, globalisation and technology have given the West change in a dramatic fashion. This is unsettling even for those benefiting from the process – how much more so must it be for those who lose out?
Despair and falling life expectancy
The first evidence of falling life expectancy in a developed economy came from Glasgow. A survey of the Calton area of Glasgow between 1998 and 2002 showed male life expectancy of only 54.10 Recent data casts some doubt on this figure, however – in the latest data for the period 2008-2012, male life expectancy at birth was estimated by the Glasgow Centre for Public Health to be 67.8 years, while female life expectancy was estimated at 76.6 years.11 It seems unlikely that life expectancy in Glasgow has improved that much that quickly.12
Recent deaths of pop musicians in their fifties and early sixties draw attention to the dangers posed by drug abuse which does shorten lives through a variety of routes. And many in the more poverty-affected parts of Western economies suffer from a toxic cocktail of exclusion, lack of direction and substance abuse that means that their quality of life, even if objectively they have access to resources, is low. These people need to be helped directly if possible. Giving them money alone with no assistance does little to solve their problems and can make them worse.
Meanwhile, Case and Deaton have shown a very serious and sharp rise in the death rate of white non-Hispanics in the US and their data has recently been updated.13 To quote the summary of the updated paper (I apologise for quoting at such length but the study is so important and so relevant that to fail to quote it would impoverish this analysis):
We build on and extend the findings in Case and Deaton (2015)14 on increases in mortality and morbidity among white non-Hispanic Americans in midlife since the turn of the century. Increases in all-cause mortality continued unabated to 2015, with additional increases in drug overdoses, suicides, and alcohol-related liver mortality, particularly among those with a high-school degree or less.
The decline in mortality from heart disease has slowed and, most recently, stopped, and this combined with the three other causes is responsible for the increase in all-cause mortality. Not only are educational differences in mortality among whites increasing, but from 1998 to 2015 mortality rose for those without, and fell for those with, a college degree. This is true for non-Hispanic white men and women in all five year age groups from 35-39 through 55-59. Mortality rates among blacks and Hispanics continued to fall; in 1999, the mortality rate of white non-Hispanics aged 50-54 with only a high-school degree was 30 percent lower than the mortality rate of blacks in the same age group but irrespective of education; by 2015, it was 30 percent higher.
There are similar crossovers in all age groups from 25-29 to 60-64. Mortality rates in comparable rich countries have continued their pre-millennial fall at the rates that used to characterize the US. In contrast to the US, mortality rates in Europe are falling for those with low levels of educational attainment, and have fallen further over this period than mortality rates for those with higher levels of education. Many commentators have suggested that poor mortality outcomes can be attributed to contemporaneous levels of resources, particularly to slowly growing, stagnant, and even declining incomes; we evaluate this possibility, but find that it cannot provide a comprehensive explanation. In particular, the income profiles for blacks and Hispanics, whose mortality rates have fallen, are no better than those for whites. Nor is there any evidence in the European data that mortality trends match income trends, in spite of sharply different patterns of median income across countries after the Great Recession.
We propose a preliminary but plausible story in which cumulative disadvantage from one birth cohort to the next, in the labour market, in marriage and child outcomes, and in health, is triggered by progressively worsening labour market opportunities at the time of entry for whites with low levels of education. This account, which fits much of the data, has the profoundly negative implication that policies, even ones that successfully improve earnings and jobs, or redistribute income, will take many years to reverse the mortality and morbidity increase, and that those in midlife now are likely to do much worse in old age than those currently older than 65. This is in contrast to an account in which resources affect health contemporaneously, so that those in midlife now can expect to do better in old age as they receive Social Security and Medicare. None of this implies that there are no policy levers to be pulled; preventing the over-prescription of opioids is an obvious target that might be helpful.
What this is saying is that the long-term diminution of status, generation by generation, is creating a serious form of alienation that turns into depression.
Obviously it is difficult to see exactly how to reverse this trend. But my experience from the Far East may be helpful. That experience suggested that even people whose own economic circumstances were unfavourable could still be fairly content with life as long as they could see an improving trend for themselves and their offspring. The experience in the US in the 1930s seems consistent with this. Also the experience in Europe, where fewer people seem to feel excluded, seems to lend support.
This suggests that finding ways of helping people appreciate that they have a stake in society is a mixture of carrot and stick. Some relief from the pressure of current conditions is necessary. Some realisation of what expectations are appropriate and realignment of them is also necessary. But the most important ingredient is hope, and this has to be partly for the people themselves and partly for their children. Encouraging people to believe that their children can have a better life than themselves can be a huge incentive for people who are getting a bad deal from any given set of economic circumstances.
The conclusion of this book revisits some of these issues to understand their policy implications.
There is another sense in which inequality creates problems which are different from those of poverty itself. Although the rose-tinted memory of everyone living in much the same way is misleading, there is a sense that, particularly in the US and to a lesser extent in Europe, for a long period the bulk of people had remarkably similar lifestyles. Obviously the poor living in the projects or in council houses lived differently from the rich in their gated communities or in flats in Eaton Square. But a large number of people had lives that differed only in degree from each other and not in essence.
They shopped in roughly the same shops, watched the same TV programmes, drank the same drinks and ate the same food. And one of the consequences of this was a shared experience of life that led to a remarkable degree of consensus about how to handle problems.
Both in the US and in Europe there was a consensus about economics, with a view that problems should be approached broadly from a market perspective and that there should be some welfare, that governments had a significant role to play and politicians of different parties worked together to make life better for everyone.
The breakdown of this consensus is not just a function of growing inequality and the resultant differences in lifestyles. It goes much further than that. Technology, the breakdown of the nuclear family model and other social factors have caused a fragmentation of consumption patterns. But the growth in income inequality has made an important contribution.
On top of this, technology has increased the remoteness of power from most people. At work in the past, your foreman might have been a bully and might have given you a hard time. But at least he had a face and if you were feeling brave (or stupid) you could argue with him. Today the person who makes the decisions that affect your working life is probably a faceless person many miles away. If you don’t hit your targets, your job goes. There is no one with whom you can argue the toss. You get sacked by email or text.
A policeman might once have given you a kicking if you were a petty offender. But, particularly if he caught you near the end of his shift and didn’t fancy the paperwork, and if you hadn’t actually hurt anyone, you had a good chance of being let free at least the first couple of times. Now he has targets set by faceless officials that he has to satisfy. You get nicked if he has half a chance and generally for breaking the letter of the law rather than being a real nuisance to society. The serious criminals often get off scot-free because they are too hard to pursue, while minor infractions of the law that can be easily proved are pursued with vigour.
There is a lot of research that connects both physical health and mental health with feelings of powerlessness. Although the study of health inequalities often confuses the impacts of poverty with those of inequality, the detailed analysis of mental health and the physical symptoms associated with mental health problems seem to indicate that feelings of powerlessness are often causes of such problems that lead to bad health. And as the anecdotes above indicate, modern society and automation increase the perception of powerlessness.
Meanwhile inequality has a habit of entrenching itself. Particularly at the bottom end of society, the toxic mix of undisciplined lifestyles, family breakdown and the low quality of publicly provided services makes it difficult though not impossible for people to break out of the situation in which they are trapped. To escape needs a mix of character and intelligence, some bravery and a lot of luck.
Two generations ago your chances of getting on were much higher. My father, who is still with us aged 92, became Lord Mayor of London, ending up with the prestigious award of a GBE (Knight Grand Cross of the Order of the British Empire), despite having had a father who was unemployed for most of his childhood and whose only work was occasional evening jobs clearing up in a pub (and probably paid in cash).
My father has great charm, intelligence and iron self-discipline and the great good fortune to have found a soulmate in my mother that has made their marriage a love affair that has lasted for nearly 70 years. But even he would have admitted that for him and others like him, getting on required a great deal of luck as well as talent and persistence. This extract from his eulogy at his sister Helen’s funeral describes the situation:
Our parents were not what you would call well off. Our father was unemployed for most of the thirties, though he got some pin money from helping in a bar in the evening. Our mother was formidable and a good manager. She found all sorts of ways of extending what little she had, cooking with marrow bones which the butchers were happy to be rid of and sending the children to our relations in Fauldhouse in the summer so that she could take in paying guests from Glasgow to stay in our flat in Portobello just a stone’s throw from the beach. My brother John and I loved Fauldhouse but my sisters hated it.
Helen and I were talking a few years ago about an incident which I subsequently wrote about. Let me quote from what I wrote in my memoirs:15
‘I was talking to my sister Helen recently about the occasion when my mother sold a beautiful oval shaped rosewood table. I think she had inherited it from the Robbs, her former employers. I was in the house when the second hand furniture dealer came. He looked at the table, sucked his teeth, and said it was awfu’ heavy and that nobody would want it. He would however as a friendly gesture take it off her hands and give her 10 shillings (that is 50p in modern money). Lord knows what such a table would be worth today.
‘Helen remembered the sale of the table and the reason for it. It was a typical example of my mother juggling with her resources. My eldest sister Isobel and Helen had joined the Girl Guides. The table was sold but the proceeds would only buy one new and one second hand uniform. Because she was the eldest Isobel got the new uniform. Helen to her chagrin had to be content with the other with the hat several sizes too large resting on her ears.’
We had to stuff the hat with newspaper to make it fit better.
Helen should have gone to university as she had the capacity to do so. Unfortunately she had to leave secondary school early because my mother was ill at that time. Also at that point not many women went on to higher education unless to become teachers.
Obviously I am hugely proud of my family history. But I wonder to what extent the ladder my parents climbed would still be available today. At the more privileged end of society, the rich and clever marry each other and bring up their children with fanatic attention to such matters as nutrition and health and of course to education, creating ‘superbabies’ with the skills and strength of character to take over the world. It seems unfair and it is.
But isn’t it also unfair to punish people for trying to be good parents?
There are no very simple solutions. This book looks in much more detail at how to get education right in Chapter 12.
Political partisanship
The loss of social cohesion has had an effect on political partisanship. One has an image of a world where there was substantial consensus on how to take society forward; where the bulk of society accepted conventions and the differences between political parties were in their tribal roots.
Political partisanship is a long-term phenomenon. But particularly because one of the defining events of British history, the Second World War, was fought under a coalition government, in much of the post-war period there were limits to the extent to which politicians were partisan. Clement Attlee, who had led the Opposition against Churchill, nevertheless was a pall bearer at his funeral in 1965. The 1950s introduced a period of what was called Butskellism when the Chancellor of the Exchequer, Rab Butler, and the previous Chancellor and then Shadow Chancellor, Hugh Gaitskell, seemed essentially to agree with each other.
In Britain that consensus shattered in the 1970s and 1980s as the left tried to bring the country to its knees through trade union power and then the right responded with what some have called sado-monetarism, leading to the collapse of companies, the disappearance of jobs and unemployment close to three million for five years.
In the 1990s, even when the left under Tony Blair adopted more moderate policies, they still exacerbated political partisanship with a dangerous ideology of spin that fairly successfully tried to stigmatise the Tories as figures of hate. This was taken to extreme levels under the wildly partisan Gordon Brown. When back in government it is not surprising that the Conservatives responded in kind. But while retaliation may give some satisfaction, what it means is that both major parties have contributed to the demeaning of British politics. The British used to be famous for their moderation and common sense. One can understand how people from other countries may no longer think that. Since then this problem has been exacerbated by the after-effects of the Brexit referendum. This has polarised the media. While inequality has had some impact on both the holding of the referendum and the result, the extent of partisanship on both sides has exacerbated the sense of a decline in the traditions of British moderation and common sense. Possibly it also reflected the reduced standing of the press and the growth of social media. Increasingly many people appear only to take in information that reinforces their prejudices.
As someone who has made a career out of forecasting I have always been anxious to take in information that might disprove my predictions and therefore search out information that might contradict me. It is for this reason that I find the extent of the partisanship on both sides, particularly in the UK’s debate on Brexit, extremely disappointing.
In the US political partisanship has also grown. Pew Research Center16 has been tracking political partisanship since 1994. In 1994 74% of Republicans and 59% of Democrats saw the other party unfavourably. In 2016 these numbers had increased to 86% and 91%. That isn’t entirely surprising – you obviously don’t like the other side a certain amount otherwise you would support them. Much more alarming is the jump in extreme partisanship. In 1994 21% of Republicans and 17% of Democrats saw the other party ‘very unfavourably’. By 2016 these proportions had more than doubled on each side to 58% of Republicans and 55% of Democrats.
According to the New York Times:17
The Republican Party strikes fear in the hearts of 55 percent of Democrats surveyed, Pew found. Among Republicans, 49 percent felt the same way about the Democratic Party.
At the same time, 47 percent of Democrats said Republicans made them angry, while 46 percent of Republicans said the Democratic Party made them feel angry.
Jane Mansbridge, the Charles F. Adams Professor at the Harvard Kennedy School and president of the American Political Science Association from 2012 to 2013, created the Task Force on Negotiating Agreement in Politics to respond to the crisis of polarisation in the federal legislature. Coming from academia at Harvard and writing in the Washington Post, her views are by no means neutral but this does not mean they are wrong.18 Her take on polarisation is ‘Get used to it. It’s not going away anytime soon.’
Americans have not, by and large, grown grumpier over the years. But members of the two major parties have stopped speaking to one another across the aisle. They don’t vote together, either.
She argues that:
Three major structural changes – gradual party realignment, closer elections and inequality – largely explain the huge decline in the numbers of party members willing to vote for legislation that the other party has sponsored, and in particular the number of Republicans willing to vote for measures the Democratic Party has sponsored. None of these causes is likely to change.
She explains how the 1964 Civil Rights Act changed the party composition in the US:
A massive transition began after President Lyndon B. Johnson signed the Civil Rights Act in 1964. As he told then-White House Press Secretary Bill Moyers the night of the signing, ‘I think we just delivered the South to the Republican Party for a long time to come.’ He had set in motion a train of events that, over time, would slowly lead conservative white southerners to leave the Democratic Party and join the Republicans. As the Southern conservatives left the Democratic Party, they left behind a relatively liberal remnant (in significant part, African Americans).
Democrats outside the South did not become much more liberal in the ensuing years, but the change in the composition of the party in the South made the national party more liberal and receptive to people of color. As the conservative Southerners joined the Republican Party, they also changed its center of gravity. Their perspectives and demands empowered the right wing of the party that had long chafed under the moderate Republican establishment. Evangelicals rose in strength; businesspeople fell. The Republican Party began to look for support less in Maine and more in Georgia. Its members became more extremely conservative, while the members of the Democratic Party became only a little more liberal.
With this shift, the parties in Congress became more electorally competitive. Southern conservatives leaving the Democratic Party gradually added their numbers to the Republican Party, which in 1980 won a majority of seats in the Senate (and in 1994 a majority in the House) for almost the first time since the New Deal.
The period of bipartisanship in Washington, from 1940 to 1980, was actually a period of Democratic dominance. With the Democrats in more or less permanent power, it behoved individual Republicans to play nice in order to get their bridges and roads. But by 1980, the parties began a period of intense competition.
As Frances Lee at the University of Maryland points out, when the minority party thinks it might win in the next election, it has a great incentive not to let the majority party have any ‘wins’ that it might run on in that next election. She quotes then-House Chief Deputy Minority Whip Kevin McCarthy (R-Calif.) from 2009: ‘If you act like you’re the minority, you’re going to stay in the minority. We’ve gotta challenge them on every single bill.’
But what is most relevant to this book is her third cause:
The now-famous U-curve of income inequality in the United States shows that after a period of relative equality from about 1940 to 1980, we have today become as unequal as we were in the last Gilded Age. That U-curve of income inequality tracks uncannily the U-curve of polarization, which in 1910 was almost as high as it is now, then fell precipitously – along with income inequality – until it bottomed out in the bipartisan era from 1940 to 1980. It rose again, in exact parallel with inequality, to its present heights. Why? Inequality seems to cause polarization and polarization to some extent causes inequality.
Nolan McCarty and his colleagues at Princeton are beginning to tease out the mechanisms. In state politics, they find that states with increasing income inequality experience two polarizing effects. First, state Republican parties shift to the right overall. Second, state Democratic parties shift to the left because their moderates lose. Rich Republican donors could well be responsible for both outcomes if, as seems likely, they fund more extreme candidates in Republican districts and target the Democrats they have the best chance to dislodge, namely those in politically moderate districts.
The big picture is that the extraordinary growth in incomes at the top of the income distribution makes possible the discretionary money that can then be poured into politics, and those who contribute to politics are, on average, a good deal more extreme in their views than the average voter.
The gradual party realignment after 1964, the closeness of elections since 1980, and the growth in income at the top of the distribution are the three deep causes of polarization. Gerrymandering is not the cause; the Senate is as polarized as the House. Primaries are not the cause; primary reforms have had relatively little effect. Changes in the rules of the House and Senate have had some effect, as have the increasing number of hours that legislators now have to spend fundraising and the increasing number of hours they now spend in their home districts with their constituents. But of the three deepest causes, at least party realignment and income inequality are likely to continue. Close elections may well continue, too. So polarization is here to stay – for the indefinite future.
I think Ms Mansbridge misses one of the key contributory factors – the growth in social media and the increasingly partisan press – which has led to polarisation in both the UK and the US. We have just as much political partisanship in the UK as in the US even though the main factors quoted by Ms Mansbridge have not affected the UK.
Some hope for the future
Fortunately I can see inequality itself generating a backlash.
One thing I have noticed is that there is a reaction to inequality in tastes and fashions. When I was writing The Flat White Economy I noticed that London seemed to be leading the way. A sort of grunge chic is emerging. Mean streets are fashionable not just with the alienated. Ideals are changing. Rich people are changing their lifestyles and behaving more like poorer people. Sports cars are unfashionable – people associate them with the types that have more money than sense (mainly the highly entitled kids of rich foreigners).
For six months in 2017 a gold-plated Maserati was parked in various locations around Marylebone to universal derision on social media, a derision enhanced when it was discovered that the owner had forgotten to tax it and it got impounded by the police.
Even though the UK economy has partly recovered from the banking crisis, champagne consumption has not recovered. In 2014 UK champagne consumption was a quarter lower than at its peak in 2007. Though it rose again by 4.5% in 2015, it fell back by 10% in 2016, to reach a level nearly 30% down on its peak. Meanwhile sales of coffee – a much more democratic drink than champagne – have been increasing by 10% per annum in London.
One indicator in London that a place is unfashionable is the nature of its clientele. If it is patronised mainly by rich foreigners it loses its appeal to the locals. The locals prize the places that offer best value. One restaurant that is good but very expensive and largely boycotted by the locals because of its pricing is Sketch in Conduit Street in the heart of Mayfair. Unusually I was invited to its opening, not because they wanted me but because they wanted my car (the classic Aston Martin mentioned earlier in the book, which has since been stolen) to be parked outside. The last time I was taken there was as a guest of an Embassy official, and I was one of only two Brits in the restaurant, the other being a former Labour Cabinet Minister and quangocrat whom one suspected of dining at public expense. I very much dislike the place. Although the food is good, it is overpriced. As a Scot I hate waste. And I hate conspicuous waste even more (and waste at taxpayers’ expense even more still!).
At the other extreme is the London restaurant Pidgin in Hackney, which provides by far the cheapest food of Michelin rosette quality available in London. Set in Hackney in a former café with a minimal kitchen, the young chef (until recently Dan Graham) manages to cope with limited space by setting a single menu for the week and only making alternations for dietary reasons. Its prices are low and it is by far my favourite London restaurant and not too far from my office – we took over the whole restaurant for our office Christmas lunch in 2017. It is permanently full and a great source of joy for those in the know.
One suspects that the reaction to inequality in tastes and fashions will spread to politics. Most rich people prize a society where people are treated relatively equally and they are prepared to pay quite a lot in taxes and charitable contributions to ensure that that is the case, which is why I think that the idea of voluntary taxes described in Chapter 17 is an idea whose time has come. It is not just that, in order to keep their property and to stem off a revolution, they want to ensure that the masses are not too restless. It goes much further than that.
Some rich people may prefer the sort of country where judges are bribed because they are the ones who can afford to bribe them. But in the kleptocracies another person normally comes along with a bigger bribe and outbids you. It is notable that many Russians of whatever background come to London to try to sort out their legal disputes. The judges may get it wrong, for law and evidence are difficult things. But no one expects them to be bribable. If they make a mistake at least it will be an honest one.
One of the reasons that London is so popular as a destination is its liveliness. This reflects the diversity of views and backgrounds that it contains. The most fashionable part of London in recent years has been Shoreditch.
Shoreditch started as the centre of London’s art scene, buoyed by easy availability of cheap property. It was claimed in the early 1990s (when I moved my office there) that the density of artists’ studios per square kilometre in the area was the highest in the world. Since then and particularly since about 2005 it has become London’s tech centre, a rise I chronicled in The Flat White Economy.
The tone of the area is chic but very deliberately not expensive. The predominantly young people who work in the Flat White Economy are not especially highly paid, particularly when London’s huge cost of accommodation is taken into account. So compared with the previous fashions set by the burgeoning City in the 1980s, it is much less based on ‘loadsamoney’ spending. Porsches have been replaced by bikes; champagne by coffee; houses in Kensington by flatshares in Hackney. Increasingly Londoners of all levels of wealth are using public transport, state schools and the NHS and all working to make these services work.
At the same time fashions change quickly, as if deliberately to confuse the uninitiated. New cafés, bars and restaurants come and go.
London has swung right and left in local elections in recent years but the surprise has been how little policies have changed. Both major parties have adopted centrist economic policies with the focus on infrastructure and on keeping the businesses that have made London so successful. Both have supported migration and integration.
Sweden is another example. I was visiting Stockholm in late 2017 to discuss an early draft of this book with some of Sweden’s most successful businessmen, kindly arranged by my friend Mikael Pawlo. We couldn’t find a taxi and I encouraged him to take the underground which we did (he pretended to be unaware of how to use it). Meanwhile I joked that I had expected him to pick me up in a chauffeur-driven Rolls. He looked shocked – ‘If I tried that sort of thing people would throw stones at me!’ My sense is that a long history of an egalitarian approach to life has left Swedes with a much greater sense of and desire for equality of outcomes than many other countries. But (as I used to joke before they reduced top tax rates in Sweden) one thing that successful Swedes used to have in common was that they didn’t generally live in Sweden.
The new generation of Swedish entrepreneurs is different. The top marginal rate of tax peaked at 90% in 1980 and since has fallen to 57%.19 Although this is still high by international standards, many Swedes are happy with the situation and Stockholm is second only to London as a hotbed of entrepreneurialism in Europe.
Perhaps Sweden and London can be a template for reducing political partisanship in other areas. But if this does not happen, extreme politics of both right and left could be seriously destabilising.
Many of the problems allegedly caused by inequality are really caused by poverty. It is important to distinguish between the two because quite often the policies that would reduce inequality would increase poverty by reducing economic growth.
There are, however, some problems that directly result from inequality per se. Health inequalities from mental stress seem to result more from a person’s position in the pecking order and a sense of lack of control over their lives than from poverty as such. And although neither health nor education is largely allocated by the market in most countries, it does look as though the middle classes get access to better services through using their knowledge and in some cases their financial power.
Meanwhile access to positional goods is allocated by relative not absolute income and so inequality does matter there. But often people complaining about inequality want to have their cake and eat it – they have chosen professions on a basis other than expected career earnings and in effect made a lifestyle choice. When they complain, they do not seem to realise that making a lifestyle choice means being prepared to give up income.
The worst problems of inequality leading to negative social outcomes seem to be associated with despair. This is why it is important not only to examine the current static position of inequality but also to understand the dynamics – whether those in the worst-off positions have much chance of improving their own and their children’s positions.
In Part II I examine the extent to which inequality and wealth and people’s positions in the pecking order are entrenched and the extent to which they change over time.