THIS BOOK ARGUES THAT INEQUALITY, FAR FROM BEING MAINLY A FORM of exploitation, is largely an economic phenomenon which requires economic responses. It also points out that the damage done by inequality is caused less by material differences in levels of wealth or income but more by the psychological effects caused by the feelings of rejection by society of those whose relative position is deteriorating.
Responding to this damage is a complex process involving the development of more inclusive communities and finding ways of returning control over their lives to the people affected as well as improving education (including helping to form realistic expectations) and helping where possible to improve the material standard of living.
The book argues that utopian solutions to the problem of inequality are unlikely to work and are the enemy of more marginal improvements that could do so. It provides a wide range of ideas for reducing inequality.
The book also shows that extremism of either the anti-capitalist type or of the protectionist or anti-immigrant type will actually make the economic problems to which people are reacting worse. Corbyn/Sanders’ or Trump’s (and to a much watered-down extent Teresa May’s) solutions are not the answer to a political problem that has its roots in a set of new economic challenges that have not been shared before.
The problem of overpay for bankers and CEOs is gradually resolving itself through a protracted market process. If this does not happen quickly enough there is ammunition in the lockers to help resolve the issue more quickly.
Cronyism is more difficult to solve but can be attacked in those parts of the world that are institutionally hostile to corruption. While they may have limited influence in emerging economies, travel bans could stop crooks and their associates from visiting the world’s more desirable places in the West.
But serious solutions to the excesses of inequality need to start with education. Again, it may be that simply improving the education of the poor is insufficient and some limits on private education may be necessary. Equally it will be important for the system to reward success sufficiently to provide an incentive for people to get themselves educated. So it will always be both impossible and undesirable to eliminate inequality completely.
Many of the economic solutions for reducing inequality are more microeconomic than macro. Anti-monopoly policy reduces excess costs of living, improving the position of the poor. It also limits the possibilities of excess gains by monopoly capitalists. A healthy competition policy also makes business behave more ethically to keep shareholders, customers and employees.
Welfare reform allows people to work at low productivity jobs while having an income level that is not quite on the breadline.
Western governments need to focus much more on keeping the cost of living down, through the right planning policies, avoiding agricultural protection and aggressive anti-monopoly policies. These not only make welfare cheaper but improve the standards of living of everyone and by an amount that rises proportionately the poorer one is.
Taxation for redistribution has to be handled carefully. Excessive income taxes in many cases reduce revenues and make the poor worse off, not better. Inheritance taxes could be raised in some countries, though there is a case for international agreement on this. And if the taxman is prepared to exercise self-restraint and bring top tax levels down to the revenue maximising levels of around 35-40%, it is likely that many rich people would be prepared to pay voluntary tax supplements. This would particularly be the case if they had some say in how the additional revenue was spent (obviously within limits). Ultimately the combination of inheritance taxes and voluntary taxes should generate sufficient funds to make welfare reform possible. And if they generate more, there is plenty of scope for redistribution of wealth.
I am conscious that technological progress and homogamy may mean that these policies will not succeed in preventing inequality from increasing further. There are two answers to this. First, the degree of intensity with which the authorities follow the policies listed above can be increased; second, reducing inequality is not the only goal of economic policy. Allowing growth (properly measured) and reducing poverty are also important.
Sometimes economic forces mean that a high level of inequality can only be avoided by risking Venezuela-style economic collapse leading to poverty and malnutrition. If there is a choice between high inequality and no poverty and low inequality and rising malnutrition, one would have to have been blinded by ideology to condemn the poor to malnutrition.
All this works if the forecast for the underlying change in inequality is that set out in the less extreme of the two cobra graphs in Chapter 11. But if the impact of technology is more extreme – which it could be – and we are in the world of the more extreme cobra graph where the cobra is rearing up and spitting, then the proposed solutions will have to be put through in a much more aggressive form.
One might need to abolish private education completely, though I don’t like this because when the public sector is worse than the private sector at providing something, I don’t like simply to abolish the group that does things better. Far superior is to make the public sector better.
Anti-monopoly policy might have to be intensified. Restrictions on the use of data may have to be on a much more serious scale. Taxation of inheritance might have to be 50% or more. The key point is to realise that the problems are essentially economic, not a Marxist conspiracy theory of the rich exploiting the poor. Solutions, therefore, if they are to work, need to work with the grain of economics. It remains important to remember that inequality and poverty don’t automatically go together and to avoid policies that might reduce inequality but worsen poverty.
It may not be possible to make the world a perfect place. But it is possible to make it a better place than it might otherwise be.