Sunday, March 25, 2007

Redistribution and inequality

Any leftie thinking about whether or not they can bring themselves to vote Labour should have a look at the graph on the left.

We should all be heartened to see how Gordon Brown has used the tax and benefit system over the past ten years to try to redistribute wealth from the highest earners to the lowest.

It does also show how hard it is to reduce inequality. Despite using the powers of the state to reduce the income of the rich by 6% and boost the incomes of the least well off by 12%, levels of inequality in the UK have barely changed over the past decade.

Inequality has such a corrosive effect on our society, particularly as a cause of poor health, that it must be a priority to do much more to reduce it substantially, but that doesn't mean it would have been better for people on low incomes if Gordon Brown had spent the last ten years doing an impression of Norman Lamont and causing recessions rather than steady levels of growth. Combining rising living standards with greater equality could and should be the most exciting challenge for a Labour government over the next ten years, building on what we have learned over the past decade.

One increasingly popular response to these challenges has been to talk about the need to consider 'well-being' as an alternative or complementary measure to economic growth. But without the priority placed by Gordon Brown on ensuring steady economic growth over the past ten years, the living standards of the least well-off would be much lower. High levels of inequality do mean that rising living standards don't always make people happier, but there could hardly be something more typically Tory than to change policies to stop living standards rise for people on low incomes to try to appease the anxious middle classes. When the Green Party calls for an end to economic growth and then in the next sentence complain about health service cuts, it's not hard to see why David Cameron is interested in stealing their clothes.

There is no way that the graph above would look as progressive if our aim had been to maximise the 'Gross Well Being Index' at the expense of economic growth, and the idea that David Cameron and his chums might have responsibility over the next ten years for the challenge of maintaining steady economic growth while protecting the natural environment and reducing inequality is an extremely frightening one - it's not hard to realise who has most to lose, or how much there is to lose.


At 6:49 pm , Anonymous angus said...

You seem (unfortunately like some of the proponents of the well being agenda) to be running a number of issues together here.

What the proponents of 'well being' are saying, rightly, is that GDP isn't a very good measure of living standards and we need to take a broader view. Sometimes (but not always) this may imply exchanging less 'output' conventionally measured for other goods.

The choice between all these goods though is determined by the level of productivity. Higher productivity expands the range of choice. The difficulty comes when some of the proponents of the 'well being' approach set up a false dichotomy between productivity growth and well being, apparently on the right wing assumption that reducing inequality, giving people decent working conditions etc. must harm productivity. But

a) the assumption is wrong

b) it should be obvious that such things as reducing working hours and redistributing income depend (at least politically) on productivity growth-e.g. people are more willing to pay higher tax rates if it doesn't reduce their absolute income

c) reducing productivity growth in itself will not help any of these things.

The stability of growth is a different question again-a no or low productivity growth economy could theoretically be stable in Keynesian terms and avoid recessions or unemployment. But I don't favour it for the above reasons.


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