Homelessness and child poverty have risen, the NHS is in dire financial straits, understaffed prisons have record suicide rates, the elderly lack social care – yet the rich continue to get richer, and continue to avoid taxes. This is an expression of abject moral bankruptcy.
But, if the Resolution Foundation’s forecast is right, this is just a prelude to the biggest rise in inequality since that seen under Margaret Thatcher in the 1980s. And with more inequality there will be a growing need for services of every kind – including more prisons and police. An increasing body of scientific evidence has shown that almost all of the problems related to lower social status get worse when inequality escalates. That goes for poor health and child wellbeing, for violence, school bullying and lower maths and literacy scores.
Inequality is not driven by forces beyond our control but by politics and policy choices. The Resolution Foundation report says that the cuts in benefits to working-age people over the next four years are the main reason why inequality will rise. In the past, income differences widened because the incomes of the richest rose fastest. But the Resolution Foundation say that in future, living standards will fall among almost the entire bottom half of the working-age population. That will not simply make people more uncomfortable. It will damage democracy and the whole social fabric, making us a more antisocial society.
People used to think that inequality had some redeeming features – that perhaps it was good for the economy. But the Organisation for Economic Co-operation and Development and the International Monetary Fund have shown that it increases instability and damages economic growth.
Previous major reductions of inequality have depended on powerful political movements. Inequality was very high in the 1920s but then declined – at first rapidly and then more slowly – from the 1930s until the 1970s. The modern rise in inequality started in about 1980 with neoliberal economics under Thatcher and Ronald Reagan, and has now returned us to 1920s levels of inequality. This pattern of declining inequality in the middle decades of the 20th century reflects the rise and fall of the labour movement and the fear of communism. The rise and fall of trade union membership is, in one country after another, almost a mirror image of trends in inequality. As trade unions got stronger, inequality declined and vice versa.
Similar forces lay behind the early reductions in inequality under policies of “shared growth”, which paved the way for rapid growth in Taiwan, Hong Kong and South Korea – once the “tiger economies”. As a World Bank report pointed out, they all reduced their inequality to gain popular support in the face of communist neighbours.
Fearing some catastrophe – particularly since the election of Donald Trump – increasing numbers of the wealthy have been buying boltholes in places such as New Zealand, where they hope they might escape any disaster. But the evidence shows that greater equality makes societies more resilient and adaptable, better able to deal with shocks and uncertainty. That was why Britain’s leaders reduced inequalities in both world wars. They wanted to make people feel the burden of war was fairly shared and gain their participation in the war effort. As we face the threats of climate change and growing political and international uncertainty, reducing inequality becomes a necessity.
Studies have shown that people in more equal societies are more willing to help each other, trust each other, and to take part in community life. The evidence also suggests that they are less out for themselves and more responsive to the common good. But with rising inequality all that fades: trust and community life decline and violence increases. And in some of the most unequal countries, such as Mexico and South Africa, you find that people fear each other. Windows and doors are barred, and garden walls are topped with razor wire or electric fences. Studies of the rich democracies show that higher inequality leads to a higher proportion of the labour force working as security staff or in the police or prisons – occupations needed to protect ourselves from each other.
Some academics argue that it takes a catastrophe to reduce inequality. But there is no shortage of solutions. What we need, and what is now beginning to emerge, is a mass movement capable of driving egalitarian policies forward. Taxes and benefits should be more redistributive than they are, but above all we need to reduce inequalities in incomes before tax.
Although the labour movement once provided the discipline to keep top incomes down, trade unions are unlikely to regain their former strength in a service economy. This means we should support the development of all forms of economic democracy – employee-owned companies, employee cooperatives, and substantial board-level employee representation. That would embed equality into society and help improve Britain’s poor productivity.
