Slums and skyscrapers in Manila: The Philippines has high inequality despite high growth (photo: GreenArcher04, via Flickr)
When a giant among UK economists such as Sir Tony Atkinson publishes a book in which he gives prescriptions based on the work of a lifetime, it deserves to be taken very seriously indeed. Hotly tipped last year for the Nobel Prize, he aims in Inequality: What Can Be Done? to reach the general public as well as policymakers and fellow econometricians.
His book follows two others by his previous co-authors, Joseph Stiglitz’s The Price of Inequality (2012) and Thomas Piketty’s Capital in the Twenty-First Century (2013).
On reading his headline recommendations, some readers will be put off immediately, perhaps assuming that Atkinson is merely rehashing the high tax, high public spending policies which landed the UK in so much trouble in the 1970s. That would be unfortunate because the work is rich in ideas and practical proposals. It is possible to dis-agree with large parts of his redistributive approach while still finding valuable new approaches and insights in every chapter.
Though concern about economic inequality and the problem of poverty led him to create the celebrated Atkinson Index when he was still in his twenties and though he shares the worry expressed by the managing director of the International Monetary Fund, Christine Lagarde, the OECD and many fellow economists about rising inequality in much of the Western world, he resists the pessimism of much recent discussion about the topic. He insists that much can be done.
As I write this review, I find myself still grappling with and resisting some of the remedies being proposed. Is a 45 per cent tax on income earned above £55,000 a year and 65 per cent on annual income over £200,000 really the way to go? At the same time, other recommendations, such as those for child benefit and for the reform of taxation of high-end homes, should appeal across the political spectrum. The coalition implicitly recognised that the council tax currently fails to make adequate demands of owners of multi-million-pound homes in Central London when it introduced a new, progressive system of taxing property sales.
A signal strength of his work is the strong moral conviction that lies behind the tables. In this book, Atkinson resists the technicalities and ditches the mathematics, following Stephen Hawking’s dictum that each equation halves the number of readers. His commitment to international aid, family life and social justice has led him to contribute his royalties to Oxfam, Emmaus UK, Quaker Housing Trust and Tools for Self Reliance. Some of his favoured policies involve voluntary action rather than public fiat. Even if one accepts Will Hutton’s finding that there should be no official cap on the multiple of earnings allowed for the most senior civil servants over those of the lowest-paid members of the organisation, such caps should be accepted voluntarily. In John Lewis, the highest-paid director is not allowed to be paid more than 75 times the average salary. In TSB, the permitted multiple is 65, and in the fair trade organisation Traidcraft it is six. “As this example illustrates,” writes Atkinson, “the adoption of a pay limit may well reflect the ethos of the organisation.”
In a similar fashion, he suggests that consumers “make a difference by buying from suppliers who pay a living wage, or whose products are fair trade”. Savers can ask about the salary policy pursued by their shareholder-owned bank. He concludes, in a spirit of optimism, “We make many ethical decisions, and, taken together, our decisions can make a contribution to reducing the extent of inequality.”
The book is particularly strong in the way it addresses some common, supposedly knockdown arguments for inequality. International statistics show that income disparity and economic growth are not necessarily linked. In China, rapid growth has been accompanied by huge inequality but in Poland and elsewhere it has not. Nor, Atkinson argues, is it the case that measures designed to limit economic inequality must lead to Greek-style basket-case results. It is possible to devise revenue-neutral tax programmes that achieve a degree of redistribution.
There are at least three aspects of Atkinson’s book that I would have liked to see discussed more fully. First, after considerable personal involvement in the world of international aid, I have qualms about the idea of a 1 per cent target of national income (as opposed to the already controversial 0.7 per cent) for such programmes. Spending targets can be extremely wasteful when it comes to international aid. Second, as Atktinson recognised in his recent Arrow lecture at Stanford, the study of inequality needs to pay more attention to the top end of the scale. The huge wealth of billionaire oligarchs presents new challenges, not least because of the political power they may be able to wield. Third, Atkinson fully realises but does not attempt to deal with important non-economic dimensions of inequality. These are crucial. It is significant that within the OECD, where the inequality issue is a priority, these non-economic dimensions are the subject of active study. In fairly direct ways, the super-rich are able to influence the political process itself through campaign contributions and, even more importantly, through highly professionalised lobbying and political access operations as well as through ownership of mass media. Inequality also has a striking effect in the realm of participation in political and public life. Not only has the percentage of workingclass MPs drastically declined but there is a gross lack of social balance in areas of public life as simple but as important as the appointment of part-time lay magistrates, who judge some 90 per cent of all cases. The equality policy of the last Labour government, which was continued after 2010 by the Coalition, stresses gender and racial equality but neglects geography and social class. People living in relative isolation of working-class housing estates are less likely to vote, are much less likely to become magistrates or otherwise to participate in public life, and benefit relatively little from the growth in higher education.
Above all, as Charles Moore, among others, has pointed out, there is a dangerous disconnect between the worlds of the new rich and of others. It is here that Atkinson’s underlying moral commitment gives such importance to his life’s work