Digested Read – Spirit Level 6: Future Options

Digested Read Digested – What we can do to embrace equality – through society and government.

It won’t take a revolution to achieve greater equality… but it will take a transformation, with a sustained sense of direction and a strong view as to how to achieve the required changes.  To make things more interesting it needs to happen at the same time as we need to transform society onto a more sustainable footing to be able to respond effectively to global warming.

We cannot wait for the government to solve the problem for us, but we should pressure governments to implement policies that will aid equality at the same time.

We also need to remember that the aim is to create a more sociable society – we want to avoid disruption, dislocation, insecurity and fear which will lead to not only a harder populace to change, but probably a backlash.  Rather, we need to convince people that a more equal society not just has room for them, but will offer a more fulfilling life than a society dominated by hierarchy and inequality.

The fact that results of so many studies show better results for the rich as well as the poor in more equal societies definitely helps that goal.  Societies do better with a more income-equal framework, but also individuals do too.  The gifted get more chance to shine, not less, in a more equal society.  Equality does not mean we all become the same.

Politics was once about improving people’s social and emotional wellbeing through changing their economic status.  That seems to have been lost, and people now look to individual means to improve their psychosocial wellbeing.  Politicians meanwhile try and fix each societal problem as if it were in isolation – and this has proved expensive.  If they pulled the levers reducing the inequality and relative deprivation that seem to lie behind so many of these issues, they will no doubt have more success.

Looking at how quickly levels of inequality have changed in recent decades (as above, in Britain), it is clear that we can change things – we can create a society where the quality of life and human relationships is much higher than now.

When governments have really wanted to increase equality, they have been able to.  Usually it has taken an existential crisis to cause that will to appear however – eg World Wars.  In the early 90s the World Bank noticed that much improved equality seemed to be behind the rapid growth in East Asia.  Why was equality improving?  Governments across the region faced various challenges to their legitimacy (from neighbours or internal dissent) and needed to gain popular support.

South Korea and Taiwan carried out extensive land reform.  Indonesia regulated rice and fertiliser prices to raise rural income.  Malaysia had explicit wealth sharing programs.  Hong Kong and Singapore had extensive public housing programs.  Several economies had governments assisted workers co-operatives and small and medium sized enterprises.  Whatever form they took, governments showed they intended to share the benefits of growth.

Japan owes its status as most equal country partly due to the humiliation its establishment suffered from WWII, and partly from a far-sighted constitution drawn up by General MacArthur’s advisers.  An elite is not allowed too far off the leash, and all are paid well – their equality is in income before tax, and their Government social spending is very small as a GDP percentage.  Sweden on the other hand has a very strong tax and benefit system to ensure wealth is redistributed.  Either system has the desired outcomes.

Looking at the reverse, Paul Krugman has done a lot of research into what cause a remarkable rise in inequality in the 1980s, and particularly in the US.  He concludes that it wasn’t market forces, or this would be a general trend in all countries, not a marked shift in some at one point.  It wasn’t the changes in the tax or benefit systems or similar reasons, per se.  Rather it was the rise of the new right, who successfully convinced society about the free market, and then implemented policies of great pay for CEOs and top management, less progressive tax systems and reduced benefits, and greatly reducing the powers of trade unions.

Indeed unionisation and labour representation have a huge difference on inequality.  The USA has only 15% of workers covered by collective agreements – in Europe the average is 70%.  Britain at 35% brings the European average down.  Labour representation at the highest level of company decision-making is the law in many European countries, and 15% of Japanese directors were former trade union officials.  Here there is a much closer and less adverserial relationship between management and unions – no doubt partly facilitated by the unions being involved in company decision making.

Political differences are usually about how to achieve an end goal, rather than disagreements about what the problems are.  Almost all want to live in a happier, healthier, safer society.  So part of the solution is convincing people as to the solution, and creating political will to work on these solutions.  This can be done by all of us.

But there is often a feeling that we don’t pull the strings, that we are not all democratically equal.  The super-rich have set up a hierarchy that creates the income inequalities in a private setting that the government fears to tred.  CEOs in 365 of the largest US companies received well over 500 times as much as their average employee.  That pay gap increased ten-fold in Fortune 500 companies between 1980 and 2007, and is only accelerating.

When half of the world’s biggest economies are Trans-National Corporations, concentrating wealth and the means of production into the hands of very few, most of us are left fairly powerless and our democracy looks very thin.

The experiment in State ownership in the Soviet Union didn’t provide a good counter-weight.  The concentration of power into the state led not just to inefficiencies, but corruption and loss of freedoms.

So what are the alternatives, beyond the prior recommendation of stronger (but non-antagonistic) unions?

Co-operatives.  Businesses owned by their employees and possibly their customers (mutuals).

Large non-profit institutions like US electricity utilities, hospitals and universities do very well there, generally providing cheaper services than their for-profit cousins, and greater accountability.  In Britain The Co-operative Bank, with GBP40 billion of assets, is ranked the most corporately responsible company in the UK.  Will Hutton points out that when electricity, gas, water, telephones and railways were nationalised industries in the 1950s and 1960s they outperformed the productivity of the private sector.  They got a bad name once governments raided their profits (TVNZ anyone?) and held down their prices to reduce national inflation.

Co-operatives have tended to lead fair-trade and other moral movements, be more democratic, with better working conditions and have far more equitable pay scales.  They have worked at every scale of business, from a handful to 10s of 1000s of employees.

So what political action needs to be taken?  More progressive tax rates, closed tax loopholes (and business expenses etc) for the rich, possibly even a legislated maximum pay multiple between lowest paid employee and top would all be great short-term solutions, but easily over-turned by a subsequent (National) government.

But setting up incentives towards more equitable companies could be longer lasting.  Tax discounts for democratic employee-ownership would allow us to avoid wealth and power concentrations in either the hands of an elite few, or into the government’s hands.

There are already incentive for employee share-ownership in the US and UK, and many employers take advantage to create incentive schemes.  But those shares often don’t relate to having a say.  It makes a difference, but employee involvement in decision-making has more.

During the Cold War there seemed to develop a view that we couldn’t have freedom and equality.  But this seems to be a fallacy.  Indeed our current situation seems to be denying freedoms through that inequality.  And it is a lack of democracy in the economic sphere that causes it.

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Right-wing trolls: r0b had a recent post with links refuting the arguments you’re about to make…