The Golden Age of Equality

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The two headlines above, one from the Washington Post, and one from the Guardian are typical of recent press stories about the rise in inequality . Inequality is apparently the defining characteristic of our current age.  The Guardian has an excellent series of articles chronicling how inequality shapes the modern world, while Oxfam have published some hard hitting recent reports which take aim at rising Global inequality.   The World Economic Forum included income inequality on their Global Risk survey, while even the IMF, who usually are pretty conservative in their outlook argue that too much inequality is reducing levels of growth:

The source of this inequality is apparently a group of people called the Global 1% who are amassing more and more wealth than ever before.  To be in the global top 1% you need to earn £23,500pa, which means that a large number of people reading this blog are 1%ers. 

You evil bastards.   

Globally us 1%ers control about half of the worlds wealth, and that share is increasing.  Given that UK median personal income is about £22,000 nearly half of the population of the UK are in the global 1%

To be in the UK top 1% you would need an income of over £650,000 a year, which is probably a bit more than most people reading this.   You can stop worrying about the Occupy movement camping outside your house for a while yet. Within the UK the top 1% control about 25% of the countries wealth according to Oxfam.  There are other slightly lower estimates, but a range of 23-25% looks about right.  

The UK has Gini co-efficient of 73.2% compared to an OECD average of 72.8%, which means that we are pretty average in terms of income inequality.   If you compare the UK to similar economic such as the Top 30 developed nations we are in the bottom half for equality, although the way inequality is distributed means that the UK is closer to counties like  Sweden than it is the the USA or Mexico:

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What is true is that things are getting worse.  Since the credit crunch most of the wealth created has gone to the richest 1% in the UK and globally, while the incomes of the poorest have stagnated or even fallen.

This would seem to substantiate the argument that inequality is worse than it has ever been, and that Capitalism has an inbuilt tendency to become more and more unequal over time as Thomas Picketty claims:

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I have 2 basic problems with this.   The first problem is historical, the second geographical.

From a historical perspective these claims are ludicrous.  

Sorry if that sounds harsh, but the idea that income inequality is worse now than it was 100 years when the British Empire was at it’s peak strikes me as absurd.  Back then the top1% in the UK controlled not just the majority of the countries wealth, but a huge proportion of other countries wealth too.   The incomes of the top 1% were actually greater than the entire GDP of the UK. 

If we go further back it is just as bad.  Inequality was worse in the age of the transatlantic slave trade, worse in the era of the Highland Clearances and the Enclosure of the Common Land.

In fact if we look at  the  EINITE – Economic Inequality across Italy and Europe, 1300-1800 we can see that wealth inequality has been increasing in the manner predicted by Picketty from the Black Death onwards – it looks as if the shortage of Labour caused by the Black Death redistributed wealth away from the aristocracy. 

From the end of the Edwardian era and WW1 Inequality starts to fall, and continue for most of the next 100 years.   There has been a small uptick in the last few years, but inequality across Europe and in the UK is the lowest that it has been since the late C16th.

The EINITE dataset covers all of Europe, in the UK the rise of the Empire magnifies the effects, such that the peak of inequality in the Edwardian era is much higher.    Britain was also more unequal than mainland Europe during the Tudor era as the Crown amassed huge amounts of wealth through trade with the colonies and seizing the riches of the Church. 

If we take the last 1000 years of British History as a whole there are 2 notable periods of equality.  The first lasted from the Black Death and the abolition of serfdom in 1380 to the dissolution of the monasteries.   The second period of equality is the one we live in now.  To put this in simple terms in the last thousand years all of the years since the introduction of the welfare state have lower levels of inequality than all of the years before the introduction of the welfare state. 

Putting this into a neat chart, the wealth of the top 1% in the UK over time looks like this:

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This is a pretty rough approximation, based on the sources below.   It is hard to work out whether the long periods where inequality is static are correct, or whether they reflect that some eras of economic history are more widely studied than others.

This doesn’t quite prove Piketty right or wrong.   There are eras with high demand for capital and low levels of inequality, and eras with low demand for capital and high levels of inequality.    There is however a discernible increase in inequality during the capitalist era. 

The second problem I have with the claims that we are living through an unprecedented era of great inequality is geographical.   I have visited India a number of times over the last 20 years.  During that time the gap between the living standards of Indians and the living standards of people in Britain has shrunk visibly.   Countries like India are closing the gap between their living standards and Europe faster than at any time since before Columbus and Vasco de Gama set sail.  

This isn’t unique to India.  Globalisation, or global free trade, is a dirty word among lots of people in the West, but around the world living standards, life expectancy and literacy are being transformed.    Poverty is falling globally, as is malnutrition, and infant morality.   Some of this is driven by global free trade, some by technological advances, some by political or social changes.   30 years ago 40% of the worlds population lived on less than $2 a day, today that is only 8%. 

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For people in country like India and China this is an age of equality.   Across the globe inequality between countries is falling, while inequality within countries is increasing, particularly in the West.   The increase in inequality within countries is offsetting a lot of the improvement in inequality between countries, but overall the global Gini co-efficient is falling, not rising.

The data could support a different interpretation of inequality between and within countries.  Inequality within the UK takes off with the rise of the British Empire, which peaks in the Edwardian era.   As the Empire goes into decline inequality shrinks within the UK, and between the UK and it’s former colonies.   Economic relations with India for example start to change during WW1 when the UK stops exporting goods to captive markets to concentrate on the war effort.  After the war the Great Depression makes the UK too weak to recapture it’s market share.  The rise of London as a no questions asked financial hub maybe off sets some of that in the last few decades maybe reverses some of that, but not enough to make big difference.   The driver of inequality isn’t capitalism maybe but imperialism?  This is an argument that would make free marketeers and hardline Leninists happy in equal measure.

Why then do we fell that there is a crisis of inequalityif this is one of the most equal and egalitarian eras of the last thousand years?

Partly this is relative, I was born in the late 60s, probably the most equal year since the Black Death. Everything looks unequal measured from that point.

Partly it is because the way the internet filters news.  The headlines we read are a jumble of global, national and American news, which mix up what is happening here, with what is going on in the US where inequality is very much worse.   The Spirit Level, while a great read, draws the bulk of it’s data from the US, rather than the UK, which gives a misleading picture to UK readers. 

But largely it is because income distribution has changed within our peer group.  People who own property and have inherited property wealth continue to amass wealth albeit maybe a bit more slowly than the did a generation ago.   The millennial generation in particular have less property wealth and less accumulated pension wealth than recent generations at the same age.   This affects people who are mostly in the top 1% globally but not in the top 1% nationally.  Things are a bit worse for white middle class people compared to rich white people, a bit better for people in Latin America and Sub-Saharan Africa and loads better for people in China and India.

Don’t get me wrong, the current growth in inequality isn’t a good thing for someone who believes in progressive politics.   But the reality doesn’t match the headlines.  The problem in the UK is poverty more than inequality.

If we had asked progressive liberals back in the 1980s if they would accept a world in which our standard of living grew a bit more slowly, but our consumption of raw materials fell and people in the 3rd world did much better we would have seen that as a big triumph.

That is exactly what the last 20 years have delivered.   But apparently we don’t like it as much as we thought we would. .,%20Jacks,%20Levin,%20and%20Lindert_2002_History%20of%20Inequality.pdf

Distribution of taxable population and wealth in England during the early Sixteenth Century, Sheail, 1971

ENGLISH GROSS DOMESTIC PRODUCT, 1300-1700: SOME PRELIMINARY ESTIMATES; Apostolides,Broadberry,Overton,van Leeuwen,2008

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