Yesterday I listed ten reasons why you should care about inequality, and as I’ve written about before, it’s a growing problem in the UK. We are a highly unequal society, in which the poorest half of the population holds just 9% of the wealth. The richest 10% are 100 times richer than the poorest 10%.
But what causes inequality? What are the underlying aspects of society that cause the gap between rich and poor to widen?
A new report from the New Economics Foundation explores the determinants of economic inequality, and outlines five broad categories:
1. Starting points – The situation that each of us are born into. If you’re born into a family with wealth and assets, you get a head start. That’s particularly important for Britain, as long held land ownership inequalities and networks of inherited wealth form a base of initial conditions that perpetuate inequality. We still has a landed aristocracy after all, which gives some members of society a headstart on everybody else. A recent LSE report showed that it also helps to be male and white. Women earn 21% less than men, and men of Bangladeshi or Black African descent earn 13-21% less on average than their white counterparts.
2. Early life opportunities – Our childhoods amplify those initial inequalities that we’re born into. Families with wealth are able to pay for better education for their children, opening doors to all kinds of opportunities. Britain has very poor social mobility, which means that those born into disadvantaged households are likely to remain disadvantaged themselves. (The US is also bad for social mobility, its reputation as the land of opportunity being more cultural mythology than reality).
3. Global influences – Globalization is a phenomenon that has brought lots of advantages, but it’s also been a driver of inequality. The collapse of the Soviet Union and the rise of China brought over a billion new workers into the global economy. One of the many effects of this has been to lower the value of unskilled labour, right around the world, pushing wages for skilled workers and unskilled workers in different directions. Economic liberalization is another global trend that has exacerbated inequality in almost every country where it has been pursued.
4. National economy – alongside global forces, the make-up of individual economies also affects equality – the balance between manufacturing and services for example. Britain has been de-industrialising for years, and the value of professional qualifications has risen. Levels of employee ownership and unionization can also affect income equality.
5. Tax and policy – Finally, the tax regime of any country can be progressive or regressive, redistributing wealth around the economy. Taxation is one of the first things we think of when talking about sharing the wealth, but it’s much better to prevent inequality from developing in the first place than to redistribute it afterwards. However, a progressive tax system can move society in the right direction and help prevent inequality passing from one generation to the next. Interestingly, the model of democracy matters too. The more proportional the government, the more likely they are to pursue equality – another case for electoral reform.