The vicious cycle of inequality

Inequality is a growing political topic. An increasing number of people are beginning to recognise how it affects our society, economy and democracy. We’re yet to see a politician or party really run with it ahead of the elections next year, but it’s a rising priority and can’t be ignored.

What we do about inequality is, of course, the vital question. You can always tax the rich of course, but however popular that might be in some quarters, redistribution can only really address the symptoms. In their recent report Addressing inequality at root, the New Economics Foundation describe a vicious cycle. Understanding how inequality gets established and reinforces itself can show us where we can intervene.

vicious-cycle-of-inequalityThe cycle starts early in life. The circumstances we are born into shapes our opportunities from the start – from where we are born, our race and nationality, the education of our parents, and so on.

Those initial chances are then compounded or mitigated by the childcare we get early on. A poor start can lead to lower academic achievement throughout school, and lower wages over a lifetime. Good quality childcare on the other hand can even out some of the starting inequalities.

Once we start work, the structure of the economy will dictate how well we are rewarded for the sort of work we do. In recent years there has been a ‘hollowing out’ of good quality low skilled jobs as manufacturing has moved overseas. That has created fewer opportunities for non-graduates, and a gap has opened up as wages for those with higher levels of education have grown faster. The growing financialisation of the economy has also seen a bigger share of our wealth go to shareholders, with a smaller slice being shared as wages.

The tax system then completes the cycle by mandating how much of our salary we actually get to keep, and whether or not we get any support or tax credit.

These inequalities are then passed onto the next generation, beginning the cycle again.

By understanding this cycle, we can see where interventions can be made. Tackling inequality at root means more than redistributing taxes. It means investing in quality childcare, rebalancing the economy so that wealth is shared better, and investing in retraining and apprenticeships. NEF come up with ‘five goals for a fairer UK’ in response to this cycle, and you can read those here.

24 Comments on “The vicious cycle of inequality”

  1. jeffmowatt August 7, 2014 at 3:55 pm #

    A familiar theme Jeremy. Sounds like they read our paper on Ukraine:

    “We see a staggering array of social problems arising directly from poverty, including but not limited to tens of thousands of children in orphanages or other state care; crime; disrespect for civil government because government cannot be felt or seen as civil for anyone left to suffer in poverty; young people prostituting themselves on the street; drug abuse to alleviate the aches and pains of the suffering that arises from poverty and misery; HIV/AIDS spreading like a plague amidst prostitution, unprotected sex, and drug abuse; more children being born into this mix and ending up in state care at further cost to the state; criminals coming from poverty backgrounds, ending up as bandits, returning to communities after prison, with few options except further criminal activity. These are all part and parcel of the vicious negative cycle of poverty, and this threatens to destroy Ukraine, if Ukraine is defined in terms of people rather than mere geographic boundaries.”

    Childcare reform was one of the major recommendations:

    http://www.managementexchange.com/hack/every-child-deserves-loving-family

    • Jeremy Williams August 11, 2014 at 9:07 am #

      Quite possibly, though it is (as usual) the Nordic countries that are the primary example in the report.

  2. Henry Law August 8, 2014 at 7:33 am #

    There is a hierarchy of interventions necessary. Without equal access for all to land and natural resources, any other interventions are futile.

  3. DevonChap August 8, 2014 at 9:00 pm #

    Nef living up to “Not Economics Frankly”

    ” Everyone should have the right to a well-paid, secure and meaningful job” – A right, as in legal right? Hasn’t worked out well in countries that have tried it. national industrial strategy!! That worked so well for Wilson

    Opposed objectives in childcare: “cap family childcare expenditure at 15% of income” against “increased standards of training and qualifications to ensure childcare is always high quality; and better working conditions for childcare workers, including a Living Wage”. If you increase wages in childcare you will increase its cost, so the only way to reduce the upfront cost to parents is to subsidise it even more so everyone pays more for it through taxes.

    “Narrow the difference between top-to-bottom earnings” ignores globalisation that has given decent work to people who faced genuine absolute poverty, not our gentile relative sort. Focus seems to be on reducing inequality by lowering high wages rather than raising low ones.

    They notice that the tax system hits to poor but the answers don’t include reducing their taxes but raising others.

    Other drivers for inequality are ignored, such as globalisation and the increased premium for knowledge workers (see Tyler Cowen) or things like assortive mating.

    • DevonChap August 8, 2014 at 9:02 pm #

      Oh, and absolutely fails to acknowledge that global inequality is falling, just focusing on in country inequality.

      • Jeremy Williams August 11, 2014 at 9:21 am #

        Not a problem in a report about in-country inequality.

    • henry1941 August 9, 2014 at 8:25 am #

      NEF is unfortunately a left-wing bleeding-hearts outfit which lacks the intellectual tools to analyse the problem they purport to be concerned about.

      “The right to a well-paid job”? Where would such a right come from and whose duty is it to provide it? And what if the individual concerned is unable to create sufficient wealth to justify the wages deemed to be “well paid”? Whose duty is it then to stand the loss?

      There is a further fly in their ointment – if everyone was well-paid, then rents and housing costs would rise to the point that the “well-paid” would be an ever-rising amount.

      The entire notion of “jobs” is based on job-creationist theory.

      • Jeremy Williams August 11, 2014 at 9:18 am #

        Many fair criticisms there from both of you. I bristled at the idea of the ‘right’ to a job too. Who do you sue if you’re unemployed? Of course everyone should have work, but you can’t just co-opt the language of rights to say that something is important.

        You’ll notice that the post is about the cycle that they identify, and the importance of addressing root causes rather than just redistributing. That’s its most useful contribution, and the bit I wanted to share more widely.

        • DevonChap August 12, 2014 at 2:45 pm #

          There are two subtly different things, the cycle of inequality and the cycle of (relative) poverty. There are overlaps but they are not the same. I’d suggest that the second is by far the more important but we may agree to differ

          Now if you actually want to tackle poverty (not just bring people down which is NEF’s apparent objective) you need to tackle a great many things.

          But beware that a society that did break the cycle of poverty, so that every child would have the full opportunity to succeed to the best of their abilities (a true meritocracy) would be deeply unequal too.

          Also note that there are things at work towards inequality that aren’t amenable to liberal public policy, such as assortive mating and the rise of working women.

          One thing that doesn’t get much coverage is habits. Middle class people generally (what I’m saying is broad brush) habits to work, education and relationships that promote more personal success than the (non)-working classes. Of course they are huge numbers of individual exceptions but promoting good habits like valuing education, only having children when you feel ready to give them a stable environment, keeping regular hours and other dull stuff give you a head start in pulling yourself and your family up.

          • Jeremy Williams August 12, 2014 at 4:36 pm #

            If you think NEF’s plan is to bring people down, then your prejudices about ‘the left’ are blinding you to what they’re actually saying. This is about understanding how inequality passes from one generation to the next and intervening in the key places to break that cycle.

            Where do habits come from? From the start we get in life and the quality of our childcare, likely as not. Wanting to turn up to work on time isn’t genetically wired.

            Besides, as the paper says, that if growth isn’t being shared efficiently as wages, then all the best habits in the world aren’t going to do you any good if your skills are more manual than intellectual.

  4. mjh333 August 9, 2014 at 11:07 am #

    Great post well put! Have you read ‘The Spirit Level’ By Richard Wilkinson and Kate Pickett? It’s well worth a read, I belive the doing a documentary film on it too!

    • henry1941 August 9, 2014 at 2:14 pm #

      I have read The Sprit Level. Good description of symptoms with a complete failure to even attempt to look at underlying causes.

      • mjh333 August 11, 2014 at 3:27 pm #

        I thought it was a fantastically written , book and have to disagree that it failed to address the causes. The first few chapters did this very well!

        I can’t wait for the film.

      • mjh333 August 12, 2014 at 9:00 am #

        I thought the book was fantastically written. I have to disagree that it did not cover the underlying causes, in my opinion the first few chapters covered this well!

        I can’t wait for the film!

        • henry1941 August 12, 2014 at 10:31 pm #

          The underlying cause of inequality is the ownership of land. There are those who own land and receive rent for no effort, and there is everyone else, who is obliged to pay rent and work for wages. it is like playing Monopoly when all the squares are owned by one or other of the players and all the other players own nothing – they must pay rent almost wherever they land.

          Unfortunately the Spirit Level does not spell this out loud and clear, and so it merely helps to propagate the confusion surrounding this subject.

          • mjh333 August 13, 2014 at 8:58 am #

            I agree your point, although this is one of the pinicle reason there are other factors! Such as the banking system, where the high street banks can magic money. This mean the creation of debt creates wealth for the few elite, you should check put ‘positive money’.

            I don’t feel that one individual factor creates inequality, there are a number of reasons. Admittedly that are all closely linked!

          • henry1941 August 13, 2014 at 9:00 am #

            The money system is a consequence of the system of land ownership. The former cannot be fixed without fixing the latter. if the latter is fixed the former will sort itself out.

          • mjh333 August 13, 2014 at 9:16 am #

            Yes maybe in the beginning but now there are other factors such as corporate control over the people. The way laws favor big corporate companies and the believe in the media.

            I believe the main issue though is media incited narsasisim, which has broken down community. When we can bring back community and end this narsasisim then we can address the wealth/land distribution issues!

            Have you read the dalia lama book?

          • henry1941 August 13, 2014 at 10:26 am #

            Yes, now you are talking about the deeper causes of the malaise, which are less easily fixed.

    • Jeremy Williams August 11, 2014 at 9:20 am #

      I have read The Spirit Level. It’s been a hugely influential book in laying out the full consequences of inequality, and I think much of the current discussion around the topic has been directly or indirectly inspired by it.

      • Henry Law August 11, 2014 at 9:32 am #

        It goes nowhere near touching the causes, though.

        • Jeremy Williams August 11, 2014 at 10:40 am #

          Which is why I say it’s been hugely influential in laying out the consequences of inequality. The book’s big contribution is to draw out the correlations between inequality and a whole range of social ills. That wasn’t well known before, and suddenly people who thought inequality was unfortunate but not important (like New Labour) had to think again. It’s a watershed moment.

          I get the impression Piketty’s book is another, though I haven’t read it yet.
          These are milestones, and we can respect them for their contributions without considering any of them the final word. It’ll take another breakthrough to make the invisible issue of land central to the problem – do you know anyone working on such a thing?

          • henry1941 August 11, 2014 at 9:26 pm #

            Piketty makes the usual mistake of regarding land as capital and wealth. That makes his analysis of limited value and his proposals worthless.

      • mjh333 August 12, 2014 at 9:01 am #

        Indeed, can’t wait for the film!

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