The business case for equality

The business case for equality

Income inequality is ‘the defining challenge of our time’, according to President Obama. Here, Oxford University geography professor, Danny Dorling, explains why this is particularly true in the UK and challenges the private sector to take action.

“It is possible for public bodies to insert a clause in their contract that says they will not employ private contractors who do not pay the living wage”

“Why allow any private company to tender for any public sector work if it pays anyone in excess of 20 times any other person in its business?

By Danny Dorling,

As the gap between the richest and poorest in Britain widens to new extremes, almost every other little gap between us is being pulled apart. No matter where you are along the income spectrum, among your small group of friends and associates a few are moving away from you – they are ‘bettering themselves’.

Even way up the income scale, you might be on the bank board, but if you are the director responsible for procurement, rather than finance, foremost in your mind is the finance director’s pay, and what other job you could do that would continue your financial status. Below you, job cuts are being made and salaries are barely rising with inflation. Further down they have been frozen. You feel simultaneously cheated by the winners above you and fearful of ever joining the losers below.

No matter how well you do, you are climbing a ladder where the rungs above are continuously widening faster than those below. Down below, no matter where you are placed, the situation looks worse than a couple of years ago. Above you people complain about receiving no pay rises, and though their mortgage payments are less, above them their bosses are getting paid more.

We are given many scapegoats to blame that are much easier to understand than a society being stretched out on the rack of inequality: ‘globalization’, ‘greedy bankers’, ‘all those foreigners’, ‘the feckless and lazy’.  And we are now more likely to blame others for their apparent failures. As Alison Park commented in a British Social Attitudes Survey: “If you look back at the previous recession, you find that people became more sympathetic…  that hasn’t happened this time.”

 ‘Victorian’ pay gap

We all need to pay more attention to the numbers. The High Pay Commission has reported that, if current trends continue, then by 2030 the best-off 0.1% of earners will see their remuneration rise to 140 times average income. The last time someone in the top tenth of a percent of the income distribution was deemed to be worth 140 other people was when Queen Victoria was on the throne.

To get to where the High Pay commission said we are heading, one in a thousand people must receive an annual pay increase of over £100,000 each year – for the next 20 years. That is the course on which the UK is currently set. Near the very top of the ladder the gaps between the rungs are growing by £11 an hour in wage rises. In other words, if current inequalities continue, then for each and every hour, from today until 2030, the richest 0.1% will be paid £11 more for their ‘labour’ than the hour before.

Inequalities have been rising for some time. Just before he became Deputy Prime Minister, Nick Clegg lamented that between 1997 and 2008 the best-off fifth were receiving 7.2 times the incomes of the poorest fifth by the time Tony Blair left office as opposed to 6.9 times when he became Prime Minister. But most people within the best-off fifth do not feel much better-off, despite the widening gulfs.

If you work full-time and earn around £14 an hour you just qualify to be in the best-off fifth. You are in the middle of that group if your pay is close to £21 an hour. That translates to an annual salary of just over £40,000. The vast majority, nine out of ten people in Britain, receive an income of less than £40k a year. But if the people above you are receiving average pay rises of £5,000 a year, your £40,000 income begins to feel paltry. Compared to the top 1%, the remaining nine tenths of the top 10% are also being squeezed. So maybe the 99% are beginning to all be in it together?

Those in the UK with an income just below the top 1%, who mostly live in London and the South East, lose out in competitions to buy homes in similar streets and to pay school fees at similar schools to where their parents’ went. For them too, those above them have financially been moving away farther and faster, and they too feel squeezed.

Chavs and toffs

I am not suggesting we pity the rich, just that there needs to be a little more understanding. Redistribution would be good for everyone. As inequalities grow, the top ‘toffs’ become even more distant from the rest, and at the bottom more children are labelled as chavs. ‘Toffs’ and ‘chavs’ are both products of rising inequality.

The only countries for which there are comparable statistics in which the richest 1% earn more than in Britain are Argentina, Singapore, South Africa and the United States. In Finland, France, Japan, New Zealand, Norway and Spain the richest 1% earn only nine times average earnings, or less, – in Switzerland only 7.8 times; in Sweden 6.7 times; and in the Netherlands only 5.4 times the average income. The Swiss have bankers, the Swedes industrialists, and the Dutch host multinational companies. They all just don’t tolerate such excess.

To see what a more equitable country looks like, take a trip to Holland. If people in mainland Europe want to know what it is like to live in a country with pre-1942 levels of income inequality, they can look in wonder. In an atlas of Britain published in 2011, Bethan Thomas and I mapped the local fall-out across the UK of tolerating historically extreme and rising inequality. We showed where levels of anti-depressant prescriptions are rising fastest, in which boroughs of London the average self-employed person earns a fortune, and where the deepest cuts to essential services are being made while others line their pockets.

The Sunday Times had recorded the best-off individuals in Britain taking an initial hit from the 2008 crash, but then recorded their wealth rising by 30% in a year. The very richest group of all, the 1,000 richest people in Britain, saw their average personal wealth rise from £336 million each in 2010 to £369 million by 2011, and then to £414 million by 2012. By 2013, it was £450 million each on average. This can’t carry on. There really is not enough money in Britain. It is unsustainable, detrimental to all, grossly unfair, and deeply damaging to the fabric of society, especially one facing austerity.

Public and private solutions

Many of the ways in which we reduced income and wealth inequalities before would work again. Almost all of the methods used in other countries, right now, would work here. It is possible to make it anathema to pay anyone in a public body more than 20 times anyone else. Why not cut most of the funding to public bodies which insist on excessive pay at the top instead of slashing welfare budgets?

As for the private sector, where the vast majority of the very rich work, it is possible for public bodies to insert a clause in their contract that says they will not employ private contractors who do not pay the living wage – Boris Johnston manages it in London. It is similarly possible to insert value-for-taxpayers-money clauses which bar the wasting of public funds on contracting private firms who pay excess top salaries. Why allow any private company to tender for public sector work if it pays anyone in excess of 20 times any other person in its business?

And what of those not in work? If we want the inequality rack to stop stretching, then the rungs at the bottom need to rise. Is it possible to increase benefits during a recession? George Bush did it just before leaving office in 2008. It is also possible to introduce a small basic income for all. It exists in Sarah Palin’s Alaska. A small annual European basic income may be proposed soon across the Eurozone, initially as a cushion for collapsing local welfare systems, but in the long-term as the only feasible route towards a harmonisation of tax and benefits systems within Europe.  It is also possible to imagine mainland Europe embracing more solidarity while within the UK our policies become ever more socially divisive. At least in the short-term.

Pay restraint at the top saves more money than any programme of government cuts to public sector jobs. Pay and benefit increases at the bottom are the most efficient means of increasing consumer demand. It was redistribution of wealth which changed this country from thirties misery to swinging sixties. Do the same again and by the time my children are my age Britain will be at the European average for income inequality, rather than the economically most unequal of all the large European countries. What kind of a twisted view of social justice and human nature would you need to oppose a little more social justice and a little less economic extremism?

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