THE debate about economic inequality took a new turn this week, with coverage of the Gini Coefficient, which measures how unequal each country is.
Despite the widespread feeling that the gap between rich and poor has kept getting wider, new figures for the UK seem to show no significant change over the last decade or so. It’s worth thinking about what these figures mean.
For a start, the new figures only cover income inequality. Whether incomes are getting more or less unequal, it should be clear that those who have benefited from high incomes for any length of time will also be increasing their overall wealth. They will pay off debts or manage them efficiently while others are forced deeper into high-interest debt; they will have spare cash to save or to invest, while others have no such safety net; high incomes give people a steadily increasing return in terms of control over their own lives, even if the gap between high and low incomes stays the same.
It’s also clear that even if the Gini figures show a plateau over recent years, that comes after steadily rising inequality since the late 70s. We remain a far more unequal society than some of our close neighbours.
Early this week, Jeremy Corbyn stumbled into this debate. In the middle of an attempt to relaunch Labour as the party that no longer knows whether it cares about the free movement of, er, labour, Corbyn threw in a surprise for his colleagues by announcing a maximum wage policy. By later that day this had evolved into maximum wage ratios – linking high and low salaries.
However shambolic Corbyn’s presentation was it’s an idea worth considering, but not in isolation. It should be seen in the context of a debate about the kind of economy we want.
Our economy is based on the assumption that the investment of capital is the principal factor in generating wealth.
We hear this in phrases like “wealth creators”, which centrist politicians use to describe super-rich individuals and financial institutions, as though they’re a special class of people with magical powers.
They’re not of course, and their investments would come to nothing without other people’s labour, or without the wide range of public investments we’ve all contributed to. The result of this assumption about the primacy of capital is that the bulk of remuneration goes to those who control it, and a declining share goes to everyone else either in the form of wages or in the form of taxes. The tax system has grown ever-more generous to wealthy individuals, and corporate profits have been subject to ever-lower taxes too.
In reality of course we all create the wealth of our economy. We create it by our work, including both paid employment and volunteering. We create it by looking after one another and raising the next generation. We create it by spending years in education learning the skills that the economy needs.
The investment of capital is important, but it’s only historic circumstance which has left a small number of people in control of it.
How would we reconfigure our economy if we wanted both to stimulate positive, sustainable economic activity, and ensure that we all enjoy a share of the wealth we’ve created together?
Maximum wage ratios would have a role to play, but probably as a regulatory backstop. Other measures could be more effective first steps. Promoting a range of different business ownership models, including co-ops and social enterprises, and giving primacy to small independent businesses with their roots in the communities they serve, would create a natural pressure for flatter wage structures.
Profit-sharing schemes can come in a range of forms too, and companies might be free to choose the system that works best for their own circumstances.
But a requirement to adopt some such system would ensure that profit doesn’t just flow away from the people whose work creates it.
A Citizens’ Income would reflect the contribution our whole society makes to a healthy economy, and would recognise the economic value of unpaid labour. And of course more progressive systems of personal and corporate taxation are an essential starting point.
Scotland can’t do all of this today, with devolved powers. But we can begin to build the case for an economy which acknowledges us all as the creators of our country’s wealth. Instead of stigmatising benefit dependence, we could make wealth-hoarding the socially unacceptable behaviour. We could explore the options for Citizens’ Income, and build new conditions such as profit-sharing or wage ratios into taxpayer-funded business support. As Holyrood debates a budget with new tax powers, we can make a far more progressive system of personal taxation which would start closing the income gap on day one of the new financial year.
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Callum Baird, Editor of The National
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