Wednesday, 20 April 2011

Towards the Good Society

Sinéad Pentony: As the debt, fiscal and economic crises rumble on, and as fire-fighting policy responses continue, it can be difficult to think about the bigger picture and the wider impacts the crises are having on societies across Europe. However, if we are to avoid repeating the mistakes of the past we need to understand that a paradigm shift is required. Orthodox responses to the failings of neo-liberalism are clearly not working for anyone (with the possible exception of some financial institutions), and there is a growing acceptance of the link between the crises and inequality

That’s why events such as the recent conference in Stockholm on ‘Dimensions of Equality in a Good Society’, and the accompanying online debate at the Social Europe Journal, are so important. The conference was organised by two think tanks, Germany’s Friedrich Ebert Foundation and the Swedish labour think tank, Arbetarrörelsens Tankesmedja.
The aim of the conference was to analyse the concept of inequality and to locate it within a wider framework of a new social and democratic political agenda.

The focus was on four dimensions of equality: the philosophical, economic, social and integration dimensions. I’m going to focus on the economic dimension, where the conference attempted to broaden the boundaries of the discourse on equality beyond “marginal debates on a couple of percentage points up or down in a progressive tax system”.

We can’t have equal citizenship if there is a large gap between rich and poor, mainly because the rich have the means to influence the political system and public institutions. This was considered to be a systemic problem – regulatory capture with inequality spiral – whereby the richest players influence the rules and their application, thus expanding their own advantage. Public facilities come under the influence of players who are motivated by short-term profit gain – and who buy support from media and academics for this purpose. Sounds familiar? We don’t need to look much further than the Nyberg Report, as an example of how regulatory capture manifested itself in the Irish banking system.

This systemic problem is a major contributing factor to current (and future) trends of continued increases in social, political and economic inequalities. For example, during the last US economic expansion (2002 – 2007) average per capita household income grew by 16 per cent. The top one per cent enjoyed growth of 62 per cent, while for the remainder of the population it was just 6.7 per cent. The top percentile captured 65 per cent of the real per capita growth of the US economy. During the period 1978 – 2007, the income share of the bottom half declined from 26.4 per cent to 12.8 per cent. Meanwhile, that of the top one per cent rose from 8.95 per cent to 23.5 per cent (a 2.6 fold increase).
It’s a similar story in China. During the period 1990 – 2004, the income share of the bottom half declined from 27 per cent to 18 per cent, while that of the top tenth rose from 25 per cent to 35 per cent. In Ireland, TASC’s HEAP research demonstrated a more equal distribution of incomes in 1987 compared to 2005 and the analysis also found that 5 per cent of the population control 40 per cent of Ireland’s wealth, and the top 10 per cent have a disposable income 11 times the bottom 10 per cent. The trends are similar across the developed world, and point to growing income inequality.

In terms of fiscal policy, the point was made that countries with the biggest deficits are low tax economies such as the USA, Ireland, the UK and Portugal. Higher spending countries have a better track record in controlling their deficits. They also tend to have smaller income differentials as a result of progressive taxation. The World Economic Forum has consistently shown that the most competitive economies are high spending economies, particularly in areas such as education and training, innovation, infrastructure. High spending economies have also weathered the crises much better than low spending economies, and are proving more capable of recovery.

It could be argued that the scale of the crises has also threatened democracy: you can change your government, but you can’t change the policy as this is set elsewhere. We have direct and very recent experience of this here in Ireland. Also, liabilities have been shifted from corporations to states as in the case of our banking debts. In the current context of what was described as “permanent austerity”, fiscal policy requirements determine the level of welfare state retrenchment policies and social policies have been de-nationalised and Europeanized in reaction to the debt crises across Europe.

In order to reverse the trends of growing inequality and minimise the chances of the same happening again, we need to put the global economy on a different trajectory. As we can see the problems are numerous and complex, and progressive solutions will need to be sophisticated and address systemic failures that have brought us to where we are today. A number of solutions were put forward and debated during the conference, including debt restructuring, and there was consideration of policy measures to allow the exit and re-entry to the Eurozone. Other progressive solutions included the consideration of social policy as a growth sector, since it contributes percentage points to GDP, provides jobs and the creation of new business opportunities.

The need for institutional reform was also identified with an emphasis on redesigning public institutions to be equality-focussed. In Ireland the debate on (public) institutional reform has focussed on creating greater efficiencies and achieving ‘more with less’, alongside greater transparency and accountability. While these reforms are necessary there has been no discussion on the link between public sector reform and equality. However, the link between public institutions and equality was made very strongly at the conference, whereby “high quality government institutions will increase the level of social trust, which will make reciprocity turn into solidarity, which in turn increases equality”.

These are just some of the ideas that were discussed and they reflect some of the complexities that need to be grappled with if we are to emerge from the crises on the path to more equality. ‘The Good Society’ creates a forum for debate on the problems and the solutions. Let’s hope that our politicians, their advisors and policy makers are tuning into the debate..


disgruntled observer said...

@Sinead Pentony

Thanks very much for the overview and link. There's a lot there. Just a note from a quick perusal of the journal:

Are there no contributors from Ireland? Or even looking at Ireland?

Rory O'Farrell said...

@ disgruntled observer

I presented something that wasn't particularly focused on Ireland. But it was largely based on chapter 3 of this if you are interested:

disgruntled observer said...

Hi Rory,

Thanks for that. Two questions:

1. In figures 3.4, 3.5, and 3.6, Ireland scores well relative to its peers in relation to inequality of income distribution, at risk of poverty and in work poverty, however, in 3.7, we score abysmally in relation to material deprivation, (using the 3 item criteria of old).

Now I noted that in figure 3.5, the at risk of poverty rate was hugely impacted by both taxes and transfers, and that without redistributive mechanisms we would rank the worst in the EU 27 (a startling observation in itself). And also that, in figure 3.8, we have the highest level of joblessness.

Does this imply that our welfare system responds well to low income workers, but is inadequate for those without work? Or is it the case as you've noted that the measures are themselves less than satisfactory? Or am I really missing something?

Also, I was struck by the observation that Spain and Greece had a lower labour share of income than Germany. Still chewing over that.

But thanks anyway. Informative.

Rory O'Farrell said...

@ disgruntled observer
It should be noted that the at-risk-of-poverty measure is a measure of cash income (after taxes and transfers). However non-cash benefits are an important part of many countries welfare systems. So even if Ireland had identical cash incomes for the poor, and an identical risk-of-poverty rate to the UK, people in the UK would have a lower rate of material deprivation. This is as they get healthcare for free from the NHS.
Also its important to note that all these measures are household measures. In-work-poverty is not a measure of low pay. If a single person with no children has a certain wage they may live quite comfortably. However, a single mother with the same income may be in poverty as that money has to support the whole household.
I also think its interesting that countries like Ireland and Denmark are relatively unequal in terms of gross incomes (before taxes and transfers). So Denmark relies heavily on its welfare system to reduce inequality. However Slovakia and the Czech Republic have relatively equal gross incomes, so don’t need to rely on a welfare system as much to reduce inequality.

I hope this answers your question.

Rory O'Farrell said...

Also, our relatively better performance for in-work poverty could be explained by relatively lower taxes in Ireland for the low-paid (which is no longer the case due to universal social charge). In Belgium they have higher taxes on the low paid which increases their in-work-poverty measure (but also more 'free' things like healthcare, that aren't measure in the poverty measure).

Sinead Pentony said...

Rory, thanks for your comments. I think they demonstrate how important it is to put comparative figures in context and how the interface between taxation and welfare policies in different countries impacts on poverty measures.

disgruntled observer said...

Thanks Rory,

I figured it was a bit more complex than how I was understanding it.