Letting the GINI out of the bottle

I found The Economist report on inequality during October as one of its best pieces of work for a long time. True to form, it dissected the issue without sentimentality or bias, then proscribed workable remedies.




I have started to notice a trend in the Euro crisis. The Economist does some quality analysis. Some weeks later a consensus emerges among leaders in support of the analysis. Finally, something gets implemented. The last part is always a watered down version, constrained as it is by politics. But I see my favourite magazine starting to have a real impact on outcomes. And I like that.



First, it is refreshing to see The Economist tackling inequality in such depth. As a free market paper, it would be easy to assume that it would be quite hard-hearted about the consequence of capitalism. The Guardian whines on about inequality week after week, as you would expect from a more liberal publication. But the Guardian never comes up with sensible solutions, only hand-wringing and business bashing.



So perhaps the best part of the survey was how The Economist justified the need for concern about inequality. It highlighted the inefficiencies of entrenched inequality. Essentially, the rich succeed in putting up walls to keep out the poor, be it in voice, or education, or in protecting monopolies. That in itself constrains total opportunity for the next generation, as precious resources are wasted and many of the most talented cannot make their talent count, while journeymen can wield power without sufficient checks and balances. Then there is the risk of embitterment and social unrest.



This has always been the case, and those of us blessed by the circumstances of our birth should keep reminding ourselves. As a male born in 1960 in the richest end of an English speaking G7 country to well-off parents, I should be careful how good I allow myself to feel about anything I might have achieved.



The survey gives credence to the impression that the inequality trends in the world are currently bad, just like the period at the end of the 19th century (which, by the way, led to some horrific wars). Despite success with the millennium goals, the GINI coefficient and an index of social mobility are rapidly heading south, almost everywhere.



Now, two weeks ago I listened to a Gospel about how rich people had next to no chance of entering the kingdom of heaven, whatever that may be, and should give away all they own. When I listen to that, I wonder how commentators can claim that the natural party of the Catholic Church in the US is the Republicans. But a great thing about the Economist survey is that it gives reason for concern about rising inequality even if we don’t read too many Gospels.



The Economist offered three global solutions, defined in admirable depth.



The first, true to form, was about free markets. Stop cosseting banks and interest groups. Tackle corruption with transparency and technology. Break up monopolies, even in services and in things like education. Unleash the full economic power of women, the old and the young. Let the market do its work. This recipe is required, with different blend of ingredients, in the developed and developing worlds.



The second redirects social spending to where it is needed and does good. Shift from the old to the young, from welfare to education, from the rich to the poor. Brazil is highlighted as a great recent role model, for its scheme of incentives for people to invest in their own education. Universal granny bus passes and fuel subsidies must go.



The third, and least important, leg is taxation. Don’t overtax high incomes, but do make capital tax closer than income tax and remove loopholes for the wealthy like mortgage relief, while taxing property. I loved the idea that inheritance tax should fall on recipients not the estate.



The theme of education comes up again and again. I am currently learning about the US education system from the inside. It is interesting, and far from all bad, but it is so clear how the outcome entrenches inequality of opportunity. I’ll blog more about that next time.



Now all of this is doable, and doable now. I believe it is also sellable. When I listen to the political ads on US TV I despair, as they run completely counter to this agenda. In the obituary of George McGovern I read again his 1972 manifesto, which had strong elements but massive naivety and was killed by interest groups. Perhaps my own proposal of doing away with countries has a touch of impracticality about it as well!



But maybe there is hope on inequality. If I am right, the European elite has started to read and react to the Economist. I suspect the Chinese elite are more humble than most and digest these things too. The US elite I am not so sure, but perhaps someone will. The millennium goals were the last time global leaders managed to think bigger than their next vote. The Economist inequality agenda deserves the same focus.