Friday 21 October 2016

The Lost Recovery: Great divide - it's a lot worse than you think

Information about who owns what isn't new. But what is new is just how bad things are and how much worse they will get, writes Stephen Donnelly

Stephen Donnelly

Published 27/09/2015 | 02:30

David McWilliams
David McWilliams

If you didn't see David McWilliams's Ireland's Great Wealth Divide on Monday night, take 50 minutes out and watch it; it's on the RTE player. It's essential viewing and it tells us this: Ireland is a lot less equal and fair than we think it is. And it's a lot less equal and fair than we think it should be.

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Many people have a niggling suspicion that something's not quite right in Ireland - that with the crash, the banks, the bondholders, the foreign vulture funds … something subtle and complex is happening. And that whatever it is, it's not good. McWilliams's documentary takes an important look at what it might be.

So how big is this 'great wealth divide'? When it comes to wealth, and who owns what, the programme shows that it's pretty bad. For example, in just one year, the richest 100 people in Ireland increased their wealth by twice as much as everyone else combined. Recent economic growth means wealth creation. But it looks like two-thirds of that new wealth is going to one double-decker bus of people, with the remaining one-third shared between over four-and-a-half million people. Does that sound like a stable recovery? Not according to Davos, the world's billionaires' club - who have identified rising inequality as one of the two biggest threats to global stability.

The problem isn't just confined to the 'super rich'. It turns out that the wealthiest 20pc in Ireland own about 70pc of the country's total wealth. And for the less well-off? The documentary shows that the least well-off 20pc own more or less nothing. And actually, it's worse. The best data available on wealth distribution comes from the Central Bank, and it shows this: The least well-off 40pc of Irish households, nearly two million men, women and children, have an almost zero per cent share of Ireland's wealth.

This information about who owns what isn't new - but what is new, and what is one of the most important contributions of the documentary, is the data on how much wealth inequality we think there is, and how much we actually want there to be.

We're okay with a certain amount of inequality - the 'ideal' situation for those polled for the documentary was that the wealthiest 20pc would own over 30pc of all assets, the poorest 20pc would own about 17pc, and the middle 60pc would own the rest.

We don't believe that we're anywhere close to that ideal, however. In fact, we believe the wealthiest own not 30pc, but 60pc. And we believe the poorest own just a little over 10pc. And then there's the reality - 70pc of everything for the wealthiest and nothing for four in 10 people.

The Irish have an inherent sense of fairness. If you work harder, it's fair that you get more. If you invest more in your education and skills, it's fair that you get more. But it's clear we're not living in anything remotely close to what we believe to be fair.

Imagine bringing a box of 100 sweets into a primary school with 100 students, and trying to sell the current situation in Ireland to them - 20 of you are getting 70 of the sweets to share between you, another 40 of you are getting 30 sweets to share, and the final 40 of you are getting nothing. And we're going to base this allocation on how much money your parents make.

The negative equity generation deserves special mention. The documentary discusses an extraordinary experiment run in the United States. For a given group of children, some were randomly selected and had college funds opened for them.

When they turned four, the children with the college funds displayed higher cognitive and social skills than the children who didn't. The professor interviewed stated that assets change the psychological framing of people about themselves.

"The moment you feel that you have something", he says, "your attitude towards yourself changes."

Presumably in the experiment, the behaviour of the parents changed - their children could go to college, so maybe they read to them more, encouraged them more, and somehow conveyed to them that were now expected to succeed.


The negative equity generation don't belong in Ireland's 40pc who have no assets. They are way below that - they are the students in the primary school who were told that they have minus 10 sweets, and if they worked hard, then the total tally against them would be changed to minus 9.

And if they kept it up, year after year, then some day they can be like the 40 kids who have no sweets. For many in the negative equity generation, they'll get back to zero in their 50s. Imagine the damage that's doing right now, and the impact it's having on their children.

So if we're at a level of inequality that's much worse than we want, how did we end up here? Part of the problem is that the 20pc at the top have far greater influence over the political system, and so the laws, and the tax regimes, reflect what they want, rather than what's best for the country. Partly it's due to a conspiracy of silence - the data used was only published this year, and so the sort of analysis we're looking at now was difficult to do in the past.

Partly it's due to accepting a 'masters of the universe' orthodoxy - that there's a small number of people who must be paid vast sums of money to create the wealth which will, in time, trickle down to others. In 1980, top CEOs in the US earned about 40 times what the average worker earned. By 1990 it was 80 times. It's now nearly 400 times.

So what can be done? Progressive budgets help, by seeking higher contributions from the wealthiest. Serious investment in, and reform of, education is essential.

Deprived areas need a lot more help, schools need a lot more teachers, colleges need more funding and control over how they spend those funds.

Communities must be planned to ensure a cross section of society live together, rather than the current physical separation of poorer urban communities.

The evidence is unambiguous on the impact of investing in children from birth to six years old - the Young Ballymun programme is an outstanding example of the success of doing this.

Now we know - Ireland is much less equal than we thought it was. It is much less equal than we want it to be.

And if theory and history are any guide, then without some serious changes, this inequality will get much worse. In America, a country Ireland tends to track socioeconomically, the wealthiest 1pc now own a staggering 40pc of the country's wealth. It's time we started to move in the opposite direction.

Sunday Independent

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