Monday 10 December 2018

Dan O'Brien: We accept inequality, but we demand fair treatment

Wealth is spread more evenly in Ireland than the European average - but that means little if people feel they are unfairly treated, writes Dan O'Brien

'Although there is still a long way to go, income inequality among the planet’s seven billion-plus people is moving in the right direction.' File photo: PA
'Although there is still a long way to go, income inequality among the planet’s seven billion-plus people is moving in the right direction.' File photo: PA
Dan O'Brien

Dan O'Brien

How the fruits of economic growth are shared is always a hot topic. In recent years it has become even hotter: in Ireland, in the western world, and globally.

The good news from the biggest-picture perspective is that the world is becoming more equal. As many poorer countries' economies have grown more quickly than richer ones, the global prosperity gap is narrowing.

Although there is still a long way to go, income inequality among the planet's seven billion-plus people is moving in the right direction.

Among the many important reasons for this has been a decline in extreme poverty. Not only has the share of the planet's population that lives in absolute poverty fallen below 10pc - its lowest level ever - but the absolute numbers in dire poverty are down. According to the World Bank, the number living in that dire condition (defined as having less than $1.90 a day) has fallen by two thirds since it peaked in 1970.

The news from the rich, industrialised world is more mixed. While incomes are almost always more equal within rich countries than within poor ones, some of the former have experienced rising inequality. A particularly marked trend has been the increasing share the richest 1pc of people have of both incomes and assets.

This was highlighted as never before a number of years ago when a French economist, Thomas Piketty, published an academic tome on international income and wealth distribution. It initially got little attention outside the academy in his native France. Then it was published in English in America, and Capital in the Twenty-First Century became a phenomenon that made Piketty an intellectual superstar.

The reason the book was received so differently reflects trends on either side of the Atlantic. There has been a marked increase in income and wealth inequality in the US in recent decades. Among the most cited statistics in American public discourse is how inflation-adjusted wages for the lower paid have been stagnating since the 1970s.

Public discussion in the US tends to affect the debate in other countries. It is often assumed on this side of the Atlantic that what is happening to the distribution of incomes and wealth in America is also happening in Europe. That is not the case. Even in countries that have recorded trends matching those of the US, the increase in inequality has not been so marked. The levels it has reached today across democratic Europe are far below that of the US.

It should also be said that after taxes and welfare payments are taken into account, only the Nordic countries have experienced an increase in income inequality over the past two decades in western Europe. Further, the redistributional impact of taxes and welfare spending is considerably greater in Europe than in the US on average, thereby lessening the effects where they have occurred.

Ireland is one of the countries that has not experienced a rise in income inequality - something that was underscored just before Christmas when the latest figures were published by the Central Statistics Office. They showed that income inequality declined slightly in 2016.

The second measure the CSO publishes of income distribution showed no change on the previous year. This compares the incomes of the highest fifth of earners in a given year with those of the lowest fifth. In 2016 the top fifth took in 4.7 times more than the bottom fifth.

Despite the fact that there are so many moving parts that determine the spread of incomes, what stands out in Ireland is how stable the ratio has been over time. The current series was first compiled in 2004. Back then the top fifth was making 4.9 times more than the least well off 20pc - that is almost identical to the 2016 gap, and the fluctuation over the 13-year period has been tiny.

Despite the not-infrequently made claim that Ireland is a very unequal country, the figures actually show that both measures ranked Ireland as more equal than the average across the EU in 2016. While Ireland is not the most equal country, it is closer to the countries in which income is most evenly distributed than those where it is least evenly spread.

The low level of inequality is one reason why voters are much more interested in concrete issues, such as housing and healthcare, than they are in abstract notions of relative income inequality. Another reason is likely to be that most people are more interested in fairness than equality. There is an important difference.

Most people think that there is nothing wrong with other people being richer than they are. In other words, they don't expect equality of wealth and incomes. By contrast, very few people don't want to be treated fairly.

As is often the case, the Donald Trump phenomenon provides an example, albeit an extreme one.

Large numbers of working-class Americans voted for him even though he is very rich and unlikely to have much understanding of the difficulty of making it from one pay cheque to the next. What's more, he has just persuaded congress to pass tax cuts that will disproportionately benefit the better off - and his poll ratings haven't budged as a result.

His supporters do, by contrast, feel unfairly treated by those in positions of influence in politics and the media.

In her book White Working Class last year, Joan C Collins wrote that "when elites commit to equality for many different groups but arrogantly dismiss the 'dark rigidity of fundamentalist rural America', this is a recipe for extreme alienation".

Thankfully, there is less alienation in Ireland. Recent elections have shown much smaller shares of the electorate opting for easy-solutions populism. More recently, opinion polls show a continued defragmentation of the vote (even if Fianna Fail's loss of working-class support is looking increasingly permanent).

None of that is to say everything is rosy. The social statistics published before Christmas showed that many measures of misery in 2016 were still well above pre-crash levels.

In an age of anger, people are less tolerant of suffering poverty and deprivation. As the election of Trump showed, the backlash can be momentous if people don't feel they are being treated fairly.

Sunday Independent

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