By Duncan Brack This article was originally published in Reinventing the State: Social Liberalism for the 21st Centuryong>. We are grateful to Duncan for allowing us to reproduce this article. Visit the Methuen website to purchase the latest edition of this book for the discount price of £10.
The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity … We reject all prejudice and discrimination based upon race, colour, religion, age, disability, sex or sexual orientation and oppose all forms of entrenched privilege and inequality … We recognise … that the market alone does not distribute wealth or income fairly. We support the widest possible distribution of wealth … Extracts from the Preamble to the constitution of the Liberal DemocratsOf the three ‘fundamental values’ which the party’s constitution claims we ‘seek to balance’ – liberty, equality and community – equality has traditionally held least appeal for Liberal Democrats. The very title of the 2002 policy paper on Lib Dem philosophy, It’s About Freedom, relegates it explicitly to, at best, second place. As the paper made clear:
We place the principle of freedom above the principle of equality. Equality can be of importance to us in so far as it promotes freedom. We do not believe that it can be pursued as an end in itself, and believe that when equality is pursued as a political goal, it is invariably a failure, and the result is to limit liberty and reduce the potential for diversity. ((Liberal Democrat Policy Paper 50, It’s About Freedom (Liberal Democrats, 2002), p. 8, para 1.10. The paper itself did not have a separate section on equality.))I served on the working group that produced that paper, so I share the responsibility for the statement. I now believe, however, that it drastically understates the importance of the pursuit of equality as the essential underpinning of our ultimate aim of individual freedom, Similarly, equality underpins the type of communities in which individuals thrive best. The pursuit of both these other values will be compromised by a lack of attention to equality. Furthermore, I don’t mean just equality of opportunity, the Liberal get-out for most of the past century. I mean equality of outcome – or to be more accurate, a significant reduction in inequality of outcome. This chapter will argue the case for promoting (or restoring) equality to the place where the party put it in its founding constitution, as a ‘fundamental value’ balanced against – rather than subordinate to – the other two. My case is based on three main arguments. First, that the extent of income and wealth inequality in modern-day Britain is seriously undermining the fabric of society, and needs urgently to be tackled by government – not just for the sake of those at the bottom of the income and wealth pile, but for all of us. ((This chapter is primarily about income and wealth inequality. I recognise, of course, that other forms of inequality – e.g. those deriving from race or gender – are also serious issues, but I do not deal with them here because I think the party’s position on them is right.)) Second, that a commitment to reduce levels of income and wealth inequality fits naturally into our Liberal philosophy. Third, that it’s smart politics.
Is Britain unequal? Income and wealth inequalityFirst, we need to examine the extent of income and wealth inequality in modern-day Britain. Is Britain in reality an unequal society? The answer is emphatically yes. After falling in the 1970s, income inequality grew significantly under Thatcher, and has declined only slightly since. By 1979 the percentage of the population living in relative poverty ((Sixty per cent of median income.)) had fallen to about 14 per cent, a post-war record. By 1996–97 this had almost doubled, to 25.3 per cent, and by 2006–07 it still stood at 21.6 per cent, representing 12.7 million people. ((Mike Brewer, Alissa Goodman, Alistair Muriel and Luke Sibieta, Poverty and Inequality in the UK: 2007 (Institute of Fiscal Studies Briefing Note 73), p. 29. Figures are after taking housing costs into account.)) As the Institute for Fiscal Studies found:
Inequality rose dramatically over the 1980s … The scale of this rise in inequality has been shown elsewhere to be unparalleled both historically and compared with the changes taking place at the same time in most other developed countries … Over the first two terms of the Labour government, the net effect of these changes was to leave income inequality effectively unchanged and at historically high levels. ((Ibid., pp. 19–20.))Wealth distribution remains even more unequal than that of income, partly because of the substantial rise in house prices. Between 1990 and 2001 the proportion of wealth held by the wealthiest 10 per cent of the population increased from 47 per cent to 56 per cent. ((Will Paxton and Mike Dixon, The State of the Nation: An audit of injustice in the UK (IPPR, London, 2004), p. 60.)) A Joseph Rowntree Foundation study published in July 2007 concluded that Britain was becoming an increasingly segregated society in terms of wealth distribution. The last fifteen years have seen an increase in the total number of households living in poverty. At the same time, households in already wealthy localities have tended to become even wealthier, with many rich people now living in areas segregated from the rest of society. This widening gap between rich and poor has led to a fall in the number of ‘average’ households (neither rich nor poor), with those families gradually disappearing from London and the South East. The report concluded that ‘Britain is moving back towards levels of inequality in wealth and poverty last seen more than forty years ago’. ((Poverty and Wealth Across Britain 1968 to 2005 (Joseph Rowntree Foundation, July 2007).))
The filthy richThat income and wealth inequality grew dramatically under the Thatcher governments is no surprise. It was a predictable side-effect of the reductions in the higher levels of income tax, the shift from direct to indirect taxes, cutbacks in government spending on public services, and government- engineered recessions which saw unemployment soar. It was not countered significantly, however, by the recovery in employment and output experienced from the mid 1990s onwards. Why is this? One might have expected a Labour government to be more concerned about inequality than their Conservative predecessors. In fact Labour’s tax and benefit reforms have helped the poorest groups, though only since 2000–01, after they dropped their rigid adherence to Tory spending plans. Since then, significant increases in means-tested benefits and the use of tax credits have helped to raise the income of most of the poorest 40 per cent by more than the average, although the poorest 10 per cent have not done nearly so well. The complexity of the tax credit system has led to significant administrative problems, and redistribution has also has been counteracted by substantial increases in Council Tax, which affects those on lower incomes more heavily. The other main reason why inequality has remained stubbornly high is because the highest rate of growth of incomes, in both absolute and proportional terms, has been experienced by those in the top 10 per cent: the rich have got even richer. This is not really surprising; when Peter Mandelson said, in 1998, that New Labour was ‘intensely relaxed about people getting filthy rich’, he really meant it. Partly this is the outcome of government policy – the way in which the tax system operates, or can be manipulated, to benefit the super-rich. Overall, the poorest fifth of the population pays a higher percentage of their gross income in tax than the richest fifth. The House of Commons Treasury Select Committee’s recent investigation into private equity firms revealed how the tax relief structure on capital gains tax has helped many in that industry pay less than 10 per cent on their investments, ((By the admission of the British Private Equity and Venture Capital Association’s chief executive – he resigned two days later. ‘Private equity boss quits after Commons mauling’, Daily Telegraph 15 June 2007.)) even if they paid tax legitimately. More broadly, chief executives’ pay levels have increased enormously. In 1979, FTSE100 chief execs earned on average about ten times as much as the average worker on the shop floor. By 2002, the ratio had increased from 10 to 54, and by 2006 to 76. ((Larry Elliott, ‘Nice work if you can get it: chief executives quietly enrich themselves for mediocrity’, Guardian 23 January 2006; Polly Toynbee, ‘I was only the hapless decoy duck for David Cameron’, Guardian 28 November 2006.)) Last year FTSE100 chief execs’ pay rose by 30 per cent on average; the average pay of their staff increased by 2.8 per cent. Can’t this be justified by improved performance and competitiveness? After all, the British private sector in 2006 has a rather better image than its predecessor in 1979. A University of Manchester study comparing corporate performance from 1983 to 2002, however, showed that the sales of the top 100 quoted companies on the stock exchange rose by an annual 2.7 per cent, as did pre-tax profits, while the pay of their chief executives rose almost ten times faster, by 26.2 per cent. ((Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams, Financialisation and Strategy: Narrative and Numbers (Routledge, London, 2006).)) The study concluded that ‘giant-firm CEOs might be just another averagely ineffectual officer class’, who have in effect been ‘value-skimming’, quietly enriching themselves for mediocre performance. This picture was reinforced by a Work Foundation study in 2006 showing that higher pay rates could be justified neither by higher levels of personal risk (the turnover rate for their jobs was lower than the national average; only one was made redundant, and he left with £5m compensation) nor by competition in the global market (most CEOs of British companies are British, and promoted from within their companies). ((Nick Isles, The Risk Myth: CEOs and Labour Market Risk (The Work Foundation, London, December 2006).)) Does this growth in the super-rich really matter? I return to this question below, in terms of its indirect impact on social cohesion, but there are direct impacts too. As the Rowntree Foundation study highlighted, the concentration of super-rich households in some urban and suburban areas is pushing house prices way out of the reach of even the betteroff. Shops and restaurants follow the trend, helping to create super-rich ghettos – the real impact of ‘trickle-down’. The super-rich increasingly buy their own media and then use it to promote the political parties that come to them for funds, as ordinary party membership dwindles.
No way out: social mobilityNone of this need matter so much if people have a reasonable chance of escaping from poverty, of climbing into the ranks of the rich – or even into those of the average. But on top of the UK’s current pattern of income and wealth inequality, the country suffers from low and declining social mobility. A 2005 study showed that the chances of children born into low income groups of moving into high-income groups as adults were lower in the UK than in the Nordic countries or Germany, and the chances of upward movement were significantly lower for people born in 1970 than for those born in 1958. There is a far stronger relationship between educational attainment and family income in Britain than in other European or North American countries. Young people with parents with higher professional jobs, for example, are four times more likely to go to university than those with parents in routine manual employment. ((Liberal Democrat Policy Paper 76, Trust in People: Make Britain Free, Fair and Green (Liberal Democrats, 2006), para. 3.1.2.)) The UK performs very poorly in international comparisons of social mobility. A league table of eight developed states found that only the US had lower social mobility than the UK. In contrast, the four Scandinavian countries, along with Canada, are all nearly twice as socially mobile as Britain. Social mobility appears to be related to, or at least strongly correlated with, the degree of income inequality. And despite the small fall in levels of inequality, social mobility is not improving. A 2006 Rowntree study on persistent poverty suggested that the chance of a poor child growing up to become a poor adult were still growing. ((Jo Blanden and Steve Gibbons, The Persistence of Poverty Across Two Generations (Policy Press / Joseph Rowntree Foundation, 2006).)) An Institute of Education report in June 2007 showed that by the age of three, children from disadvantaged families were already lagging a full year behind their middle-class contemporaries in social and educational development. ((Kirstine Hansen and Heather Joshi (eds.), Millennium Cohort Study: Second Survey (Centre for Longitudinal Studies, Institute of Education, University of London, June 2007).))
The impacts of inequality: health and well-being ((Except where noted, all references in this and the next two sections are from Richard Wilkinson, The Impact of Inequality (Routledge, 2005).))Clearly, then, Britain is a deeply unequal society in terms of income and wealth distribution. It is also relatively socially immobile: your life chances are determined heavily by your parents’ social class and status. Self-evidently, this is bad news for those at the bottom of the pile. Its has been recognised for almost thirty years that standards of health and well-being are closely related to income levels. As far back as 1980, the Black Report, Inequalities in Health, concluded that from birth to old age, those at the bottom of the social scale had much poorer health and quality of life than those at the top. Recent studies show that the gap is still widening – the areas with the highest life expectancy a decade ago are the places that have seen the biggest increase in life expectancy since. ((‘What’s the prognosis?’, Guardian, 7 September 2005.)) These disparities in health standards are nothing much to do with the NHS: social and economic factors such as income, wealth, employment, environment, education, housing and transport all affect standards of health more fundamentally, and all favour the better-off. So inequalities in health are an outcome of inequalities in society. Life expectancy in rich nations correlates precisely with levels of equality – so Greece, with half the GDP per head, has a longer average life expectancy than the US, the richest country in the developed world, but also the most unequal. The people of Harlem live shorter lives than the people of Bangladesh. Average male life expectancy in the Calton area of Glasgow is eight years less than in Iraq, even after more than ten years of sanctions, war and insurgency. ((Audrey Gillan, ‘In Iraq, life expectancy is 67. Minutes from Glasgow city centre, it’s 54’, The Guardian, 21 January 2006.)) A study of 528 cities in the US, UK, Sweden, Canada and Australia showed a strong relationship between death rates and inequality levels within each city. The two most egalitarian countries in the developed world, Japan and Sweden, also have the longest life expectancies. This is not just about differences between extremes of wealth and poverty; there is a continuous gradient in death rates all the way through society. The higher people’s status, the longer they live. A study of government office-workers in London in the 1970s and ’80s found that death rates from heart disease were four times as high among the most junior office workers as among the most senior administrators working in the same offices; intermediate levels had intermediate death rates. Only a third of these differences could be explained by risk factors such as smoking, exercise and diet. Considering all causes of death, not just heart disease, the most junior workers were three times as likely to die prematurely as the most senior. As Polly Toynbee put it, if one office was found to be killing three times more than another next door, it would be evacuated instantly – but the social environment doesn’t matter as much as environmental pollutants like asbestos. ((Polly Toynbee, ‘Inequality kills’, Guardian 30 July 2005.))
The impacts of inequality: violence, trust and social cohesionThis link between inequality and health standards is relatively familiar. What is much less appreciated is just how strongly levels of inequality are correlated with other social outcomes – which in turn mean that inequality is bad not just for those at the bottom of the pile but for everyone. Unequal societies function badly. Violence is more common in societies where income differences are larger. About half the variation in homicide rates between different states or provinces in the US and Canada is accounted for by differences in levels of equality. Most criminologists regard this relationship as the most firmly established link between homicide and any environmental factor. Levels of imprisonment in a country can be shown to be related to income inequality and levels of literacy and mathematical ability – which are themselves closely linked to inequality. This link between violence and inequality is not just exhibited in murder rates; it reaches all the way along the ‘spectrum of hostility’. Both racial hostility and discrimination against women in US states is greater where inequality is higher. One British survey in the 1990s showed that families living on less than £10,000 a year were more than twice as likely to have daily arguments as those living on more than £20,000. Perhaps most striking of all for Liberal Democrats, the extent to which communities work as communities is also highly correlated with levels of equality. In the US, levels of trust between individuals – the essential underpinning of any functioning community – can be shown to be higher in the more equal states. In the most equal states, only 10 or 15 per cent of the population feel they cannot trust others, while in the most unequal ones the proportion rises to 35 or 40 per cent. The US Professor Robert Putnam has worked on people’s involvement in community life, using a range of indicators, including the proportion of people belonging to voluntary groups and associations, propensity to vote in local elections, and readership of local newspapers. In Italy, he showed that involvement was highest where inequality was lowest. Although there was a tendency for local government performance to be better where the region in question was richer, a stronger correlation could be demonstrated with his index of ‘civic community’, which was in turn linked to equality.
Underlying causes: why inequality is harmfulWhy is there such a pervasive relationship between inequality and social outcomes? The underlying reason, it is believed, is the stress caused by living at the bottom of the pecking order, on the lowest rung – the continuous stress of low social status, disrespect and exclusion. Humans are a social species, and the quality of the social relations we experience matters enormously. Feelings of shame and embarrassment are powerful ones, and in extreme cases can lead to violence. Similarly, in Britain today, small premature babies are not, with a few exceptions, caused by bad diet – even poor nutrition, by British standards, will rarely harm a foetus. It is stress in pregnancy that does the real damage, and the poorer the mother, the more likely she is to be stressed. This is hugely important – maternal stress in pregnancy affects the son or daughter throughout their life, from behavioural patterns to standards of health to life expectancy. And these are further affected, of course, by stress levels in the children themselves. An orphanage in post-war Germany found that children on the same diet were found to have grown most under the kindest matron and least under the unkindest matron. The stress hormone cortisol appears to be responsible. Cortisol is the most important hormone involved in preparing the body for sustained physical activity in meeting a threat. It shifts the body’s functions away from housekeeping activities like digestion, energy storage, fighting infection and growth – a sensible move when fleeing from a predator or an enemy, but of less use in dealing with pervasive shame and disrespect. Long-term elevation of cortisol levels impairs immune system efficiency, raises blood pressure, causes diabetes and arteriosclerosis – and reduces birth weight amongst the children of stressed mothers. How can stress levels be reduced? Primarily through improving the quality of social relations. We need to build a society which relies less on social status and more on friendship, which tend to vary inversely. Status and friendship have their roots in fundamentally different ways of resolving the problem of competition for scarce resources. Status is based on pecking order, coercion and privileged access to resources, while friendship is based on a more egalitarian basis of social obligations and reciprocity. Lynne Featherstone’s chapter in this book explores this theme in more detail. It is a complicated and difficult area for government to be involved in, but an important one. Here I concentrate on the extent to which the reduction of income and wealth inequality can contribute to this strategy.
Why equality matters to LiberalsSo tackling inequality is hugely important for those at the bottom of the income and wealth distribution, those lacking disposable income and assets and, furthermore, trapped by social immobility, where too much of an individual’s future is determined before she is born. It is also important for the rest of us, for those lucky enough to live on a reasonably decent income and to enjoy possession of some level of assets, but who nevertheless exist in the middle of a broken society, riven by distrust, unhappiness and failing communities. That’s fine in practice; how does it work in theory? Aren’t Liberals more concerned with freedom than with equality? Don’t we fear that too much attention to equality risks creating a society of dull uniformity, where initiative, choice and innovation are frowned upon? No. The Liberal commitment to equality derives from the Liberal commitment to freedom; it is neither separate from it nor subordinate to it. This belief can be traced right back through the long history of British Liberalism, and can perhaps best be expressed as a commitment to equality of justice. ((See Duncan Brack and Richard Grayson, ‘Equality’, in Duncan Brack and Ed Randall (eds.), Dictionary of Liberal Thought (Politico’s, 2007).)) The fundamental belief in freedom leads logically to a corresponding belief in a diverse and tolerant society, where individuals are able to exercise freedom of choice, conscience and thought. Since such a society cannot exist where individuals are treated differently by the law or by government institutions because of their nature, ‘equality before the law’ has been one of the great rallying cries of Liberalism, from the earliest days of the Whigs in the seventeenth century. The French Revolutionary slogan of ‘liberty, equality, fraternity’ (transposed in the Liberal Democrat constitution into ‘liberty, equality, community’) was not simply a list of three separate words; the three concepts interlinked and reinforced each other. ‘Liberty’ did not mean merely the freedom of choice that consumers experience in modern market democracies – it meant not being subordinate to arbitrary power, whether exercised by monarchy, aristocracy or clergy. The concept of freedom was very closely bound up with the extent of differences in social status and social exclusion, and the belief in equality (and in fraternity) in the levelling of those differences. This Liberal belief in equality was expressed in the nineteenth century primarily through the removal of barriers – to the right to vote, to the right to practise one’s beliefs free of discrimination, to the right to trade freely across national borders. From the end of the century onwards, however, it became obvious that this was no longer enough. Industrialisation, urbanisation and the drastic changes in the structures of society that resulted had led to the spread of poverty, slums, ignorance and disease. Not only were these all serious impediments to freedom, to the ability of people genuinely to exercise control over their own lives and destinies, but they were also impediments that it was difficult, if not impossible, for the affected individual to remove by themselves. Negative liberty, the removal of constraints on the individual, would not necessarily lead to freedom of choice for all, as not everyone enjoyed access to the same opportunities; freedom of choice was therefore heavily constrained.
Equality and social liberalism for the twentieth centuryThus was born the New Liberalism, which came to be the dominant ideology of the early part of the twentieth century. As Michael Freeden put it, this was ‘the crowning achievement of British liberalism … its subtle and intelligent integration of the requirements of social welfare into a continuing respect for individual liberty, a formula that encapsulates its commitment to both individual and social progress’. ((Michael Freeden, ‘More than freedom: the ideology of liberalism’, in Julia Margo (ed.), Beyond Liberty: Is the future of liberalism progressive? (IPPR, London, 2007), p. 28.)) The great reforming Liberal government elected by a landslide in 1906 took up this agenda of social justice. Asquith, Lloyd George and Churchill laid the foundations of the modern welfare state. Labour exchanges were introduced, old-age pensions were paid by the state for the first time, the national insurance system was created, taxation was raised in aggregate and made more redistributive. This was the realisation of the New Liberal programme – removing the shackles of poverty, unemployment and ill-health so as to allow people to be free to exercise choice and realise opportunity. Thus freedom and equality remained interlinked. As the New Liberal thinker L. T. Hobhouse put it:
The struggle for liberty is also, when pushed through, a struggle for equality. Freedom to choose and follow an occupation, if it is to become fully effective, means equality with others in the opportunities for following such occupation. This is, in fact, one among the various considerations which leads Liberalism to support a national system of free education, and will lead it further yet on the same lines. ((L. T. Hobhouse, Liberalism (Williams & Norgate, London, 1911).))Or, as it is more commonly attributed, ‘liberty without equality is a name of noble sound and squalid result’. This belief underpinned the system of redistributive taxation and social services which Labour built on after 1945 and which brought Britain to its lowest level of inequality – until Thatcherite Conservativism came to reverse the achievements of the previous seventy years.