The OECD has published a new report that says it is now quite sure that inequality matters and has a significant impact on the economic growth that a company enjoys. There are reports on what they have to say in the Guardian and FT this morning, and a slide summary of their findings is available here.
There will, I know, be academics wedded to the neoliberal model who will say that this research, like that from the IMF which produced broadly similar findings earlier this year, is either inconclusive or wrong, and no doubt they will trawl their way through the minutiae of the data to try make their case. I have little time for that: the fact is that statistically based findings such as these can at most support observable hypotheses formed by astute observers of what is actually happening in society. Research of this type does not create reality: it confirms what is known and as such is inherently normative whoever does it and whatever the outcome is. That does not mean it is not useful: it is, and can be persuasive, but usually to those inclined to believe it by pre0disposition.
So does it matter? Yes, of course it does. There are many reasons for saying so. First, this represents part of a major change in world leading organisations on this issue. They should have realised long ago from the type of astute observation I describe that trickle down economics, where increasing inequality was tolerated as all are supposedly better off as a result, does not work for a very wide variety of reasons, but the reality is that this conclusion is only now being reached and the fact that it is overdue does not mean it is not welcome.
Second, the bluntness of the OECD conclusion, and the fact that they recognise it is normative in this slide, which is part of the presentation made, is important:
What that slide effectively says is that policy implications flow from the judgements made on this issue and that they have significant impacts on the societies in which they prevail. So, in many societies, such as the UK, where there have been significant increases in inequality over the last 30 years or so, not only have their been significant growth impacts as a result (with the UK losing maybe 7% of current GDP as a failure to tackle this issue over the last 30 years) but the decision to pursue policies that focus on "incentives" has had major implications.
This philosophy is seen throughout the current government's attitude towards what it calls welfare and I call social security: in itself a major difference of significance to those in receipt of the payment. Welfare is treated as if a handout to those not willing to take initiative for themselves; social security is the provision of support to those in need at a time when through no fault of their own they need it. Philosophically that difference is enormous.
In practice that is seen in the narrative of the welfare "scrounger' who stays in bed whilst hard working families go to work. And it's seen in practice in such policies such as the bedroom tax, sanctioning and welfare caps, all of which are meant to provide the incentive to make people want to work.
The difficulty within this narrative is that, as the OECD has now noted, getting work is an impossibility in practice if there are very real structural impediments to work which neoliberal economists assume do not exist. I stress, they really do assume that such impediments are not real and that is because in their economic modelling they do, automatically and almost without thinking about it assume all have equal access to capital, markets and knowledge for example. Because they are so used to making these somewhat ludicrous assumptions in their theoretical work it never occurs to them to notice that in the real world they do not hold true.
Fundamentally, this is what the OECD is saying: it is suggesting that the neoliberal model is wrong. It s saying that not just for the very poorest in society (the bottom 10% of income earners) but for all in the bottom half of the income profile (and remember, this is a concentrated and who in the UK earn less than about £21,000) there is a very real problem of access to the means to change a person's situation.
They make clear that reallocation of wealth and resources through tax can work, but a progressive tax system is not enough. The impediments to work are structural. This, they say, is most obvious in education and training and so in the opportunity to gain well paid employment, or employment at all. Fundamentally, many people are being excluded from the market for work and for prosperity and that creates a significant cost.
But in that case, as is widely noted, trickle down economics does not work because at best that only reallocates a small part of wealth through the spending the rich promote. What is need is an interventionist state to both reallocate wealth via taxation and, at least as importantly, to overcome the market failure created by inability to access education and training because the resources needed to access them are not available to many people.
That is free education. And it is regulated training. And it is support to those participating in them. This means supporting sixth formers where appropriate; student grants; ending tuition fees; scrapping the hideously unfair student loan repayment arrangements that are blighting many lives, causing untold social and economic harm, and it means funding the facilities that can provide education appropriately as if education were a social good and not a product.
And it means a narrative on social security that sees it as a force for social good.
Perhaps most of all it means ending stories that suggest the poor can't cook with the recognition that far too many are prevented from cooking for reasons that are no fault of their own, starting from a lack of infrastructure (cookers, fridges, freezers and more), or access to the means (yes: fuel is dear), a lack of training and a lack of access to the market (try buying for one: without serious capacity to store food it can be pretty uneconomic) and so on, and on. Pointing a finger is inadequate: only offering solutions is acceptable.
That's what I think the OECD is saying and our government falls a very long way short of what is required by this standard. Worse, it backs the wrong narrative and that is beginning to look like straight prejudice now, which, of course, it is.
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Very good post Richard. It is harder to understand the journalists and so on who perpetuate the myth of trickledown, which, along with low low taxes (to “create jobs”), has had quite enough time to show that it doesn’t work.
Are these journos all hugely paid or something ?
Nibs Journalists pronounce on many things. We can’t be experts in all and it may be they are expert in none but follow what seems to be the current consensus. But I agree, if they are going to make these statements, they should do their homework.
Thanks for this Richard. After nearly 40 years of this ghastly ‘experiment’ with peoples lives, the environment and the futures of our young we still don’t know for sure that is a failure then it is probably going to take another 30 or so to finally prove it.
The fact that Government ministers can make disparaging comments about the ‘poor’ (a term riddled with eugenisist notions) and get a way with it is massively indicative of how far the neo-lib narrative has become mental wallpaper.
Agreed
I try to avoid it – but it’s become a ‘normal’ term
I am reading Oliver James’s book Selfish Capitalism. In it he says there are studies which show that the belief that our abilities are largely inherited are positively correlated with right wing views, whereas the the beliefs that we are largely formed by the environment is correlated with Left wing beliefs. When I trained as a teacher in the 1960s we were taught that intelligence was 80% inherited and the evidence was derived from twin studies. In fact Sir Cyril Burt, who taught this was later found to have fudged his figures to suit his hypothesis! The 11+ was build on a shaky foundation.
James’s view is that the Anglo-Saxon form of capitalism produces more mental distress than other forms of capitalism. I tend to agree.
I also agree
…..as has “welfare”.
Good capitalism delivers the greatest amount of social welfare/utility to the greatest amount of people. Market fundamentalism (neo-lib capitalism) delivers the greatest amount of social welfare to the few. Its crap capitalism – always has been, always will be.
I agree that what we have been seeing in our economy for far too many years is demand dropping because spending power is being stripped out of it to be replaced by more and more credit which of course is a more finite form of income than wages that keep pace with inflation. Except of course that in a credit crunch we see the effects of low wages AND lack of credit.
In the film ‘Inequality for All’ by Robert Reich there is a really interesting graph which equates the shrinkage of wages to the growth of credit in the American economy (very similar amounts). All that money that has been stripped out of wages there has simply been banked by corporations/banks to be lent out to earn interest.
It is much more socially useful to use it as wages – good wages – that people can then use to buy what they need and want, save, and even service debt from time to time. Currently, the capitalist system benefits the banks and the finance industry more than anyone else. Good wages will also pay for a pro-active state that wants tom improve the lives of ALL its citizens.
It was a professor Graham Riches who told us recently that the International Covenant on Economic Social and Cultural Rights needed to be part of the narrative. This is where we came in 10 years ago, warning that global uprisings were inevitable.
http://www.p-ced.com/1/node/76
Well I agree: most of us don’t need science to tell us what is blatantly obvious. Fortunately there is enough evidence now that confirms the neoliberal experiment was a mistake. But the press and politicians are completely indoctrinated. It’s a priesthood – like any other – and this neoliberal priesthood is going to take 30 years to get rid of… no amount of evidence will convince them to change their ways or views.