Despite what Ed Miliband’s campaign team may be saying, figures released this week showed that the UK is now a more equal society than at any point in the last 25 years. Whilst this seems to go against the common perspective of the last three decades, even this pales in significance compared to globalisation’s efforts to make world a more equal place.
It must be have been a confusing week to be a Leftie. We are in the midst of a period of austerity. Welfare spending in particular has been cut and reformed. With Labour and the media continuously talking about the middle being ‘squeezed’ and the top 1% receiving a tax cut, it would be safe to presume that inequality has rocketed under the Coalition. Instead, figures released by the ONS this week shows that the gap between richest and the poorest is the lowest for 25 years.
How has this happened? The answer is simple. In the past three years the poorest (those who rely entirely on state for income, such as pensioners and Job Seekers) have had their incomes uprated with the rate of inflation whilst average household wages have fallen in real terms. The result has been that inequality has fallen. This shows how fickle income inequality is as an objective. The country is undoubtedly worse off, but if we were judging the welfare of the country solely on income inequality we would consider this a period of prosperity.
Should libertarians be in favour of greater income equality? Of course, though not through government intervention or through falling average incomes. We should certainly not be in favour of Roy Hattersley’s position that he would rather have 5% more equality than 10% more prosperity, but neither should we defend inequality as end itself, something many left wingers believe the right wing supports. But is it possible to have both? As it so happens, globalisation offers, and has delivered, on such an opportunity.
The first step to understanding why this is the case is that the world as a whole is far more unequal than people presume. The ‘1%’ that Occupy protests are not millionaire bankers, you only need to earn $34,000 a year to be in the top 1% of the income distribution. People earning more than £14,000 a year are in the top 4% of the world income distribution. As this accounts for a large portion of the Western world, redistributing income within the UK has a negligible effect on the overall world income distribution, particularly if the policies that make the UK more equal actually hurts the poorest in the world.
The second step to understanding why this is the case is that there is very little point looking at the income inequality of individual countries. Libertarianism is inherently internationalist and the only form of inequality we should seek to lower is global inequality. It does not matter if inequality rises within every country so long as it falls globally. Such a situation sounds ludicrous, though it is also possible. In fact, it is the situation that we have been living in for the past few decades.
Privatisation (and the deindustrialisation of certain areas) has undoubtedly reduced the incomes of some areas (though I would dispute that this is solely due to privatisation or solvable through government spending, though that is a subject for another blog). As capitalism reacts to unequal wages by outsourcing jobs, growth has rocketed in the poorest countries, narrowing the gap between the West and the world’s poorest. Branko Milanovic is one of the leading economists on global inequality and has written policy papers for the World Bank on the subject. One such publication is here.
In 2010, 20% of the world lived on less than $1.25 a day. 20 years ago, when I was born, it was more than 40%. It has almost certainly dropped even further and faster in the recent three years. It is a drop in poverty that is quite literally without equal in the whole of human history and the social benefits are almost incalculable. This has principally been due to transnational corporations outsourcing jobs to poorer countries. Whilst this has decreased growth and increased inequality in the West, it has also boosted growth in the poorest countries (except for those that have purposely been hostile to foreign investment, such as Cuba and North Korea). Thus, not only has absolute poverty decreased, but global inequality has decreased. Capitalism has beaten socialism at its own game.
Nationalisation and other methods of preventing Western companies from outsourcing work will undoubtedly reduce income inequality within the UK, but it will also rob poor countries of their easiest (potentially only) means of climbing out of poverty. One can see why nationalists would support such a proposal, but surely internationalist socialists would be the last to support such a proposal? After libertarians of course. We should not seek equality at the expense of prosperity, but there is no reason that we should not boast of the fact that the liberal capitalist approach to economics, privatisation and liberalisation, has not only cut poverty, it has also managed what socialism has never achieved and cut income inequality.