Why does inequality steal the limelight when the real problem is poverty?

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The interplay between inequality and envy is rife as privileged people with a public platform insist on causing a stir about the super-rich in society. They don’t have a problem with their own levels of wealth but they do with their contemporaries in the top one per cent of earners. Yet they purport to care about inequality for the purpose of how it pertains to the relatively impoverished. Either way, fanaticising over inequality just doesn’t help the poor.

Those who ideologically oppose inequality and promote the notion that the UK is becoming more unequal are not only wrong, but come attached to ideas that are very bad for the poor. Take the beloved filmmaker Ken Loach whose recent speech at Cannes film festival decried the failings of modern capitalism. He wants capitalism ousted as an economic system. But it’s capitalism which allows the kind of economic growth that pays for the UK’s welfare system to help the poorest. Capitalism is how the poorest became just as likely to own the latest technologies and best quality foodstuffs as the wealthy.

We are in the grip of a dangerous project of austerity driven by ideas that we call neo-liberalism that have brought us to near catastrophe.

Under what Ken Loach calls neo-liberalism, we haven’t been brought to near catastrophe and we’re no where near it now. In fact, quite the opposite is the case. Whenever economies have liberalised and been freed of aggressive state intervention, from opening up to trade with other countries to deregulating the labour market, living standards have risen drastically.

The progress we’ve experienced is especially true for the poorest countries where it has meant improvements as revolutionary as hundreds of millions being lifted above the poverty line and suddenly having access to something as basic as water.

Ken Loach is a promoter of the common fallacy that people getting rich through capitalism has anything to do with why some people in the world are still poor. Though history tells us that poverty is the default state. Our focus should stay on the question of how we got rich and how we’re going to keep doing it. Free enterprise enabling competition and innovation is certainly one of the ways we can aid that.

A new research paper by the Institute of Economic Affairs highlights this ill-founded obsession with inequality and questions why it is the case that reducing inequality has been adopted as an aim. This would imply that so long as the income distribution were narrowed, it does not matter whether that results in more poverty or less wealth overall. It also shows why it’s not actually true that inequality in the UK is rising.

In 2013/14, the household incomes of the richest fifth of Britons was £80,800 whereas the incomes of the poorest fifth was just £5,500. This is a 15:1 ratio. However, after taxes were taken and benefits given, this ratio fell to 4:1 (£60,000 and £15,500 respectively) (ONS 2015a). This is almost exactly the same ratio as in 1987.

When we put the statistics up against Owen Jones’s “grotesquely unequal” Britain, or Charlotte Church’s warnings that “inequality is growing and affecting the majority of people”, their perspectives don’t seem attuned to reality.

The one exception in this inequality study, however, is that the top 0.1 per cent is running away from the rest of the top one per cent. An explanation for this is one which has seen the whole world benefit. This is the emergence of “winner takes all” markets, a natural consequence of the vast audience magnification that the internet introduced. Amazon is a prime example.

Its founder, Jeff Bezos, has had a far greater impact on the world with his entrepreneurship thanks to the internet. People at opposite ends of the world can now trade with the click of a button, and he is being duly rewarded for this revolution brought to millions of people’s lives.

The heated debate about ‘rising inequality’ is therefore not really about the difference between what a doctor earns and what a cleaner earns. It is about the difference between what a top lawyer earns and what a top footballer earns. It is about the rich versus the super-rich.

So there’s a rather positive picture emerging in Never Mind the Gap, as it tells us that, in absolute terms, everybody is getting richer global income inequality is falling despite increasing populations. But do read the whole paper to get more than the small snapshot provided above, as it’s only small and won’t take long to read.

The popular emphasis on the riches of the rich over the poverty of the poorest is leading to the misconception that the former causes the latter. This conventional wisdom going unchallenged is ultimately dangerous and, if acted upon, slows the progress that we continue to see throughout the world.

The latest example of this vision coming to life takes the form of the catastrophe that’s emerged in Chavez’s Venezuelan ‘21st century socialism’. The Venezuelan vision that was not so long ago promoted by our man, Owen Jones.

We can help the poor by making a strong case for capitalism – not by leveling down and inhibiting the actions of the topmost echelons of society.

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