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The equal sign

Paul Vallely

What do George Osborne, Barack Obama and the Pope have in common? They have said similar things about the growing gap between the rich and the poor. Inequality is the root of social evil, Pope Francis has tweeted. Increasing inequality is the 'defining issue of our time', said the US president. And the Tory Chancellor said after the Conservatives' surprise election victory that, among left and right, there is 'growing recognition that these gaps are not just bad for the poor - as we used to believe - but bad for all of us'. Inequality is back, after being out in the political cold during the 'Greed is Good' era of previous decades when the myth began to build up that the rich were different than the rest of us - smarter, more hard-working or just better at making money. Wealthy people were worth more because they were more talented, more enterprising and all the rest. They were better off because they were generally better. The poor, by contrast, somehow lacked merit. Elitism was economically efficient, the line went. It was also inevitable, a law of nature, like the weather. Excessive inequality is morally dubious. But it is also, a consensus is now emerging, economically inefficient. The French economic historian Thomas Picketty challenged that with his study of rising wealth and income inequality in 2013. Now Sir Anthony Atkinson, under whom Picketty studied - and whom the Frenchman described as the godfather of research into poverty and income distribution, has produced his own book Inequality: What Can Be Done? The two writers chart the extent to which inequality has risen in the UK, US and also in countries like India, China and in Latin America. There had been dramatic declines in poverty and inequality in the decades after the Second World War. But around 1980 it began to rise. Today the richest one per cent of Americans own a third of the nation's assets. The UK is only a little better, with the top one per cent owning between a quarter and a fifth of the nation's total wealth - creating a wealth gap which is steadily rising. The pay of FTSE top 100 executives has risen three times faster than the minimum wage. Poverty is now 2-3 percentage points higher than when the Child Poverty Action Group was founded in 1965. Excessive inequality is morally dubious. But it is also, a consensus is now emerging, economically inefficient. Equality is associated with economic stability. By contrast crime, ill health and obesity are higher in unequal societies. Depression and anxiety rise, something which affects the rich as well as the poor especially in areas with the widest equality gap, like the centres of London and New York. By contrast raising the minimum wage to a living wage enhances the quality of the work of employees, reduces absenteeism and improves recruitment and retention of staff. So if even high priests of capitalism like George Osborne are acknowledging this surely we are halfway to change? The problem is that the forces widening inequality are implicit in many assumptions which go unquestioned in current political orthodoxies, Atkinson argues. When the government prioritises low taxes over investment in infrastructure or education - or set the Bank of England a low inflation target rather than a low unemployment one - it is setting a policy which has a bias to the rich. The same thing happens when government encourages employers to develop high-tech automated factories which reduce jobs for human beings. Such things happen, Atkinson suggests, when a government minimises the role of trades unions so that the voice of working people - and indeed wider stakeholders - are not heard in boardrooms with the volume accorded to shareholders. Something similar happens when governments use working tax credits to top-up the wages of workers who find it impossible to survive on the minimum wage. In the US government subsidies to augment the incomes of 700,000 McDonald's employees cost the public purse around $1.2bn a year. The same phenomenon is at work in the UK. Another imbalance lies in a system which says that 50 per cent is the maximum income tax rate and yet tells people on benefits that they can keep only 35p out of every £1 they earn on benefits - that is the equivalent of a 65 per cent tax rate. So anything over 50 per cent is thought to be a disincentive to the rich. Yet the same logic does not apply to the poor? It is through systems like this that the rich subtly, and sometimes not so subtly, ensure their interests are protected at the expense of not just the workforce but often the wider community. 'If we want a content and happy society, we are currently going in the wrong direction,' Professor Danny Dorling of Oxford University said recently. Public policy matters, he said, arguing that it is government policies which explain why Sweden has had to close jails because of a lack of prisoners while in the US ten times as many people - most of them black - are now locked up than was the case in 1940. The evidence from around the world shows that human societies can change in collective behaviour over extremely short periods of time. Atkinson and Piketty have solution to offer. Piketty wants a global tax on wealth. Atkinson wants aggressive government intervention. Critics have swiftly sprung up to say why those answers would be ill-advised. But if Atkinson, Piketty and Dorling are not offering the right answers they are certainly asking the right questions. There is nothing inevitable about the old market fatalism. Or as Dorling puts it: 'Everything it takes to defeat injustice lies in the mind'.