The Spirit Level: Why Greater Equality Makes Societies Stronger (36 page)

The historical evidence confirms the primacy of political will. Rather than greater equality waiting till well-meaning governments think they can afford to make societies more equal, governments have usually not pursued more egalitarian policies until they thought their survival depended on it. In the early 1990s a World Bank report pointed out that rapid economic growth in a number of East Asian countries was underpinned by growing equality.
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In trying to explain why governments had adopted more egalitarian policies, the report said that it was because they faced crises of legitimacy and needed to gain popular support. The governments in Taiwan and Hong Kong faced rival claims from the Communist Chinese government. South Korea faced North Korea, and the governments of Singapore and the Philippines faced guerrilla forces. Describing policy in these countries, John Page, writing in a 1994 World Bank publication, said:

Very explicit mechanisms were used to demonstrate the intent that all would have a share of future wealth. Korea and Taiwan carried out comprehensive land reform programs; Indonesia used rice and fertilizer price policies to raise rural incomes; Malaysia introduced explicit wealth sharing programs to improve the lot of ethnic Malays vis-à-vis the better off ethnic Chinese; Hong Kong and Singapore undertook massive public housing programs; in several economies, governments assisted workers’ cooperatives and established programs to encourage small and medium-sized enterprises. Whatever the form, these programs demonstrated that the government intended for all to share in the benefits of growth.
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Japan owes its status as the most equal of the developed countries partly to the fact that the whole establishment had been humiliated by defeat in the Second World War, and partly to the support for political and economic reconstruction – including drawing up a new constitution – provided by disinterested, and remarkably far-sighted, American advisers working under General MacArthur.
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Other examples of increases in equality have similar origins. Bismarck’s early development of forms of social insurance were part of his attempt to gain popular support for his project of unifying the German states. Britain became substantially more equal during both the First and Second World Wars as part of an attempt to gain support for the war effort by making people feel the burden of war was equally shared. As Richard Titmuss put it: ‘If the cooperation of the masses was thought to be essential [to the war effort], then inequalities had to be reduced and the pyramid of social stratification had to be flattened.’
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Sweden’s greater equality originated in the Social Democratic Party’s electoral victory in 1932 which had been preceded by violent labour disputes in which troops had opened fire on sawmill workers. As prime minister almost continuously from 1932 to 1946, Per Albin Hansson was able, during Swedish rearmament and the war, to push through his aim of making Sweden ‘a classless society’ and ‘the people’s home’.

How do we create the necessary political will in our own societies? The strength of the evidence that a more equal society is a better society has a key role to play in changing public opinion. Many people have a strong personal belief in greater equality and fairness, but these values have remained private intuitions which they fear others do not share. The advantage of the growing body of evidence of the harm inflicted by inequality is that it turns what were purely personal intuitions into publicly demonstrable facts. This will substantially increase the confidence of those who have always shared these values and encourage them to take action. In addition, some people will change their views in the light of the new evidence. Many people are seriously worried about the many signs of social failure in our societies and search for explanations.

Political differences are more a reflection of different beliefs about the solution to problems than of disagreements about what the problems are. Almost everyone, regardless of their politics, would prefer to live in a safer and more friendly society. Everyone will agree that a good society would have fewer of all the health and social problems we have looked at. The argument is therefore about solutions. Although people have suggested many ways of helping individuals facing particular difficulties, the evidence presented in this book suggests that greater equality can address a wide range of problems across whole societies. And if greater equality is also an important component of policies to tackle global warming, there is much to recommend it.

For several decades progressive politics have been seriously weakened by the loss of any concept of a better society. People have argued for piecemeal improvements in different areas of life, campaigned against new environmental threats or for better treatment of asylum seekers, and have demonstrated against military interventions. But nowhere is there a popular movement capable of inspiring people with a vision of how to make society a substantially better place to live for the vast majority. Without that vision politics will rarely provoke more than a yawn.

Yet most people do want change. In the first chapter of this book we referred to a research report called
Yearning for Balance
, which showed that three-quarters or more of Americans felt that society had lost touch with what really mattered.
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Consumerism and materialism, they felt, were winning out over more important values to do with friends, family and community. Although politicians recognize a deep-seated malaise, and so campaign for votes, saying that they stand for ‘change’, they sometimes seem to have few ideas for change which go deeper than differences in the personal images they project. There is no suggestion that they have any view of how to begin changing daily life into something more joyful and fulfilling.

Public opinion polls suggest that there is a substantial desire for narrower income differences. In Britain over the last twenty years polls have shown that the proportion of the population who think that income differences are too big has averaged around 80 per cent and has rarely dipped below 75 per cent – even though most people underestimate how big income differences actually are. In the USA, the 2005 Maxwell Poll on Civic Engagement reported that over 80 per cent of the population thought the extent of inequality was a problem, and almost 60 per cent thought the government should try to reduce it. Gallup polls between 1984 and 2003 which asked Americans whether income and wealth were fairly distributed or should be more evenly distributed, found that over 60 per cent of the population thought they should be more evenly distributed.
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TRADE UNIONS

The rapid widening of income differences which took place from the early 1980s onwards was made possible partly by the declining power of trade unions. A study which analysed trends in inequality during the 1980s and 1990s in Australia, Canada, Germany, Japan, Sweden, the United Kingdom and the United States, found that the most important single factor was trade union membership.
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Although high levels of unemployment weaken the bargaining power of labour, in this study, declines in trade union membership were most closely associated with widening income differences.

Not only the extent of unionization but provisions for labour representation in companies are also likely to affect wage settlements. The Commission of the European Union requires minimum standards of representation and consultation for all larger companies but it is not clear how far practice in different countries conforms to what was intended. In Japan, however, there is often a much closer relationship between management and unions. Indeed, the Japanese Federation of Employers Association found that 15 per cent of the directors of large companies were former trade union officials.
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In the countries of the European Union the earnings of some 70 per cent of employees are covered by collective agreements, compared to only 15 per cent in the USA. At 35 per cent, the figure for the UK is among the lowest in the EU.

CORPORATE POWER – THE ELEPHANT IN THE LIVING ROOM

Part of the problem of political will is the feeling that we do not have the means to make any difference. We may all decry the vast wealth of the super-rich, but what can we do? Unions can, as the evidence suggests, make some difference, but it is hard to escape the conclusion that the high levels of inequality in our societies reflect the concentrations of power in our economic institutions. The institutions in which we are employed are, after all, the main source of income inequality. It is there that value is created and divided between the various gradations of employees. It is there that the inequities which necessitate redistribution are set up. And it is there that we are most explicitly placed in a rank-ordered hierarchy, superiors and inferiors, bosses and subordinates.

In 2007 chief executives of 365 of the largest US companies received well over 500 times the pay of their average employee, and these differences were getting bigger. In many of the top companies the chief executive is paid more in each day than the average worker is in a year. Among the Fortune 500 companies the pay gap in 2007 was close to ten times as big as it was in 1980, when the long rise in income inequality was just beginning.

Because the ratio of CEO pay to average worker pay varies so much between large and small companies and from one sector to another, it is difficult to compare like with like when making international comparisons. However, an attempt (from a respected source) to make such comparisons, suggests that ratios of CEO compensation to the pay of production workers in manufacturing might be 16:1 in Japan, 21:1 in Sweden, 31:1 in the UK and 44:1 in the USA.
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According to the annual survey of chief executives’ pay carried out by the
Guardian
, boardroom pay in the 100 companies included in the Financial Times Stock Exchange index in Britain has risen in successive years by 16 per cent, 13 per cent, 28 per cent and most recently (2006–2007) by 37 per cent at a period when inflation was rarely more than 2 per cent.
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The average pay (including bonuses) for the chief executives of top companies stood at just under £2.9 million. After reviewing empirical research, the International Labour Organization concluded that there is little or no evidence of a relationship between executive pay and company performance and suggested that these excessive salaries are likely to reflect the dominant bargaining position of executives.
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Top business pay has far outstripped anything in the public sector. In the USA, the twenty highest-paid people working in public traded corporations received almost 40 times as much as the twenty highest-paid people in the non-profit sector, and 200 times more than the twenty highest-paid generals or cabinet secretaries in the Federal Government.
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It seems likely that the denationalization of major industries and the privatization of large numbers of friendly societies, mutuals, building societies, provident societies and credit unions, which had been controlled by their members, may have made a substantial contribution to the widening income differences shown in Figures 16.1 and 16.2. It was common practice for CEOs and other senior managers to receive huge salary increases shortly after conversion to profit-making corporations. This probably explains some of the sharp rise in inequality which Figure 16.1 shows took place in Britain around the mid-1980s. British Telecom was privatized in 1983, British Gas in 1986, followed by a flood of major companies in 1987. The international extent of the widening of income inequality is also consistent with a contribution from privatization.

Numerous corporations are now bigger than many nation states. In the words of the United Nations Conference on Trade and Development (UNCTAD):
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Twenty-nine of the world’s 100 largest economic entities are transnational corporations (TNCs), according to a new UNCTAD list that ranks both countries and TNCs on the basis of value added. Of the 200 TNCs with the highest assets abroad in 2000, Exxon is the biggest in terms of value added ($63 billion). It ranks 45th on the new list, making it comparable in economic size to the economies of Chile or Pakistan. Nigeria comes in just between DaimlerChrysler and General Electric, while Philip Morris is on a par with Tunisia, Slovakia and Guatemala.

Using different measures, other estimates suggest that half of the world’s largest economies are multinationals, and that General Motors is bigger than Denmark, that DaimlerChrysler is bigger than Poland; Royal Dutch/Shell bigger than Venezuela, and Sony bigger than Pakistan. Like the aristocratic ownership of huge tracts of land, which in 1791 Tom Paine attacked in his
The Rights of Man
,
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these productive assets remain effectively in the hands of a very few, very rich people, and make our claims to real democracy look pretty thin.

In Tom Paine’s lifetime the capitalist system was in its infancy. As an advocate of equality and democracy, he focused his attack on the landed aristocracy, the nobility, the monarchy, and on their ownership of huge swathes of land. He seems to have assumed that the market system, then involving mainly small traders and craftsmen, would remain small-scale, fairly egalitarian, and so compatible with democracy. Had he foreseen how the development of huge multinational corporations would surpass the concentrations of wealth and undemocratic power of his day, he would surely have included them in his sights. It is not possible to discuss ways of reducing income differences without discussing what can be done about these bastions of wealth, power and privilege.