Posted on 07/21/2007 9:38:27 PM PDT by bruinbirdman
IT made for a neat juxtaposition. Levels of inequality in Britain are at their highest for 40 years, according to a new study published by the Joseph Rowntree Foundation. Meanwhile, Sir Tom Hunter, the entrepreneur, plans to give away £1 billion over the next few years in an act that recalls the great philanthropists like old Joseph Rowntree himself.
In Rowntree’s day, the state was a lot smaller. Hunter’s act of generosity is a giant step for a man, though it will be as galling for him as anybody to know that £1 billion is what the government spends roughly every 15 hours.
Is Britain really at its most unequal for 40 years? The new “masters of the universe” operating from expensive addresses in Mayfair – the hedge-fund and private-equity stars who rub shoulders with nondomiciled billionaires – give that impression.
But the Joseph Rowntree research, while interesting, is a long way from proving that inequality is at its highest since the 1960s or, as Danny Dorling, one of its authors suggests, since 1937.
What it does, using census data, is look at how poverty and wealth have shifted between geographical areas, and between rural and urban areas. Its strength is that it allows the researchers to drill down to local level. Whether it is appropriate to use this to make claims about national inequality is disputed by other researchers.
Another weakness is that, because the study uses census data, it can only tell us what is happening every 10 years. We won’t know what has happened since 2001, for example, for another five years or so, when 2011 data are available.
What we do know about inequality is provided by other, more mainstream measures. So, for example, data from the Office for National Statistics show the “marketable” wealth – that which can be sold – owned by the top 1% and 5% of the population. In 1923 the top 1% owned 61% of wealth and this halved to 30% by 1970. The latest figure, for 2003, is 21%. The corresponding figures for the top 5% of the population are 82%, 54% and 40%, respectively.
The picture may have changed a bit since 2003, the trough of the stock market, but the trend is unmistakable. Indeed, one feature of recent years has been the democratisation of unearned wealth. About half of personal wealth is in housing and the boom in house prices has spread that wealth far and wide. There are plenty of people in London and southeast England who have modest incomes but own houses worth more than £1m.
The conventional measure of income inequality is the Gini coefficient. It is time to let it out of the bottle. A Gini of zero would be perfect equality. A Gini of 1 would be perfect inequality – one household would have all the income. The Institute for Fiscal Studies’ (IFS) database shows the Gini was 0.261 in 1961, fell to 0.239 in 1976, before rising during the 1980s to 0.339 by 1990. It remains roughly at that level – the figure for 2005-6 was 0.346 – below the high of 0.353 in 2000-1.
Another useful measure of inequality is the 90:10 ratio, the incomes of the 90th percentile of the income distribution (people 10% from the top), compared with the 10th percentile, those 10% from the bottom. This has the virtue of excluding those at the very top and bottom of the income distributions from the comparison, a virtue because in neither case are the statistics entirely reliable.
In 1961 the 90:10 ratio was 3.207, falling to 2.947 by 1978. It, too, rose in the 1980s, reaching a high of 4.44 in 1991. In 1996-7 it was 4.130, slipping to 4.055 in 2005-6. On this measure, inequality is still historically high, but has fallen by roughly 10% since the early 1990s.
The central point is that when claims of record levels of inequality are bandied around, people will often reach for the knee-jerk response; that the rich need to be taxed a lot more and the poor given more direct financial support from the government.
In fact, as the IFS points out in its latest report on the subject, Poverty and Inequality in the UK: 2007, the government has done quite a lot. Under the Tories from 1979 to 1997, the poorest fifth of the population saw the weakest income growth; less than 1% a year in real terms, with progressively faster growth up to the near-3% of the richest fifth.
Under Labour, income growth has been more evenly spread between different groups, helped by benefits and tax credits, with the strongest growth enjoyed by the bottom two-fifths of the population, Inequality may be historically high but would have been a lot higher without Labour’s redistributive changes, about 0.378 on the Gini, according to the IFS.
The real solution to inequality lies elsewhere. The gaps that have emerged in recent decades are between those who have the skills to prosper in a globalised world and those who do not.
In the old days, manufacturing apprenticeships provided skills for young people who had no academic qualifications. As manufacturing jobs migrated to services, apprenticeships did not shift with them. The result, as a report from the House of Lords economic affairs committee on Friday pointed out, is “millions of young people have missed vital chances to improve their skills and earnings, representing a serious loss to the country”.
Too many children leave school without the basic functional literacy and numeracy even to start an apprenticeship, where they exist. Apprenticeship programmes themselves are often poorly run by training providers.
The government has provided “poor leadership” on the issue, something it needs to address.
Inequality of income and wealth may not be quite at the level suggested by the Joseph Rowntree Foundation, but it is high. And it can only get worse, driven by inequality of skills. Efforts to redistribute income provide only a sticking plaster. Unless people are properly equipped with skills, there will be no place for them in the workforce of the future, as Lord Leitch’s review for the Treasury made clear. And if we’re not careful, it will soon be too late.
PS: What’s the connection between DFS – “think sofas, think DFS” – and overexcited money markets? Last month DFS and its competitors put up prices by an average of 7.2%, which added 0.1% to the inflation rate. Consumer price inflation, instead of falling from 2.5% to 2.3%, fell to only 2.4%, provoking a panic reaction.
This month the DFS sale is on: “It’s big; It’s on everything; And it’s on right now.” It is a fair bet prices will be down by 7.2%, or more. This is the oldest retailing trick in the book – bump up prices before knocking them down in the sales. June’s rise in furniture prices was the biggest for the month on record. But it was no reason to panic.
When the Bank of England’s monetary policy committee (MPC) raised its interest rate from 5.5% to 5.75% this month, both its deputy governor responsible for monetary policy, Rachel Lomax, and its chief economist, Charlie Bean, were in the minority of three against. That should tell us something. Even among the six for the hike there were varying degrees of enthusiasm and no presumption this was a staging post on the way to further increases.
The MPC is divided between new and old members; between gradualists and shock troops; and between “neo-mons” – those who have discovered the money supply (M4 slowed last month from 13.9% to 13%) – and those who think it is as misleading now as ever. There is the Greek chorus urging the MPC to go further and faster in raising rates. It will be the first to criticise if the Bank is found to have gone too far.
There is a lot of noise around the interest-rate debate. Will oil hit $100 a barrel; will the floods push up food prices? In fact, the MPC’s choice is a simple one. If it thinks it has done enough to secure a significant slowdown in household spending and therefore the pressures for higher prices, it can relax. If not, it will have to do more. Last month’s retail sales figures, showing a rise of just 0.2%, were not conclusive but I believe the Bank is at or very close to the point where it can stop hiking.
I know here in the United States, the best use of that billion pounds would be to buy a lawnmower and a weed whacker for any ablebodied young person who desires to ask. The illegals would be pissed at the competition, but I can think of no better start for most youth to understand the value of a dollar, and the rewards of work than doing gardening.
Alas, almost all the neighborhood is now done by three illegals.
Inequality is the natural consequence of the fact that we are not all born equal. That half of the population has an IQ lower than 100. That some of us are predisposed by our genes and upbringing to be better able to survive in the world. In the state of nature where Darwin rules the bottm 5% would be dead and removed from the gene pool and we would all be the better for it.
Skills are nice, opportunities are better.
yitbos
“In the old days, manufacturing apprenticeships provided skills for young people who had no academic qualifications.”
Both my boys were apprenticed at a young age to the trades, one to auto mechanics, one to electrical. My oldest started at age 13. I homeschooled so it was possible. The sad thing is, the state has basically outlawed starting young in the trades. It’s considered child labor.
I know at one point they came after the Amish. All I can say is, thank God we had that opportunity.
The leftists would eliminate those above 100. Only one thing wrong. There would just be a new median.
yitbos
Unearned wealth is a dangerous concept.
You don't like compound interest?
Ban Social Security.
yitbos
And where it snows...use a shovel or plow to make your income.
But a 'Mercun is the boss taking half the gross.
yitbos
Of course I like it. The concept that it is unearned is dangerous.
Most people of every income level are like pigs in their apathy and laziness. They don’t like change or solve problems. Universities resemble incompetent fast food businesses with poor health practices, as we see in many of the offices that students graduate to.
IMO, we’re morally bankrupt as a society. The solutions are to promote more tolerance for common (healthy) social opinions, to teach those who want to learn (as was done with apprenticeships), and to test prospective employees for job competence. But it’s doubtful that such solutions will be considered.
Oops. They don’t like change or to solve problems, even. I tend to write more errors while building my “computer hacking skills.”
Note that the federal government has given billions to the reservation in the form of subsidized or free housing, new schools and medical facilities and direct cash payments to tribal members. Enrolled tribal members can also attend any land grant university in the US tuition free yet virtually none do.
Also good money making entrepreneurial endeavors:
house painting
siding
gutters
roofs
remodeling
My sister’s husband went this route. He started out as a roofer. Eventually started his own house painting business and then expanded into siding gutters and windows. He now is a complete home remodeler. My sister is a stay at home mom.
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