The Environmental and Social Costs of Inequality by Benjamin Irvine
In the 10 years to 2008 the top 20% of earners in the North West increased there incomes at roughly double the rate of the bottom 20%, in line with wider UK trends, by 9% compared to 4%. [Jenni Viitanen and Katie Schmuecker, ‘Richer Yet Poorer’, 2011, Institute for Public Policy Research North, Page 6; Retrieved from: http://www.ippr.org/assets/media/images/media/files/publication/2011/05/richer%20yet%20poorer%20Feb2010_1823.pdf]
Amongst the Northern regions, inequality is increasing most in the North West. Income polarisation in the Manchester city-region is also the third highest in the Northern city regions. [Jenni Viitanen and Katie Schmuecker, ‘Richer Yet Poorer’, 2011, Institute for Public Policy Research North, Page 8; Retrieved from: http://www.ippr.org/assets/media/images/media/files/publication/2011/05/richer%20yet%20poorer%20Feb2010_1823.pdf]
Whilst most people are aware of rising income inequality in the UK over the last 30 years it may come as surprise that this has been accompanied by an increase in the proportion of employees who are earning below the OECD low pay threshold.
The number of people earning less than two thirds the median average wage has nearly doubled,
from 13% in 1978 to 20% in 2011. [Kayte Lawton and Matthew Pennycook , ‘Beyond the Bottom Line: The challenges and opportunities of living wage’ January 2012. IPPR, Resolution Foundation. p.21; Retrieved from: http://www.resolutionfoundation.org/media/media/downloads/Beyond_the_Bottom_Line_-_FINAL.pdf]
The growth of inequality in the UK has not, therefore, just been a case of runaway high pay and stagnating wages for the rest of the workforce; the distribution of income for the lower 50% has also become more unequal. Low pay is more prevalent now than it was in 1978.
High pay is of course also part of the inequality story:
- Over the same period the share of national income going to the top 1 per cent has more than doubled from 6% to14.5%. [Landman Economics, ‘Top to Bottom: Understanding fairer pay’, 2013(a). High Pay Centre. Page 11; Retrieved from: http://highpaycentre.org/files/top_to_bottom_FINAL.pdf]
- Last year pay for FTSE 100 chief executives increased by an average of 12% to £4.8million. [Landman Economics, ‘Top to Bottom: Understanding fairer pay’, 2013(a). High Pay Centre. Page 7; Retrieved from: http://highpaycentre.org/files/top_to_bottom_FINAL.pdf]
- A cut from 50p to 45p in the top rate of tax in April constituted a tax break of between £1 billion and £2.7 billion to the highest-paid 0.9 per cent of the pay scale.
The latest data shows average earnings continuing to fall in real terms when compared to increases in the Consumer Price Index. [Average total pay increased by 0.7% compared to an increase in the CPI of 2.7%. Retrieved from: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/october-2013/statistical-bulletin.html#tab-Earnings]
We are in the fourth year of consecutive real wage decline which is the most extended period of wage decline since the 1870’s according to Bank of England data. [See: http://touchstoneblog.org.uk/2013/06/real-wages-back-to-the-70s]
At the same time taxpayers currently subsidise low-paying employers by around £4 billion in in-work cash transfers. [Commission on Living Standards ‘Gaining from Growth: the final report of the commission on living standards’ 2012, Resolution Foundation p.9; Retrieved from: http://www.resolutionfoundation.org/media/media/downloads/Gaining_from_growth_-_The_final_report_of_the_Commission_on_Living_Standards.pdf]
A report by the High Pay Commission questions this situation where taxpayers subsidise low paying employers, whilst executives and shareholders claim a greater and greater share of income. The authors found that if those earning more than £150,000 took a 10 per cent pay cut and it went directly to the bottom 25 per cent, they would get a 55 pence per hour pay rise to £7.35, taking them closer to the national living wage of £7.45(at the time of the study). [The Living Wage Foundation rate outside London is now £7.65 as of November 2013. Retrieved from:
Unsurprisingly there is wholesale public support to reduce pay inequality, a study by IPPR found ’82 per cent in favour of government intervention to close the pay gap.’ [YouGov-IPPR Poll results in: ‘Getting what we deserve?’, 2011. IPPR ; Retrieved from: http://www.ippr.org/assets/media/images/media/files/publication/2011/06/getting-what-we-deserve_June2011_7617.pdf]
Not only are these income disparities arguably unfair, inequality produces large social and environmental costs. Reducing inequality is a necessary requirement to repair the economy, society and the damaged ecosystems on which we depend.
The social costs of inequality have been most strikingly presented in Richard Wilkinson and Kate Pickett’s The Spirit Level. [R. Wilkinson & K. Pickett, The Spirit Level: Why More Equal Societies Almost Always Do Better. 2009. London, Allen Lane. ]
The authors find strong evidence that income inequality produces a myriad of negative health and social outcomes for societies. They find a strong positive correlation between nations with high income inequality and an index of health problems (mental illness, shorter life expectancy, obesity) and social breakdowns (such as; high rates of imprisonment, homicide and teenage motherhood).
The authors also identify psycho-social effects of unequal societies; more status anxiety and feelings of superiority and inferiority. They identify the resulting status competition as a major driver of consumerism. [See: http://www.equalitytrust.org.uk/research/equality-and-global-warming]
Addressing income inequality has the potential to reverse these damaging cultural trends, enhance an equality of respect amongst people and mitigate the unsustainable trend towards excessive and unnecessary ‘over-consumption’. These social problems should make governments concerned to reduce income inequality for the inherent public good, but they also result in a significant, and perhaps unnecessary, cost for the government and for taxpayers.
Addressing income inequality is an opportunity to reduce public expenditure on social ‘costs’, freeing it up for investment in much needed social ‘benefits’.In fact, in modelling the transition of the British economy to a sustainable low-carbon future the New Economics Foundation find that reducing income inequality will be absolutely essential. [S. Spratt et al. ‘The Great Transition: A tale of how it turned out right’. 2009. London: nef. Retrieved from: http://www.transiciones.org/publicaciones/GreatTransitionNEF09.pdf]
Committing the country to the necessary carbon emissions reductions in the period to 2050 they reduced projected economic growth, the challenge of how to pay for key public services was overcome by introducing levels of equality found in Denmark which dramatically reduced the cost of social ills, making up for the loss in revenue. Increasing equality should be the foremost economic policy goal for developed nations on social considerations alone, never mind environmental. With environmental limits to continually growing the economic cake, a more equal distribution will be essential if social and environmental problems are to be tackled together.
The cost of unequally divided benefits from economic growth, is the depletion and undermining of the various environmental life support systems on which our economy and society depends. A comprehensive study of the excessive burden the economy is placing on the biosphere was undertaken by the Stockholm Resilience Centre which concludes that globally we are exceeding three of seven key planetary boundaries; CO2 induced Climate Change, Biodiversity Loss and the Nitrogen Cycle. [Johan Rockström et al., ‘Planetary Boundaries: Exploring the Safe Operating Zone for Humanity,’ Ecology and Society 14, no. 2, 2009, p.32; Retrieved from: http://www.stockholmresilience.org/download/18.8615c78125078c8d3380002197/ES-2009-3180.pdf]
- Other estimates suggest that our global ecological footprint surpassed ‘planetary carrying capacity’, the planets ability to regenerate resources and absorb waste, in the mid 1970’s. [Rob Dietz and Dan O’Neill Enough is Enough, 2013, London: Routledge/Earthscan, p.21]
- Global annual human use of materials; biomass, fossil fuels and minerals, has increased 4 fold since 1950 [Fridolin Krausmann et al. ‘Growth in Global Materials Use, GDP and Population during the 20th Century’ Ecological Economics68, no. 10, (August 2009) Cited in: Dietz and O’Neill, 2013, Op. Cit.p.19; Retrieved from: http://www.uni-klu.ac.at/socec/downloads/2009_KrausmannGingrichEisenmenger_Growth_in_global_materials_use_EE68_8.pdf]. Over a similar period global income inequality between the top and bottom fifth of countries has increased from 30:1 in 1960 to nearly 80:1 today. [Andrew Simms and David Boyle, ‘The Ratio’, 2011, London: nef. page.6; Retrieved from: http://b.3cdn.net/nefoundation/15c112d0bb14368496_ukm6ib653.pdf]
- Analysis suggests that for every £100 of extra global growth only £0.60, or 0.6%, goes to the poorest. [Andrew Simms and David Woodward, ‘Growth isn’t Working’, 2006, London: nef. Cited in: Burton, 2012, Op. Cit. p.17; Retrieved from: http://b.3cdn.net/nefoundation/7b6f36cb5e380aff0c_wsm6b1a5l.pdf]
The economy has grown larger than the planet can sustain and yet developed nations contain only 16% of the global population, 40% struggle to subsist on less than $2 a day. [United Nations Development Programme, Human Development Report 2007/2008: Fighting Climate Change: Human Solidarity in a Divided World. 2008. p.25; Retrieved from: http://hdr.undp.org/sites/default/files/reports/268/hdr_20072008_en_complete.pdf]
The developed world is consuming drastically more than its fair share of resources. And, as argued in Steady State Manchester’s In Place of Growth, there is no evidence base that economic growth can be decoupled from further absolute increases in material and energy use. [Mark Burton, ‘In Place of Growth’ 2012, Steady State Manchester. p.18-20; Retrieved from: http://steadystatemanchester.files.wordpress.com/2012/11/inplaceofgrowth_ipog_-content_final.pdf]
This is why Steady State Manchester, along with many ecological economists and sustainable development organisations, argue that further economic growth in developed countries, growth in aggregate production and consumption, is incompatible with social justice and climate safety.
A post-growth economy means that inequalities can no longer be hidden by an expanding cake (although actually, growth increases inequalities). This brings the question of equality into the spotlight. Responsible, sustainable development means a reduction in inequalities between and within countries. If we are to address issues of poverty, deprivation and disadvantage in Manchester, and allow ecological space for essential development in the majority world, we simply cannot afford the levels of income inequality that prevail.
When considering levels of income inequality, what is fair and what is sustainable, it is worthwhile to considernotional estimates of the average income that is compatible with using planetary resources sustainably. Whilst such large calculations are problematic and multifaceted, an informed estimate suggests that, at current levels of resource use intensity, the earth can safely sustain 6.2 billion with an average income of $5,100 (2008 prices). [Erik Assadourian, ‘The Rise and Fall of Consumer Cultures’, in State of the World 2010: Transforming Cultures, Linda Starke and Lisa Mastny, Eds. (Washington, DC.: Worldwatch Inst. 2010) p.6. Cited in: Dietz and O’Neill, 2013, Op. Cit. p.35; Retrieved from: http://www.worldwatch.org/files/pdf/Chapter%201.pdf]
Global population is currently around 7 billion and increasing. This is a humbling and challenging figure. It reveals the scale of the challenge for economies to develop towards ecological prosperity and starkly demonstrates how ballooning high pay is grossly unsustainable and incompatible with practical solidarity with the majority world.
Current mechanisms for determining levels of pay in the public and private sector are based on justifying principles which are a world away from considering the limits to individual claims over finite ecological space.
We would argue that public pay policies should take social and ecological value creation (and destruction) into account and this would imply a convergence of pay dispersion towards a socially just and ecologically fair level where variations of reward based on worker skills and role requirements would be more modest.
The Benefits of More Equality, Moving Towards Shared Ecological Prosperity
Social costs associated with inequality are a strain on national and local government resources, the good news is, taking actions to reduce it would result in considerable gains towards Local Government goals.
These include reductions in the social costs associated with inequality but also some opportunities for sustainable economic development including increases in the proportion of money re-circulated in the local economy, job creation and development towards a localized low-carbon/high-well being economy.
Equality as a Stimulus for Local Prosperity
Moves to address inequality have, in recent history, been rejected on the basis that they are detrimental to economic growth. Indeed the rise of inequality is arguably the result of the erosion of restrictions on, and taxation of, economic activity and the erosion of labour union power, on the assumption that they constrained growth.
There is increasing evidence that inequality is a barrier to the social goods we otherwise hope to derive from growth and that it is inhibiting the kind of selective growth needed to rebalance the economy to bring local prosperity and ecological safety. As a report by the High Pay Commission observes, the rich and the low paid use their incomes very differently. The rich tend to save or invest their incomes, particularly in property.
Disproportionate levels of investment in, and loans for, non-productive property assets has contributed to the rise of house prices and high mortgage/rental burdens for average earners. This has been at the expense of investment in other productive areas of the economy and at the expense of low income household consumption power in the productive economy. [High Pay Centre, 2013. Op. Cit.p.19; Retrieved from: http://highpaycentre.org/files/Reform_Agenda_Final_Report.pdf]
Ballooning incomes at the top can be seen as both cause and effect of the detrimental financialization of the British economy. [Nick Shaxson and John Christensen, ‘The Finance Curse; oversized financial centres attack democracy and corrupt economies’ 2013, Tax Justice Network. Retrieved from: http://www.taxjustice.net/cms/upload/pdf/Finance_Curse_Final.pdf]
In their report, the High Pay Commission model a redistribution of income from top to bottom through increasing low incomes and conclude that this would not only save the Treasury money but inject some spending power into the bottom end of the income distribution and result in a higher percentage spend in the productive area of the economy (that is, spend on food, goods and services). [High Pay Centre, 2013. Op. Cit. page.19; Retrieved from: http://highpaycentre.org/files/Reform_Agenda_Final_Report.pdf]
This evidence would seem to debunk the myth that we need to promote growth at all costs to enable alleviation of hardship and raise living standards. Starting policies to tackle income inequality now would take us closer to shared prosperity and, with the right complimentary policies, boost knock-on processes of job creation and economic re-balancing; that is, producing more of the things we need for a prosperous lowcarbon future, closer to home. This includes new low carbon technology and services but just as importantly sustainable food production, clean manufacturing and ensuring the benefits of existing economies serve people and places more equally.
This resonates with recent research here in Manchester advocating economic development which is attentive to the health and character of the ‘foundational economy’, the everyday economy, of non-high-tech, ‘mundane’ goods and services which make up a large employment base, and a complimentary re-localization of production through import substitution. [See: Karel Williams et al. ‘Against New Industrial Strategy’, 2013, CRESC Working Paper 126., Manchester: Centre for Research on Socio-cultural Change. Retrieved from: http://www.cresc.ac.uk/sites/default/files/WP126%20Against%20New%20Industrial%20Policy.pdf]
[And: Karel Williams et al. ‘Manifesto for the Foundational; Economy’, 2013, CRESC Working Paper 131. Manchester: CRESC; http://www.cresc.ac.uk/sites/default/files/Manifesto%20for%20the%20Foundational%20Economy%20%28Nov%202013%29%20WP%20131.pdf]
More equality can therefore be a stimulus for local economic development that is genuinely compatible with prosperity within ecological limits. More equality is a necessary step towards the transition to a ‘steady-stateeconomy’, an economy which stabilizes and maintains its rate of material throughput and pollution within ecological limits. A commitment to sustainable development in developed countries requires nothing less than this, as set out by Professor Tim Jackson in his report for the Sustainable Development Commission. [Tim Jackson, ‘Prosperity without Growth?’ Sustainable Development Commision Final Report, 2009. Retreived from: http://www.sd-commission.org.uk/publications/downloads/prosperity_without_growth_report.pdf]
If we are to achieve an economy that increases well-being within ecological limits in the near future, a reduction in income inequality is required. Increased spending power for, and investment in, re-localized production of the basic things we need is also a positive step in this direction. This report investigates what steps have been taken in Local Governments to reduce income inequality through their direct role as employers and their ability to affect pay inequality in the private sector as commissioners of services.