Abolishing extremes of wealth & poverty are vital for Hexham & UK Politics - this is what the Equality Trust say

In brief:

There are two main ways of reducing income inequality

• smaller differences in pay before tax (like in Japan)
• redistribution through taxes and benefits (like in Sweden)

In more detail:

Looking at examples of more equal rich societies we can see that there are two fundamentally different paths to greater equality. One depends on redistributing income from rich to poor through taxes and benefits, while the other involves having smaller differences in incomes at source - before taxes and benefits - so there is less need for redistribution. Although the two methods could be contrasted as the big government and the small government methods of achieving greater equality, the two approaches can of course be combined.

There are examples of each approach internationally and among the different states of the USA. For example, Sweden gets its greater equality through redistribution, through taxes and benefits, and public services provided by a big state. In contrast, Japan has a greater equality of “market incomes”, before redistribution. Differences in Japanese earnings are smaller even before taxes and benefits. While Sweden has a large state and well developed public services, in Japan government social expenditure makes up an unusually small part (compared to other OECD countries) of its Gross National Income. The same contrast exists among US states - even between neighbouring states like Vermont and New Hampshire. Vermont takes the big government route and New Hampshire the small. But despite the contrast in how greater equality is achieved, Sweden, Japan, Vermont and New Hampshire all enjoy good health, lower rates of most social problems - i.e. all the benefits of greater equality.

What this means is that how societies become more equal is much less important than whether or not they do so. There is no shortage of policy options for governments wanting to make a society more equal. There are hundreds of different ways of doing so: indeed, with government expenditure (central and local) averaging close to 40 percent of Gross Domestic Product in developed countries, it is impossible for governments not to affect income distribution. Preventing excessively high incomes and concentrations of wealth at the top is as important as pulling up the incomes at the bottom, and the first clearly provides the means for the second.

As well as more progressive income and property taxes and more generous benefits, we also need policies to reduce differences in incomes before taxes and benefits. That means higher minimum wages, more generous pensions, running the national economy with low levels of unemployment, better education and retraining policies, increasing the bargaining power of trade unions. Good labour law, protection of union rights and minimum wages are amongst the factors contributing to greater equality of incomes in New Hampshire. One of the factors which made a difference in Japan was how companies were owned and run. Differences in incomes of directors and employees in Japanese companies used to be smaller partly because almost all directors were people who had been promoted from among those who had worked their way up the firm. Other differences in corporate governance made unions influential stakeholders and union leaders were sometimes given seats on the board. Patterns such as these led to different ethical standards: Ron Dore describes how it was not uncommon for directors of Japanese companies to take pay cuts themselves to avoid laying off junior employees.

Read more about the benefits of Economic Democracy.

Political Will

Political will is however a precondition for success for the adoption of any effective policies to reduce inequality - political will among public and politicians alike.

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