Let’s hear trumpets over declining gap between rich and poor

Poverty, deprivation and inequality are all down, but keeping the momentum and staying on the right track will be tough, writes Dan O’Brien

THIS following statement is from an IMF country report published last week about the post-crash period. “Income inequality deteriorated markedly, with the top 20pc of the population earning almost 7.5 times as much income as the bottom 20pc.”

The report looks at an economy that enjoyed more than a decade of very high growth up to 2008, much of which was driven by construction. That same economy was then hit by one of the deepest recessions that a developed country has ever experienced.

The country under the IMF’s microscope last week was Spain, not Ireland. The dismalists in Washington have never written anything of the sort about this country because Ireland has been very average in European terms when it comes to how income is distributed — according to the latest data from the CSO, the top fifth of earners in Ireland had incomes 4.7 times the lowest fifth, a much narrower margin than in Spain.

Despite a widely held misconception, perpetuated by ideologues and populists who position themselves as Trumpian defenders of ‘the people’, income (and wealth) inequality in Ireland has been very stable for as long as it has been measured. That has been the case despite an economy that has been rollercoastering for many decades and despite trends in some other rich countries which have seen inequalities rise over the past 30 years.

The latest figures on living conditions in Ireland, published last Wednesday by the CSO, included, as it happens, two measures of income inequality — one comparing the incomes of the bottom and top fifths of earners, the other using a more complicated measure known as the ‘Gini coefficient’. Both measures showed that income inequality fell in 2015 compared with 2014. By both measures, Ireland is now more equal than the EU average. As Europe has the most equal income distribution in the world, that puts Ireland close to the top of the global equality rankings.

There was plenty more good news in the living conditions survey, known as SILC. Poverty fell in 2015 and material deprivation declined, too. Average incomes rose for almost every group measured in the figures. And regional inequality in incomes declined.

These findings didn’t get much media coverage, as is often the case with good news. Another reason the findings didn’t make headlines was because the improvements for the most part were small, as such changes tend to be from one year to the next in periods of stability. Only in booms and busts do big movements in material living conditions tend to be recorded.

But the survey, which is by far the most comprehensive and rigorous when it comes to living conditions, does show that the healing goes on after a property crash that was just beginning exactly 10 years ago. The figures also show that by many material measures, it will take until the next decade before the healing process is complete.

One of the most important takeaways from the data relates to where the policy focus should be. Much of the discussion among activists and ideologues is focused on measures of material inequality. There is certainly good reason to pay close attention to how income and wealth are spread. But it is important to note that no democracy uses policy to try to bring down inequality. Policy measures in free societies — including the Nordic countries — instead target poverty and deprivation.

There are very good reasons for this. The most important reason is that distribution of income depends on a bewildering array of factors. In some cases, very good developments, which nobody opposes, can make societies more unequal — while catastrophes, which no right-thinking person would wish for, can lead to greater equality.

Consider an example of each. John and Patrick Collison are twentysomethings from Limerick. They were not born with silver spoons in their mouths. Now they are self-made billionaires thanks to the phenomenal success of their electronic payments startup, Stripe.

These two young men went from being in a household with an income level not very far from the national average to having income and wealth levels enjoyed by only a handful of people across the world. Although they now live in California, if they moved home Ireland would instantly become a more unequal society.

Would anyone wish they had not been so successful or that they would not one day bring their talents home? Could there be any reason why the benefits of their business to wider society — in terms of employment, investment and tax revenue — should be curtailed? Can anyone think of downsides to their success, other than the skewing of the inequality figures? The answer is surely no.

The opposite of wealth creation is wealth destruction. Few things destroy wealth more effectively than wars. Recent historical work on material inequality has found that one of the most effective levellers of incomes and wealth is violent conflict. That is because physical assets are blown up when bombs start exploding, financial assets become worthless in wartime and incomes are cut when big conflagrations break out. Because, by definition, the rich have the most assets and highest incomes, they also have the most to lose from wars. Yet who would wish for war, with all its horrors, so that incomes and material inequality could be reduced?

As the multifaceted and complex nature of equality does not easily lend itself to policy interventions, governments don’t try to influence it — though almost every country redistributes the incomes of the better off, via taxation, to those with less, via health, education and welfare programmes.

There is, of course, always more that could be done to better target anti-poverty programmes and there will always be demands for additional resources. Education is probably more important than any other factor over the longer term, in both equality of opportunity and of outcomes. But everything from well-designed welfare systems to effective enforcement of competition policy (to keep the cost of living down) all count, too.