We Do Not Need To Be Poorer To Be More Equal

Proving that, with Dan Hodges gone, even the most right-wing Labourites are nevertheless now Labourites, James Bloodworth writes:

Tory MEP Daniel Hannan has a provocative piece in today’s Telegraph in which he argues, among other things, that a “poorer society will be more equal”:

“A poorer society will more be equal for the obvious reason that there are fewer assets to spread. That doesn’t make it equal in other ways: hunter-gatherer tribes often have huge gradations of status, including concubinage and hereditary slavery. But inequalities of physical wealth are a product of, well, wealth…In other words, as a result of Labour’s recession, egalitarians got their way. The materialism that they rail against declined.”

It’s an interesting piece. However one of Hannan’s fundamental assumptions is wrong: poorer societies are not necessarily more equal.

There is a proper debate to be had about whether inequality if good or bad for growth that was re-ignited recently by an IMF paper which concluded that inequality did hurt growth prospects.

The research also found that redistribution to address inequality was only negative in terms of growth when redistribution reached extreme levels.

That said, it’s not unreasonable to argue that inequality is neutral or positive for growth in certain circumstances.

But Hannan’s problem is this: his blanket statement that “a poorer society will be more equal for the obvious reason that there are fewer assets to spread” is just plain wrong.

Richer countries tend to be more equal than poorer ones largely because, as Jonathan Portes has pointed out, as societies get richer they develop mechanisms to spread income and wealth that poorer societies lack.

Similarly when Hannan uses the example of the Second World War and the recent recession to support his case – i.e. to say that inequality fell sharply because people got poorer – he ignores the real reason that inequality decreases in those instances: society had put mechanisms in place to mitigate inequality, such as tax credits, the benefits system and higher income taxes for the rich.

Daniel Hannan has got it wrong (again).

A poorer society is less likely to be a more equal society.