William Keegan
Sunday January 28, 2001
The other day I received two pages torn from the London Evening Standard with an
almost indecipherable scrawl at the top of one of them. This seemed to be drawing my
attention to a page on which there were three headlines: 'Monika has become a (role)
model engineer'; 'Thousands of Londoners set for water bill rebate'; and 'Kidnap
woman flees Britain'. I could not quite see their relevance to this column.
Then, over the page, I realised there was an article by the psephologist Peter
Kellner, based on some very important work by my old friend, Professor Robin Marris.
On close inspection the note overleaf had been written by the good professor
himself.
At a time when the most desperate Conservative Party for generations is trying to
match the Government's spending plans almost on a weekly basis, Marris's recent work
constitutes a timely contribution to what has already become the election debate,
and the concomitant question, 'What kind of society do we want to live in?'
For a start Marris demonstrates that the British are 'not as well off as we think'.
The Blair government has often had trouble with its boasts about the economy, but
broadly speaking it tends to argue that all the bad things are attributable to what
happened in 1979-1997, and the good life miraculously began on 1 May 1997.
Recently Britain has appeared to climb the league of economic prosperity, to a
position where, in the Group of Seven, it comes third after the US and Japan - so it
can tell German foreign minister Joshka Fischer and all those Europeans a thing or
two.
But Marris, a leading expert in international economic comparisons, points out that
such ratings have been distorted by what almost everybody agrees has been the recent
unsustainably high exchange rate. When measured in terms of national price levels
(or purchasing power parities) the UK comes fifth behind Germany and Italy.
More important to the debate about where we go from here with 'tax and spend' is
that, out of annual national income, we in Britain spend more on personal
consumption and less on health, education and investment than most other countries.
The popular impression that there is less 'public squalor' across the Channel is
borne out by the statistics.
When it comes to what economists term 'the distribution of income' Marris finds:
'Well-paid people in Britain have more spending power than their continental
counterparts, while people at the low end of the income scale are worse off than all
except the Italians.' Marris finds that this is because 'the UK is the least equal
of the major European economies', having wider differentials between high- and
low-paid workers, a less progressive tax system and a less generous welfare system.
Perhaps the most staggering finding is that, according to Marris's calculations,
Britain comes bottom of the G7 in health spending, with Germany and France spending
respectively 37 per cent and 64 per cent more per person. The implication is that,
despite all the preaching of the Thatcher, Major and Blair governments to the
Continentals on how to run an economy, when it comes to quality of life - which is
what economics, in the end, is all about - we have a few lessons to learn from them.
The Blair/Brown plans for a massive increase in public sector investment have come
none too soon. No wonder the Conservatives are nervous of appearing as the party
whose tax cuts would come at the expense of cutting back on current attempts to
redress the balance.
As it happens, Marris's calculations reached me shortly after the text of a most
interesting lecture by Professor Anthony B Atkinson, one of the world's leading
economists on the subject of welfare and the distribution of income. Atkinson
challenges the received wisdom that growing inequality is somehow the inevitable
result of globalisation or 'market forces', and argues that much depends on
government action and what society perceives as the appropriate 'norm'. ( Is Rising
Inequality Inevitable? A Critique of the Transatlantic Consensus, published by the
World Institute for Development Economics Research.)
Thus, in the UK between 1977 and 1984, inequality of 'market income' increased
('market income' being before taxes and government transfers), but 'the
redistributive impact of cash transfers and taxation increased by enough to offset
the more unequal market incomes... After 1984, however, the story is quite
different, reflecting a major reduction in the progressivity of income taxation and
cutbacks in benefit levels and coverage.' Inequality in 'market incomes' continued
to rise between 1984 and 1990, but inequality in post-tax income 'increased more
sharply'.
Atkinson believes we may not simply have witnessed a phenomenon whereby
'globalisation' hits unskilled workers in industrial countries, but that attitudes
too may have changed, with 'a shift away from a redistributive pay norm to one where
market forces dominate'. He thinks shifting 'norms' may have affected both
variations in pay and the willingness of governments to redistribute.
He concludes: 'The fact that the driving force is social in origin, rather than
trade or technology, means more scope for political leadership.'
For most of its brief life, the party we know - or perhaps knew - as 'New Labour'
was paralysed by its acceptance of the social norms that evolved under the previous
governments it used to criticise. There have recently been signs of a change, and
indications that Gordon Brown would like to go a lot further in disavowing the
Thatcherite inheritance. And about time, too.
Guardian
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