Calum Crichton is
a Finance graduate from the University of Strathclyde. Calum won the 2012
University of Strathclyde's Journal of Economic Studies Prize and recently
received Glasgow City Council's 2013 International Finance Services District
Award. He lives in Glasgow and is a Youth Rep for Better Together.
The Scotsman this week featured an interesting article from Gerry Hassan about the role inequality is playing in the
debate about Scotland's constitutional future. His analysis was framed in the
traditional way: do Scots really want to be part of a country that is,
according to OECD statistics, the fourth most unequal in the world? Do Scots
really want to be part of the same country as London, the
most unequal city in the developed world? These are questions the SNP have
been asking Scots over the past few months.
But, like most things the SNP say, the initial picture is
misleading. Inequality is measured by the OECD using the Gini coefficient,
which ranges from 0 (everybody has identical incomes) to 1 (all income goes to
one person). It can basically be thought of as a snapshot of the income gap of
a country, which is the result of a series of outcomes over time. It does not
inform us what these outcomes are, nor does it tell us how these gaps have
Increases in the Gini coefficient often trigger calls for more
redistributive policies, but increases in inequality are not necessarily by
themselves a problem. Although empirical studies show there is a point at which
inequality becomes damaging to an economy, it may also be the result of robust
economic growth. A series of research papers stretching back to the 1950s, for
example, identify the channels through which inequality can rise due to
In a capitalist society, market forces allow those who acquire
new technology or skills to be rewarded through income gains. Over time, this
group accrue wealth and increase their savings, enhancing the rate of capital
accumulation and generating higher investment. Such a system, whereby
individuals and firms are rewarded for productive work, creates a wave of
entrepreneurial talent and drives up economic growth, increasing overall
employment in the economy. That is why affluent, knowledge-based cities tend to be more unequal.
So it could be argued that inequality is the consequence of what is essentially a good outcome of a capitalist society – a thriving private sector. Equally, increases in the Gini coefficient can arise because of
bad outcomes, such as the inability of individuals to earn more than the
minimum wage. This of course implies that people are either leaving education
with inadequate qualifications, or are unable to start apprenticeship schemes or
other forms of training. Poor lifestyles, such as alcoholism and drug abuse, can
also be a factor in increasing inequality.
In a similar vein, decreases in the Gini coefficient can arise
for a variety of reasons. A fall in inequality because of the introduction of a progressive tax system, or because the lowest earners receive wage
increases could be seen as a good reason. But reductions in inequality caused
by falling earnings is bad (the UK's Gini coefficient has fallen from 0.36 to
0.34 for this reason).
So what's all this got to do with Scotland's constitutional
future? Firstly, it is important to note that not all inequality is bad, and
not all equality is good. Unequal wage structures occur right across the UK,
including in Scotland. Due to the success of their respective North Sea oil and
financial services industries, for example, Aberdeen and Edinburgh have much
higher levels of inequality than Glasgow, which has a larger proportion of its
population on benefits. A key challenge for policymakers is therefore to look
at the underlying factors driving Gini coefficient outcomes, and take action
The SNP like to argue that only independence would reduce
inequality for Scotland. Yet there are lots of powers the SNP already have to
achieve this aim. In the recent budget they could, for example, have decided to
invest in the education and skills of young Scots instead of slashing the
enterprise and college budgets. They could take steps to address
the fact that Scotland has the lowest proportion of students from poor
backgrounds attending higher education anywhere in the UK. They could
also introduce measures to tackle the ridiculously high health inequalities in Scotland.
they are not addressing these issues, instead opting to use taxpayers' money to
fund 'free' prescriptions, eye tests, tuition fees, bus passes and elderly care whilst obsessing about Scotland's constitutional future.
If the SNP want to make the case for independence
based on reducing inequality, then ultimately the Scottish people will need a lot more
detail and explanation than they've been getting.