Ryan Bourne is the Head of Public Policy at the Institute of Economic Affairs.
The Conservative Party is a broad church. So it’s perhaps not surprising that a response to the question ‘What is the Conservative position on inequality of outcomes?’ requires a great deal of nuance. Whereas Margaret Thatcher clearly indicated that she was concerned with absolute living standards for all and not ‘the gap’, contemporary Conservatives seem confused (to put it charitably).
In his 2013 Margaret Thatcher lecture, for example, Boris Johnson highlighted what he believed were the positive effects of a chasm between haves and have nots, saying “some measure of inequality is essential for the spirit of envy and keeping up with the Joneses that is, like greed, a valuable spur to economic activity.”
Yet this week he mused: “There is a problem with wealth inequality in my view…Human beings judge themselves by how they relate to other people.” Whilst not directly contradictory, the change of emphasis is clear.
In last week’s Budget, too, George Osborne decided to declare: “I said we would all be in this together and here is the proof…inequality is lower” – celebrating the change in the inequality of income indicator. Perhaps both he and Johnson have taken on the advice of Toby Young, the Conservative journalist , who last year declared: “To defeat the Left, the Right must embrace equality”.
Now, I happen to think inequality of income or wealth are not particularly interesting issues, either way. In fact, in my opinion it would be a huge mistake for the Conservatives to make them so, because it would cede so much intellectual and policy territory unnecessarily. Why?
First, a given distribution of income and wealth is determined by millions of factors, interactions, free exchanges and policies – both at a global and domestic level. The Left seems to assume that it is just an outcome which can be easily controlled by a government, provided we’re just willing to tinker with income tax rates.
The reality is that a commitment to lower inequality as an aim implies a willingness to reassess a number of policies that could have other damaging outcomes (such as making us poorer). I would be unwilling to make this sort of trade-off. I agree with Thatcher: our absolute living standards should be the priority. That doesn’t mean inequality is a ‘good’ thing – rather, it means we simply shouldn’t care about it.
Second, the supposed ‘damaging effects’ of inequality on a host of other variables that we hear about are just not convincing. The Spirit Level, which purported to show that countries which were more unequal tended to be more violent, unhealthy, horrible places to live etc., has been debunked extensively elsewhere.
The statistical analysis contained within that book was primitive to say the least. But even more recent headline grabbing reports from the OECD, purporting to show that inequality harms us by adversely affecting our future growth prospects, are – on closer inspection – not really about inequality at all. In fact, behind the headlines, the report explicitly made clear that there is “no evidence…that those with high incomes pulling away from the rest of the population harms growth”. The mechanism through which they found that ‘inequality harmed growth’ was actually more about the interaction of low incomes with education – which is not surprising, but then again not really about inequality per se either. John Cochrane makes this point well on the IEA blog.
In fact, the only obvious reasons that I can see why we might be concerned with inequality is if its underlying causes are things that worry us. If some people are getting rich as a result of cronyism, or failures in corporate governance, or through rigged property markets, or unjustifiable subsidies to particular industries, then we might regard a particular distribution as somehow illegitimate or unfair.
Yet even where this is the case, note that our objection here isn’t really about inequality, but instead about the lack of competitive markets operating (often to the detriment of the poor). We can adopt policies to deal with these issues at source. Being concerned with inequality is therefore very different to be being concerned with poverty or unfair competition – though there may be desirable policy actions which just happen to mitigate both.
My fear is that Conservative politicians have not really thought through this complex web of issues, but instead are merely highlighting inequality now because inequality happens to have fallen in the recent past – traditionally a declared aim of the left. This is worrisome – because it’s obvious looking at the data that inequality has primarily fallen simply as a result of the recession, and the rich thus being made even less rich relative to the poor. It’s not clear this is something the Conservatives should want to take credit for.
Are they, for example, saying that catastrophic recessions are a good thing? Are they signing up to the pseudoscientific nonsense of the Spirit Levellers which implies we should all be cracking out the champagne, because the smaller gap will make us healthier, happier and less violent? Of course not. But by legitimising the aim of inequality reduction as an issue, the Conservatives are simply making a rod for their own backs, given that inequality may well rise slightly as the economy recovers.
Indeed, it’s not clear to me what the Conservatives have to gain from this emphasis. Just as attempts to ‘neutralise’ the NHS and the national minimum wage as election issues has actually escalated them – given Labour will never allow itself to be outbid on its own turf – so those concerned with inequality being too high will not be satiated by a mild recession-induced fall. Inequality rose structurally in the 1980s as the UK economy was liberalised, and the egalitarians regret that. Given the improved performance of the UK economy since then, the Conservatives shouldn’t. By indicating that it exercises them, they’ll forever be accused of not doing enough to combat it.
What’s more – and the IFS pointed this out last week – the aggregate figures are largely meaningless for most people. Sure, inequality may have fallen if we assume everyone in the country faces the same inflation rate. But they don’t and haven’t. Most people lower down the income scale feel more squeezed because they have faced significantly higher price rises since 2008.
This speaks to a broader truth: most ordinary people don’t sit at home worrying about their incomes relative to others. They are concerned about their rent, their gas and electricity bills, their pay packets and how much tax they are paying. I agree with Tim Montgomerie and this site that the Conservative Party has a perception problem when it comes to representing the interests of low income voters. As I’ve written before, a pro-market agenda in areas such as housing, energy, food, and childcare could go a long way to improving the lives of the least well off. But the Conservatives should be careful not to make the huge mistake of implying that concern for the living standards of the least well off is synonymous with caring about the direction of an inequality number.