Reviewing Economic Inequality

Britain – by historical and international standards – is a very unequal place. After a decade that brought us the Spirit level and a new generation of important research, the political left is now starting to do more than simply point fingers at obvious culprits.  Here, an appraisal of economic inequality in Britain is prompted by the review of two publications.

 

It is a painful irony that as Britain’s socio-economic divisions have become inexorably wider that class politics and identification is still scarcely acknowledged. Instead, false divisions are elevated in the form migration politics and, wrapped into this, and our role in the European Union. The left loses this sort of fight that just distracts from a discussion about the root causes of economic and social. The health of a society is measured at its base, not at its apex. Yet, “success” is still measured by the presence and indulgences of a plutocratic class and its rapacious drive for more. Its influence over the consumerist intentions of those beneath is just as toxic. The problems at the bottom aren’t merely exhibited by the existence of zero hour contracts and low pay jobs, but also depend on which side of gender and geographic divides these fall. Women, migrants and those outside the south east get disproportionately pounded by Britain’s inequality problem. Something needs to change.

econ ineq

In a decade that brought us The Spirit Level, the most important research-based attempt tailored for a non-academic audience, and important new academic research into comparative trends in economic inequality Britain’s think-tank-ocracy has now chipped in with a number of studies examining how far wrong we’ve gone. Work by the New Economics Foundation and a joint effort by the IER and Class is looked at here as a means of accessing where we are.

 

Reviews

 

The dimensions of ‘economic inequality’ are complex. Although the labour market and the wages earned within it are still of crucial importance, the pan-generational accumulation of asset wealth has not only created enormous inequality in housing provision but the wealth derived from this has widened a divide between the haves and have nots over time. The IER-Class booklet Trade Unions and Economic Equality, which is mostly set within labour market concerns, does nonetheless provide an powerful graphic presenting this point: 50% of the population own 91% of the country’s wealth with the other half owning just 9%. The role of asset wealth being kept and passed on is within families is fairly self-explanatory, but part of the origins of this is based on unequal labour market outcomes from generations ago, as is our failure to address the labour market end of this problem now. Labour were scoffed at a few years ago when they floated their pre-distribution maxim. A natty, leaflet-friendly political slogan it is not, but it has its descriptive merits. Correcting the market’s inevitable unequal distribution should be taken beforehand rather simply relying on ex post facto redistribution through an often messy taxation system. Our failure over several generations to do either, through pre- or re-distribution, has meant our equality candle has been burning at both ends.
The IER-Class pamphlet ironically, being much shorter than the NEF pamphlet although focused on the labour market, deals with this subject far better. The NEF pamphlet has a pointed attempt at dealing with labour market determinants of inequality but deals with the promise of collective bargaining in a rather fleeting manner. In identifying the need for a new institutional framework to generate better labour market outcomes it proposes to create a new ministry of labour, much like that which exists in many European countries, but does not elevate the role of collective bargaining. Their use of term “institutional framework” should imply broader structural frames that provide an actual ‘framework’. But beyond this proposal to create an activist ministry of labour, as useful as this is, there is very little. Odder still is that within this apparent, institutional framework, a very specific proposal concerning labour clauses in contracts is offered. This question of labour standards in public contracting is an important policy proposal, but it is not a ‘framework’ issue. Not only is this a more specific policy proposal but is one best achieved, and drawn from, a broader commitment to collective bargaining as it collective agreements that most defined labour standards would be drawn from and imposed into public procurement contracts.
There was one point where the NEF attempted to provide more detail, but produced a muddled point concerning ‘embedded’ collective bargaining in France, Denmark and Holland. Besides the point that Denmark has very high and relatively stable union membership rates (contrary to their claim), no attempt to grasp important differences between these countries, and the lessons these point to, is forthcoming. France, with very low union density, uses legal extension mechanisms to extend those collective agreements that do exist across the rest of the sector if a collective agreement is not present. This is necessary because the sort of organic collective bargaining seen in Nordic countries, and traditionally in Germany, is thin on the ground. This highly legalistic approach is buttressed by a parallel and relatively high (circa £7.50) legal minimum wage (‘SMIC’) to force industrial peace and more egalitarian outcomes. This extension is performed by the sort of activist ministry of labour the NEF envisage, although they do not raise this point concerning the promotion, and extension, of collective bargaining. France has very low union membership rates and traditionally adversarial labour relations, much like Britain (Feldman 2006). This latter point probably makes France a more realistic case to emulate for British labour relations where employers have entrenched non-cooperative cooperate values.
Denmark has much more cooperative industrial relations as well as high membership rates, the latter for two reasons: One is the role unions play in administering unemployment benefit (as is the case in Sweden) and the fact that retired members are still tallied in membership numbers. Although Nordic examples are probably harder to emulate in Britain, there are lessons for unions in regards the powerful role they can have outside of workplaces. Unions can lead state-funded skills programmes and build projects like Union Learn and community group links like that with the Workers Education Association (WEA) to provide skills. This would go a long way to correcting the insider–outsider problem UK unions have long suffered with.
The comparative European view of industrial relations is an important one, but the complexities of the relationship with collective bargaining need to be grasped. An earlier IER-Class collaboration, Hendy and Ewing’s Reconstruction after the crisis: A Manifesto for Collective Bargaining, achieves this. For example, Nordic countries like Denmark and Sweden have had their high union density and high collective bargaining coverage rates cited as important in their low rates of wage inequality. Other examples confound this however. Austria has very high collective bargaining coverage (99%), medium-low union density rates (28%) but very high rates of wage inequality. The Netherlands, raised by the NEF offering, have a similar arrangement, but have relatively low inequality. Why? The answer lies in the nature of Austria’s industrial structure, presenting a very high number of small firms and the problems of wage coordination and enforcement that result. The Dutch have a similar regime as the Germans, although they have much higher collective bargaining coverage and much lower wage inequality. Germany is a very worrying example. Long seen as an admirable ‘model’ it now boasts inequality that’s comparable to Britain’s. Although it does not have legal extension mechanisms like France and has only introduced a legal minimum wage this year.
None of this is meant to undermine a case for renewed collective bargaining, in fact it is absolutely essential. But the complexities of comparisons and the interaction of collective wage bargaining with legal institutions and industrial structure are just that: complex. In trying to address labour market, and a swathe of other inequality concerns, the NEF has not perhaps covered any sufficiently. The the IER-Class pamphlet, as well as the Hendy and Ewing pamphlet from last year, is much more compelling and focused. These two IER-Class collaborations together are an important part of a REAL labour market reform case.
Hendy and Ewing offer a real attempt at a ‘framework’ inclusive of an activist ministry of labour, a detailed role for sectoral collective bargaining as well as detailed legal reforms required to scaffold this. The nature of law’s relationship with bargaining is crucial and will need powerful Ministry of Labour that can take on entrenched industry practice and union-hostile courts. These two authors foreword a Trade Unions and Economic Equality booklet that provides a neat pocket book accompaniment to the more meaty and detailed booklet by Hendy and Ewing. The TUC could do a lot worse than print thousands of copies of this booklet and hit University campuses with it. A generational break has left many young people today not knowing what unions do. This must be remedied.
The pay gap between the CEOs of the FTSE100 and their average employees has tripled since 2000. CEO pay stands currently at 143 times that of average wages in these companies. At Primark’s owner, the gap was 361 times. At Whitbread, CEO pay was 415 times that the average wage. Incestuous corporate boards can’t be allowed to set pay for themselves and their workers with such a free hand. Taxing them can only do so much. Providing workers with the resources and rights to head off these practices from outset before taxation becomes part of it would be far more successful. This recognition needs to be grasped for REAL labour market reform to take place and for the tide of inequality to be stemmed and reversed.
There is only one pie, but it can ­– and must – be cut very very differently.

 

Andy Morton is CHARTIST’s web editor and is doing doctoral research in comparative political economy, EU law and industrial relations. CHARTIST are currently doing a poll on THE WORLD OF WORK. See the link below to complete it and please send to friends.

 

Addressing economic inequality at root, NEF. Helen Fersley & Faiza Shaheen.
Trade Unions and Economic Inequality, The Institute for Employment Rights (IER) and Class, Lydia Hayes and Tonia Novitz.
‘Real’ labour market reform demands collective bargaining’s revival, A. Morton. Oct, 2014.
Labour’s lessons on Zero Hour Contracts: Review of IER Booklet, A Morton. Nov. 2014.
Reconstruction after the crisis: A Manifesto for Collective Bargaining. Ewing and Hendy review, A. Morton.
Labour’s broken political economy I: the world of work (TAKE THE POLL)
Low-wage Work in the Wealthy World. Gautié.J and Schmitt.J (eds) (2009)
High Pay Centre