Tony Atkinson, Laura Bear, Wendy Carlin, Gareth Jones, Naila Kabeer, John Hills, Lisa Mckenzie, Diane Perrons, Thomas Piketty, Bob Rowthorn, Mike Savage, Stephanie Seguino, David Soskice Part 1, Piketty and inequality Stuart Corbridge, Provost of LSELSE International Inequalities Institute, @LSEInequalities, launched on 1st May. Cross-department institutes began about 25 years ago. Big rise in international inequality up to 1950; poverty reducing slowly in India, more quickly in East Asia. Mike Savage (Head of Sociology) has written about this. Bob Rowthorn, Prof. of Economics at Cambridge Thomas Piketty’s “Capital in the 21st Century: An Appreciation and Critique Key points: wealth is everything we own, at market prices, and wealth-income ratio (beta) has fallen sharply between 1910 and 1950 in Europe, but since then has increased again. Concentration of wealth also fell sharply 1910-1970, but becoming more concentrated again. So Piketty asks if we are returning to a 19C Patrimonial society, with wealthy elite living on inherited wealth. But bigger driver of inequality is earned income; football stars and super-managers. Self-employment income has not been important at the top level. Piketty’s main data findings (as above) are well-documented, but some queries about interpretation and causality. (1) Why has the wealth-income ratio (beta) risen?Beta = savings rate (s) / economy’s growth rate (g) according to Piketty. Piketty’s explanation is based on over-accumulation of savings. But alternative explanations are based on higher asset prices, including house prices. Housing is now 60% of wealth in Europe, 40% in the USA. Housing as a proportion of wealth has been increasing for more than a century, driven by house price appreciation. This is a story about asset prices, not about over-accumulation. (2) What is the relationship of r and gPiketty argues that r (return on capital net of tax) has been greater than g (growth rate of economy), then fell in mid-20th century, but will rise again (because of lower taxes on capital). And so he says that this will also drive the wealth-income inequality. This applies most to the very wealthy, but for the middle class, wealth is mainly housing. And the most disturbing thing is lack of access to housing for the bottom 30%. (3) Rise of super-salariesOne explanation could be rise in productivity of super-manager, but Piketty is sceptical of this, as it doesn’t explain why top pay is much higher in some countries than others. Pay of top CEOs is highest in countries with lowest tax rates (esp. USA), and Piketty argues this is a causal relationship; managers bargain harder where taxes are lower. But this is not very convincing; another explanation would be around social norms and the power of organised labour. Huge increase in top incomes in USA and UK is more likely a reflection of decline in the power of organised labour. Graph showing very clear inverse relationship between top 10% income and union membership. David Soskice Piketty focuses on the rich; both wealth and top incomes. DS wants to look at inequality and poverty (inc. Gini coefficient, 0 = complete equality, 1 = one person owns everything). Looking at period from 1945 onwards. Low and falling inequality on almost every measure from 1945 to 1970s, then rising again from 1980s onwards. Gini coefficient has risen from 25% (remarkably low) to 40%. And poverty rises really sharply through this period. Piketty makes too much of his simple r > g model, arguing that g > r from 1945 to 1975, but then r > g from 1980 onwards. Much more relevant are earnings (market income) and redistribution from government via taxes and benefits. DS’s political economic approach pays attention to (1) technology regimes, (2) labour market institutions, and (3) politics. From 1945 to 1975 there was a Fordist regime, huge demand for semi-skilled labour, strong unionisation, effective at absorbing young males from disadvantaged backgrounds e.g. into working in car plants. So low market Gini and low market-generated poverty. So we have moved from a period when the labour market took care of egalitarian issues in the economy, to one where the political system needs to do this (and isn’t). Under Fordism, both Labour and Conservatives supported the welfare state etc., because actually there wasn’t much need for it. Now that we have moved to a “knowledge economy”, the market no longer supports egalitarianism. And the middle-class vote, for which both Labour and Conservatives are competing, is now hostile to unions and benefits. In Denmark, Sweden, Norway etc. where there is strong union coverage for full-time workers, much lower Gini coefficient for these than for part-time workers who are not covered. Wendy Carlin Recent article by Paul Krugman arguing that market incomes are especially unequal in UK and USA for population aged under 60. Ireland is most unequal in this respect. Economic inequality is a result of differences in individual endowments, as also affected by (1) technology and (2) institutions and politics. Piketty focuses on inequality of wealth, but also need to look at market income, disposable income, consumption, wellbeing now, wellbeing in the future. What is the effect of inequality of wealth (beta) on wellbeing? In the UK, need to focus on housing wealth, as this is more equally distributed than other forms. A consequence on inequality was a rise in lending to low-income households, leading to economic fragility. Piketty’s argument is that a fall in growth (g) leads to r > g which leads to rising inequality. But does it really work like this? What about capitalist systems where decisions to invest are taken by managers, whereas decisions to save are taken by individual workers? This doesn’t affect beta (see article by Soskice in BJS). So macro-economists need to get into “broad explanation” role, looking at a variety of explanations inc. technology, redistribution policies, bargaining power. For the CORE project on inequality, go to www.core-econ.org and get a free download. Part 2, Piketty and gender Stephanie Seguino, Prof. at Vermont and SOAS Broadening Piketty’s Lens: Accounting for Intergroup Inequality. One of the factors has been the change in macroeconomic policy and globalisation, which has allowed capital to seek out opportunities globally and so reduce the bargaining power of workers, as acknowledged even by Alan Greenspan. Race and gender inequality are forms of economic stratification. So inequality is not a result of individual differences so much as of deeply-embedded structures. As well as class inequality, gender and racial inequality have an effect on economic growth. So income and educational equality stimulate growth via effect on labour productivity. The trends are not all in the same direction. Class inequality is increasing, but gender inequality in employment is decreasing. However, this has often meant a loss of men’s jobs, which has also led to an increase in DV in many countries across the world, e.g. Vietnam, where the cost of DV is about 2% of GDP. Gender inequality is greatest in ethnically homogeneous countries, e.g. the Caribbean and East Asia. Whereas in ethnically heterogeneous countries, the “bad news” of capitalism redounds especially on ethnically lower-status groups. Inequality is not inevitable, but a focus only on class inequality misses underlying dynamics. Naila Kabeer, Prof. at LSE The Challenge of Intersecting Inequalities. Milanovic (2012) found that the biggest inequalities are in the top and bottom 5%, and many of the “bottom billion” live in middle-income countries. Conceptualising inequality in terms of group-based identity (rather than income/wealth) draws attention to social discrimination and stigmatisation. Many of the bottom billion are women, and gender exacerbates the effect of different kinds of inequalities, i.e. women do worse within the various other groups. E.g. in Bolivia, lowest education for indigenous women in rural areas in the bottom income quintile. Similar findings in many other countries: India, Vietnam, South Africa, Brazil, Guatemala, Peru. The dynamics of social exclusion include cultural devaluation, e.g. experiment in India where children from lower castes performed equally well provided that their caste identity was concealed. And there is discrimination in essential services, economic discrimination (e.g. can’t inherit land), and denial of voice and influence. And social exclusion leads to conflict, so not surprising that there is high level of conflict in many of these countries. What is needed is discourse about rights, transforming relationships between state and citizens, balancing equality with difference in service provision, going beyond amelioration to transformation, locating efforts within a larger transformative agenda. Lisa Mckenzie, LSE Sociology The Politics of Class, Gender and Precarity As a working-class woman she likes stories, and Piketty’s book is the only book of economics she has ever read and enjoyed. Portrayal of inequality is seen in Hogarth’s “Gin Lane”. Currently see Young & Wilmott’s “Family and Kinship in East London”, and her own book “Getting By”, about the council estate where she grew up. Photo of the city of Nottingham from school playground, through the bars of the surrounding fence. She writes about men as well as women; recently men have become invisible, whereas women are very visible. Many women are very valuable, not in “wealth” but in contribution to the community. But Lisa was one such who volunteered in the community, and was then told she had to get a job, packing cheese in a factory six miles away with Eastern Europeans whom she can’t talk to. Similar story of Jim, who was volunteering in his local gym. Homes and community are being taken away from the least well-off; photo of the Focus E15 mums’ protest in Stratford. Women and children are at the centre of the fight-back, whereas men have become invisible now that the unions are gone. Thomas Piketty Sees himself more as a social scientist than a pure economist. It’s a big joke to pretend that economics is a pure science, validated by mathematics that nobody can understand. Whereas the social sciences are much more humble, recognising that we still know very little about many important issues. He recognises that gender and other inequalities are some of the most important issues that are not addressed in his book, partly because of lack of the data. But his book does make the point that the demographic of fertility is very important, in its impact on inheritance in countries with declining populations, e.g. China, Germany, Japan. Racial equality is also not addressed much in his book, though he does discuss the effect of slavery on economics. Obviously discrimination still continues, and a recent study shows the level of discrimination against North African students in France (experiment on effect of names perceived as being North African in CVs). Q & A Stephanie S: Race in the USA; we really haven’t looked sufficiently at the fact that the gender system is changing. And the unemployment rate of young black men in Chicago is now 92%. The economic elites have utilised race as a way to reduce the role of the state. Naila K: Gender gap has closed in some countries, but not in lower-income countries. Gender cuts across all forms of inequality, so it is possible to make progress. Lisa M: Gender studies isn’t a “Mickey Mouse” degree, but gender academics are often ignored because they’re not saying what politicians want to hear. Important to speak to the 99%, not the1%. Thomas P: Sustainability and falling populations is a complicated question; probably best to have small population growth. On a different question, how to communicate with economists; you should not leave numbers to economists. It’s important to look at what the numbers are really saying, and what’s being left out. E.g. in France, at age 20 men make 20-30% more money than women, but at age 50 it’s 80% more. And we shouldn’t underestimate the possibility of political change. Each country has its own particular relationship with inequality, and new forms of engagement can change things faster than we might expect. Part 3, Piketty in relation to space and time Laura Bear, Ass. Prof. Anthropology, LSE Timespaces of inequality: for a rapprochement of quantitative and qualitative approaches Her recent article, “Navigating Austerity”, JRAI 2015. Quantitative approaches lead to analytics and politics of redistribution. Whereas qualitative approaches take us inside social decision making, leading to analytics of forms of capital, and politics of change in forms of capital accumulation. A key foundation for a qualitative analysis of capital and time is the Marxist analysis of capital in motion as a social relation. Different rhythms of production (slow investment) vs. finance (fast investment), and Keynesian (slow investment) vs. Austerity state (fast return to markets). A second foundation is Bourdieu’s analysis of social action in time. Our acts re-make or un-make possible futures; “practice as temporalisation”. A third idea (LB’s own) is labour in and of time. Distinctions of class, race and gender are distinct rhythms of capital mediated across different timescapes. So we need to look at what timescapes different groups live in, and how institutions anticipate and take decisions. LB’s own research into austerity on the (river) Hooghly and timespaces of inequality. The Indian government suddenly demanded repayment of “debts” that had traditionally been regarded as social investments, leading to downturn in business, unemployment etc. So this qualitative approach to austerity shows that austerity is essentially about fast repayment of public debts to meet the demands of the bond market. It’s not just about the amount of debt. It leads to a discussion not just about redistribution, but about different ways of creating money. Gareth Jones, Prof. Geography, LSE Accumulation, uncertain temporalities & cities in an Age of Inequalities. “Homeless in San Francisco” (Theresa G) portrays the inequalities in contemporary SF. His gripe with Piketty’s “Capital” is that it doesn’t look at the geography of capital. We need to consider inequality not as an outcome but as a process, involving the qualitative relations of people to each other in specific spaces and times. So we need to ask: (1) What does proximity do in a world of extreme inequality? (2) To what extent does special proximity expose social and cultural differences? (3) How can qualitative analysis expose the temporal uncertainties of class in space? Many spaces are now outside state oversight, only selectively compliant with international laws and protocols on labour, human rights etc. In SF and other places, slums and homelessness exist in close proximity to gated estates. In South Africa, the state has given large amounts of capital to the poor, but analysis shows that inequality is now just as bad as it was in 2004 or 1994. Gated estates (e.g. in Durban) are a means to secure class against political uncertainty. Note that there has been virtually no change in ethnic distribution of housing across Durban between 2001 and 2011. So “elitespaces” such as gated communities may include a small proportion of ethnic minorities, but changing economic class is not the same as changing social class. “You can move in, but you can’t belong.” So inequality needs to be understood as lived practice; the histories of inequality live on in space. Mike Savage, Prof. Sociology, LSE Capital and Accumulation: rethinking social class for the 21st century. Class was taken off the sociology agenda for a while, but now it is coming back on. We need to think about class as a more temporal process, i.e. about aspirations as well as current status. Piketty’s contribution is about (1) the power of historical accumulation, and (2) a sociology of economic capital, alongside Bourdieu’s focus on cultural and social capital, and (3) a focus on the top end of the class structure, whereas sociologists have focused on the middle and working classes. So we need to shift from occupational to “capital based” models of class. Occupational models are not good at picking out inequalities. There are big and rising differences within occupations of the same class (e.g. CEOs vs. clergy). As well as the gender “glass ceiling”, there’s also a “class ceiling”, e.g. CEOs whose parents came from senior professional backgrounds earn 101k, vs 83k for CEOs whose parents did not. In the Great British Class Survey, the Elite class stand out from the others on all measures. We need to move away from focusing on the middle/working class divide, and look more at “top level” processes. But the “1%” is not a very useful concept for detailed analysis. A temporal model of class: (1) the wealth elite, accumulating multi-generational wealth, (2) the “meritocratic” middle/working class, accumulating over a lifetime, (3) the “precariat”, just “getting by”. Thomas Picketty Recognises that there are many dimensions of analysis that he wasn’t able to include in his book. The property relations between countries are important; Britain and France are both paid rent in various forms by other countries, as a result of their colonial past. And these property relations are portrayed as beneficial, but actually they often lead to violence. Inequalities of 1:3 or 1:4 are not generally problematic, but extreme inequality is. So it’s very important to look at all these different dimensions. Part 4, Piketty - where do we go from here? John HillsHe has analysed the manifestos of the 7 main political parties, looking at inequality-reducing and inequality-increasing policies. Green Party policies are all inequality-reducing, Labour mainly so, Conservatives mainly inequality-increasing, others mixed. So where do we go from here? Tony Atkinson Inequality and (LSE) International Inequality Institute. Recently published book, “Inequality: What Can Be Done?” Video of his presentation about the book is on CASE (Centre for Analysis of Social Exclusion) website. The election was very un-inspiring, with little to say about the really big issues. And the media did very little to broaden the debate, especially on inequality. Graph of frequency of the term “inequality” in UK news reports shows increase at end of 2013 and in 2014 (the “Piketty effect”), but no increase during the general election. TA himself was invited to write for one of the papers on the subject of inequality, but his article was rejected because the editor didn’t like his economic message. Public sector net worth as % of GDP increased after the war to a peak in the mid-70s, but then fell and (apart from slight recovery in 2002-2007) has continued falling ever since. So the main fall was under the Conservatives from 1979 to 1997. This is why we need a sovereign wealth fund (as even Boris J has agreed), to fund state spending. Most economics textbooks give only passing coverage to issues of poverty and inequality. Piketty’s achievement has been to pull together detailed statistical analysis of this subject with broader economic and social thinking, and bring these ideas to the attention of the wider public. So what can be done? See his book for further details, but action can take place at many levels. Individual consumers can make ethical buying choices. The LSE has signed up to the Living Wage campaign. There is clearly public concern about the issue. When TA’s book was reviewed by the New Yorker, they said that most of his proposals “are a non-starter”. But since then even some Republicans have said that more needs to be done. Thomas Piketty Tony Atkinson is the “godfather” of modern inequality studies, after Simon Kuznets in the 1950s. TP first met TA when he (TP) was a student at LSE in the early 90s. He (TA) is now being less cautious than before, in proposing specific actions to reduce inequality. TP agrees with TA that it’s important to look at public assets as well as public debt. In the post-war period many countries followed policies which enabled them to reduce or eliminate their public debt, using a variety of means, not just by running a current account (budget) surplus. Two of Tony’s proposals are reform of inheritance tax and property tax. Inheritance tax rate could be linked to other factors. And property tax (council tax) needs to be made much more proportional to property values. By contrast, stamp duty is highly progressive. There is a lot of arbitrariness in the tax system, and things can change over time. What TA’s book doesn’t cover so much is the international dimension, e.g. tax havens. But it does show that much can be done even without international cooperation. Q & A Tony A: Proposals that could be adopted by a Conservative government might include re-issuing index-linked bonds. Another possibility would be some form of citizens’ income, to address some of the problems with our current benefits system, with something like 23 million people dependent on means-tested benefits. We need a system of social transfers that would help remove the stigma. Thomas P: It would be perfectly consistent for the Conservatives to move towards a tax system that helps people on lower incomes to acquire property. Also more transparency about how multi-nationals report their profits. And some restrictions on capital and trade between countries are appropriate; completely free trade can be dangerous. Thomas P: Rise in housing values is a very big part of the increase in inequality, because it’s very difficult for the young generation to access housing wealth. So it’s sensible to tax property income a bit more, and labour income a bit less. And tax brackets should be indexed by default.