Inequality and the 80’s

As DK kindly points out, in the postscript to this post, I’m the kind of leftie who likes to do the research and back up my arguments with evidence, so when I run into disputes such as this one:

Narrative #2: but, of course, one of the most popular narratives that the Left love to employ is that of the unsurpassed evil of the Thatcher years.

Chas, why not compare the increasing level of inequality between Labour rule and Tory rule, and then come back to me. I think you’ll find inequality increasing massively during Tory rule. But don’t let facts stand in your way!

Ah, yes: the facts. Shall we have a look at some facts? Tell you what, let’s look at an interesting table of data from the ONS, plotting Marketable Wealth from 1976–2003.

There! Do you see it?—that massive spike of inequality in the 80s? Do you see how equal everyone was in the 70s and how everyone is much more equal now?

What do you mean, “am I looking at the same graph as you?” Can’t you see… Oh, right.

…then my immediate reaction is to hit the stats and try to figure out whether or not anyone of this actually means quite what either Sunny or DK think it means.

On the face of it, DK appears to be right – inequality, as measured in terms of the percentage share of marketable wealth owned by the wealthiest X% of the population actually fell during the late 70’s and the first half of the 1980’s, Thatcher’s first two terms of office, after which is began to rise during Thatcher’s third and final term of office, rose a bit more under John Major, and then continued to rise through the first three years of Blair’s first term, peaking in 2000, after which it fell back a little bit over the three years to 2003, where the data ends.

QED…

…err, no, not really.

Look at the bottom line of figures for ‘total marketable wealth’ – notice anything interesting?

Yes, the figures increase over time and they increase by what are pretty significant and, in some cases, surprising amounts and nowhere more so, proportionately, than between 1976 and 1986.

If you look at the figures on their own you’d swear that that the late 70’s and early 80’s were an economic boom time for Britain, after all the country’s total marketable wealth increases more than threefold over the decade, and yet we know that for most of this period the economy was flat, if not in recession, that unemployment rose massively, that businesses were failing (and just businesses but whole industries) and that social unrest grew to the point where it sparked off riots in the inner cities.

For most of that decade, life was pretty shit and yet the figures tell us that at no time over the last forty years did our wealth increase anything like as quickly.

So what’s that all about?

Well, its about a few different things…

This is marketable wealth we’re dealing with here and to be even more specific, marketable wealth inclusive of the value of dwellings, so one of the main reasons that the amount of marketable wealth in the economy rose during this period, even though the overall economy was in poor shape for most of this period was simply because a significant amount of pre-existing ‘wealth’ – council houses – suddenly became marketable as a direct consequence of changes in government policy. Chuck in the first of the big privatisations, that of British Telecom in 1984, and work into your calculations that even the wealthiest individuals got hit in the pocket, to some extent, by the recession of the early 80s and you’ve pretty much explain both why the total amount of wealth rose so rapidly during what was otherise a pretty lousy period and why, on paper, the overall distribution of wealth appears to have shifted marginally in favour of those a bit lower down the food chain.

That’s the story of the early 80’s – Thatcher engineered a transfer of wealth from the state to lower middle classes and those parts of the skilled working classes whose industries managed to ride out out the recession, and, if you’re were lucky enough be in a position to benefit from transfer then your personal marketable wealth increased relative to those at the top of the pile.

After that, the economy turned and while Thatcher continued to transfer the wealth of the state into private hand by selling off the public utilities and nationalised industries – using the floation values, the government transferred £27 billion of state assets to the private sector between 1986 and 91, rapid growth in the economy began to inflate the amount of marketable wealth held by those at the top of pile, increasing their overall share in the process.

And that’s all fine and dandy… unless you happened to be amongst those weren’t in a position to benefit from Thatcher selling off the family silver…

DK wants to know where he should be looking for the ‘massive spike’ in inequality in 80’s… well, for starters he could try looking at the figures for the number of people living below what is generally accepted by governments, and other agencies, as being the ‘poverty line’, people with an income of less than 60% of the median income, and for that we need to refer to this graph:

And there’s your spike.

Between 1982 and 1992, the number of people with an income below 60% of the median income just about doubled and by 1992 there were two and half times more people with an income below both 50% and 40% of the median.

Now we do have to be a little bit careful her because what this shows, in part, is one of the limitations of using a relative income measure as a means of defining the ‘poverty line’ – the obvious statistic explanation for this spike is simply that the late 80’s boom raised the median income and that this, in turn pushed more people below the notional poverty line for no other reason than that their income failed rise at the same rate as the median…

…and if we were talking primarily about poverty then that would lead us into a interesting and rather complex debate as to relative merits of absolute and relative measures of poverty.

However, the subject here is inequality and, by definition, that’s a relative metric, so for our purposes here we can say that inequality certainly did increase during the late 1980’s and early 90’s and that a hell of lot of people did wind up missing Thatcher’s economic boat.

Right, let’s chew over another interesting graph – and this time we’ll try looking at disposable income before housing costs…

There’s that 1980’s spike in inequality again, and in case anyone’s thinking that maybe there’s some statistical jiggery-pokery going on here then I should point out that this graph is based on inflation-adjusted index figures generated by the Institute for Fiscal Studies.

Convinced yet…?

Fair enough – we’ll throw in another couple of graphs that should settle this and also tell us a little something about who actually got shafted during the 80’s and even, to some extent, why…

There’s your starter for ten, a breakdown of exactly what kind of households you’ll find sitting below the relative poverty line… and so we’re clear about what we’re looking at here, the numbers up the side are percentages and if you add the numbers together you get more than 100% – much more – because many of these households fall into more than one category.

Oh, I should point out that ‘other’ includes people with disabilities, the long term sick and non-working lone parents and the line for ‘all’ gives the percentage of the total number of UK household with an income below the relative poverty line.

Let’s take a quick run through the main points of interest…

1. Households with an income below the relative poverty line rose, as a percentage of the total number of households, from 13% to 21% between 1981 and 1991, before taking the cost of housing into account.

2. The people who most lost out over this period, relative to everyone else, were those who were unfortunate enough to be unemployed (up from 52% to 71%) , disabled, amongst the long-term sick or a non-working single parent (up from 36% to 51%) or over the age of 60 (up from 19% to 31%).

3. As we’re dealing with the Thatcher government there are instances in which we can ascribe some of these figure to the direct consequences of policy decisions made by that government. The rise in the number of over 60’s living below the poverty line is, of course, directly attributable to the Thatcher government’s decision to index-link the state pension to the rate inflation rather to rate at which wages increased.

4. One of the really interesting lines on the graph is the one for those two person households in which one works full-time while the other is not working. It doesn’t take a genius to figure out that this line represents the traditional Tory ideal of the nuclear family, in which Dad goes out to work and Mom stays home to look after the kids and what make this line interesting, in the context of the Tory’s policies on the family and all their talk about the ‘couple penalty’ is that this graph shows that from 1991 onwards, when the trend started to turn around for most other groups, theirs actually continued to rise and only started to turn the corner in 1997.

That’s an interesting point for the Tories to chew on. Between 1981 and 1997 the proportion of two-parent families within an income below the relative poverty line almost doubled (from 8% to 15%) as a proportion of the total number low income households.

Time for the second graph, which adds a bit more perspective because this time out we’re sticking with broadly the same breakdown of the demographic characteristics of low income households only now we’re going to factor housing costs into the calculation.

Take housing costs out of the equation, as in the first graph, and it looks for all the world as if things started to turn around for those on low incomes from around 1991 onwards – on the first graph there are some fairly sharp falls in some of the lines, particularly those for the unemployed, older people, the long-term sick and disabled and non-working single parent but, when you factor in housing costs those seeming improvements not only disappear for most groups and even the fall in the total number of household on low incomes suggested by the first graph vanishes almost completely.

The government giveth and the housing market taketh away. One of main drivers in the overall increase in marketable wealth since the 1970s – rising property values – is screwing those on low incomes and screwing them twice over. Not only do lose out in the wealth stakes because they don’t own their own homes and gain no benefit at all from inflation in the property market but when it comes to income inequality, any gains they have made during this period been swallowed up by the rising cost of rented accommodation.

Not so long ago, I advanced the view here and at Lib Con that, contrary to the opinions held by Tory hagiographers of Margaret Thatcher, it was actually Thatcher’s economic reforms of the 1980s that spawned Britain’s modern social and economic underclass and what we’re seeing here, in exploring the question of whether on not economic inequality did increase during the 1980’s, is one of the key economic mechanisms that drove that very process.

Some people did very well out of Thatcherism and some did passably well, their lives got a litle bit better, and some got completely fucked over, and its the one’s who got fucked over and their offspring that make up the core of today’s social underclass. That’s the bottom-line here, not because I’m writing from a particular political viewpoint but simply because that’s what the evidence says. It’s all there in the data if only you’ll look at it honestly and with an open mind.

For the avoidance on any doubt, it’s not my intention to take anyone’s side here – as you’ll see from this, this and this, the debate between DK and Sunny is still raging on unabated albeit that in-between the brick-bats and insults there’s actually some pretty interesting and useful evidence getting an airing.

What I do find more than a little frustrating – and this is generally and not just a function of this particular debate – is the extent to which these debates rapidly resolve themselves into a pissing content over which side runs the best tractor factory, one in which everyone gets to air their favourite shibboleths but no one actually bothers to listen to what the other side has to say and whether any of it might just contain a grain or two of truth.

Looking over the comments in DK’s original post, the one comment that comes closest to nailing the real issue here is that of Mark Wadsworth:

This whole ‘inequality’ thing is a red herring. It’s low and average earners we should be concerned about.

Reducing taxes (and benefit withdrawal) on low to average earners is easy and relatively cheap (in terms of lost tax revenues); as is increasing employment levels (scrapping Employer’s National Insurance, getting rid of regulations, scrap NMW, leaving EU etc) thereby making it easier for people to work (in the most literal sense) their way out of poverty and/or up the ladder.

Yes it certainly is about what happens to low and average wage earners in the economy and not about the general spread of inequality and it is about enabling people to work their way out of poverty and up the ladder.

Where he gets it wrong, and badly wrong at that, is in making the assumption that increasing employment levels by stripping away things like the National Minimum Wage, etc. will tackle poverty – it won’t and won’t for precisely the same reasons that the liberal free market of the 19th Century created massive inequalities and left large sections of the population living in abject poverty in what was, then and now, one of richest cities in the world – London.

Creating jobs, alone, isn’t enough to deal with these issues, you also have to put some sort of mechanism in place the precludes outright exploitation, which could mean regulation and a minimum wage but need not necessarily take that form. A citizen’s basic income would do pretty much the same job if set at high enough level, one that forces employers to offer better than poverty wages simply to attract employees, once the level of the basic income payment and the income tax regime attached to it is factored into the equation.

In another comment in the same thread, Roger Thornhill takes one of the right’s favourite hobby horses for yet another undeserved ride…

Biggest contributor to removal of hope? (drumroll) The Welfare State, Ladies and Gentlemen.

Bollocks.

The idea that the welfare state, alone, creates welfare dependency and all the ills that go with it is complete and utter bullshit and, as usual, there’s no shortage over evidence to prove the point…

What you’re looking, in the two graphs above, is the creation of a two of the main components large scale welfare dependent population in Britain – the first graph shows the number of claimants in receipt of family benefits while the second shows the numbers receiving disability and long-term sickness benefits.

Notice anything interesting?

Like the dates on the bottom of the graphs, which run from 1981 to 1998?

And when was the welfare state created? Yes… 1945!

For pretty much the first 35 years of its existence, the welfare state ran more or less as it was intended to run – as a safety net, a means of tiding people over in between jobs without letting them fall into poverty and with some provision for supporting those who, for whatever reason, were genuinely unbale to work for any kind of extended period of time.

In 1981, there were less than a million families receiving family-related welfare benefits (other than child benefit and maternity benefits) and around one and a half million people receiving benefits as a result of long-term sickness and/or disability. By 1997/8, the number of families in receipt of welfare benefits had exceeded 2.7 million and claimants of long-term sickness and disability benefits topped 6 million.

So when did Britain’s modern culture of welfare dependency begin?

With the creation of the welfare state in 1945 or with the economic reforms of the 1980s which resulted in, to begin with, more than three million people on the unemployment register and, a bit further down the line, in the government dumping people, en masse, on to sickness and disability related benefits in order to massage the headline unemployment figures.

The welfare state DOES NOT CREATE welfare dependency – not on its own.

To create welfare dependency you certainly do need a welfare state in order to sustain a welfare dependent population but you also need long-term mass unemployment and not just any old kind of mass unemployment but the kind that stems from the wholesale decline of one of more industries, the kind that renders obsolete the skills, talents and personal characteristics on which a section of the population have relied in order to earn a decent living.

That’s how you create welfare dependency and that’s what destroys hope – the realisation that the only things you have to offer a prospective employer are actually worth nothing in the employment market and that there is no demand for your skills and therefore no demand for you.

It took the Welfare State AND the economic and social impact of Thatcher’s economic reforms to create what is, today, a social underclass locked into a culture of welfare dependency.

In one of his follow up posts, DK links to Sam Tarran who offers up the following observation…

It’s all very well and fun throwing the arguments of lefties back at them, and all very well taunting the mentally challenged, but why should we actually care? Economic and social equality is a distinctly socialist idea.

Of course in a free society you are going to have inequality. Inequality should be a source of pride. It is the badge of a free nation. It is that vague line that separates Hong Kong from the rest of China. It is the transition from freedom and diversity to uniformity.

I’ll Sam’s rhetorical comments about ‘lefties’ pass on this occasion but the question he asks is an important one – should we actually care about inequality?

Well, Sam, you should care – at least to some extent – because too much inequality is the enemy of freedom.

If I can offer Sam a little well intentioned advice, he need to pick his examples just that little bit more carefully and give a bit more consideration to the history of countries like China, The Soviet Union, Nazi Germany and others, and in particular, how and why ordinary people came to buy into the political leadership offered by the Bolsheviks, the Jacobins, the Nazis, Mao Zedong, etc.

Government’s don’t get overthrown by popular revolutions because of political ideas and ideology. The get overthrown when, and because, poverty and inequality is the primary breeding ground of resentment against the ruling elite and if that resentment grows too great then, eventually, it will result in social unrest and even revolution. China became what it is today not because Mao Zedong convinced millions of Chinese people of the moral and ideological rightness of Communism in order to gain their support but simply because he convinced them that it would do a better job of putting food in their bellies and a roof over their heads than the ruling elite they had at the time – not to mention that he did do a better job of fighting the Japanese.

The same is true of the Bolsheviks, the Nazis and the Jacobins – you can only take inequality so far before it causes serious social unrest, the kind of unrest that most often gets met by political and military oppression which serves only to foster even more resentment and more unrest and more oppression… and pretty soon you end up with things spiralling out of control.

Throw a charismatic leader into the mix and, maybe, a new political ideology – one that promises a fairer and less exploitative society (which they invariably do) and, next thing you know, you’ve got a revolution on your hands…

Inequality is NOT the badge of a free nation – if it were then countries like Saudi Arabia would be amongst the freest societies in the world and not amongst the most oppressive. In a free society, some inequality is sustainable and even a sign of rude economic health, but too much is dangerous and destabilising.

This is the paradox that so many on the right fail (or maybe refuse) to understand – its when social and economic inequalities grow too great in a society that people start turning to ideas like Communism and Fascism, and its for that reason that inequality should matter, even to self-professed ‘conservative’.

  • Thank you for this. I enjoyed every sentence. Thank you.

  • Had a funny feeling you were going to post on this – nice job as usual.

  • I’m always sceptical of arguments that politicians of any brand are capable of changing society for the better; I prefer to work from the assumption that they (we) can strive only to not make things worse.

    I’d agree with your proposition that welfare dependency is rooted in the inability of the populace to offer marketable skills. But when I look at the growth in unemployment in the eighties, I can’t see alternatives that wouldn’t have been just as bad. Were the Conservatives of that era to have continued subsidising failing industries until the whole economy ground to a halt, then around about now we’d probably be living a version of the social model from Alan Moore’s V for Vendetta.

  • Haha

  • James, what exactly has lead you to believe that politicians can’t change society for the better. There are plenty of examples of political intervention in the economy that have been successful.

    As an example, Malaysia’s intervention in it’s monetary policy meant that it shrugged of the worst effects of the 1997 Asian Financial Crisis. Korea and Japan both owe their massive post WWII growth to activist industrial policies where the government played a very pro-active role.

    Also I’d point out that there are a number of developed countries that still have manufacturing industries, indicating that not all of the industries that went under were necessarily unsustainable.

  • Neil

    Interesting post. Thanks. But I think you are mistaking poverty for inequality at the end. People in abject poverty are indeed likely to be pissed off enough to be swayed towards revolution. But would inequality alone be enough to do it, if everyone is wealthy enough to afford life’s basics?

    Citing examples from around the world does little good. Both sides of the argument can point to countries that support their ideologies. But I think it is safe to say that whilst you can have massive inequalities in a country, along with a very authoritarian state (like your example of Saudi Arabia), it is unlikely that you will find a country with low inequality, that is also libertarian (or even approaching that).

    I think at the end of the day inequality is a red herring that is used to promote envy, and provide an excuse to tax those rich bastards.

    Lastly, maybe it was the Thatcher years that put so many people on benefits, but what kept them there? Has the welfare state been changed enough since 1979 to discourage those that end up there from trying to get off it? Also, many people in 1979 were from the pre-welfare days, to whom the work ethic was very strong. As these people have retired, perhaps the demographics have also changed.

  • p0wned

  • Hi Unity, Since you seem to have more data than most people I’m just going to put out my usual request that if you know where to get it could you please point me at the Gini co-efficient data (preferably both for before and after tax and benefits are taken into account) since 1900 or there abouts? just interested.

  • Ta for mention. As you raise the subject, I totally agree that a CBI is the only sensible form of welfare state (I was hinting at this with the phrase ‘reducing benefit withdrawal on low to average earners’), which is why I have a link to The Citizen’s Income Trust in the ‘People with sensible policies’ section of my blog.

    I’d invite anybody who’s interested to read their introductory booklet showing that such a system is perfectly affordable within existing tax/welfare budgets, assuming CBI were set at current Income Support/Pensions Credit levels – you’ve got to start somewhere.

    I’m still against the NMW. To put it bluntly, is it better for 4 million people to be earning

  • I’m glad that you did all this so that we don’t have to.

  • Fighting Fetus

    Neil @ 6: No, inequality alone won’t spark large scale unrest. But your blithe assumption that “everybody can afford life’s basics” may not survive the year as the hikes in domestic fuel prices filter through.

  • British Stuntman

    “To put it bluntly, is it better for 4 million people to be earning

  • Great post, nice to see some evidence to back up the claims, for once.

    The hilarious thing is that all sides seem to think they’ve had their point proven because of it…

  • British Stuntman, maybe those aren’t the choices – maybe the choice is between

    4 million people earning

  • redpesto

    Marc Wadsworth: To put it bluntly, is it better for 4 million people to be earning

  • Tremendous post. The best of blogging: researched, forceful, and overturning preconceptions. Simply superb. Thank you.

  • mishima

    Great post 😀

  • redpesto – that’s why MW and the other pro-CBIers advocate a basic living income, on top of which one gets wages. It removes the whole notion of a “starvation wage”.

  • Just want to join the chorus saying “excellent post”. I have a few comments to make on the last part (after the Sam Tarran link), but can fault little of what comes before it.

  • Now I want someone to prove statistically that this really is the best post ever.

  • Ken

    Mao didnt fight the Japanese. The KMT did most of the fighting in China. The bit about the communists fighting the Japanese is propaganda. I dont really buy the “best leader” bit in Mao’s case, since he gained power the old fashioned way – with the barrel of a gun – he brought the stability of the warlord to China. I will buy “popular leader” in the case of Hugo Chavez. A plonker, but actually the people’s plonker. Venezuela is a great example of too much inequality, a lot of wealth, a stable, but corrupt political elite. The elites in Venezuela didnt spend any money on the poor. I still remember seeing the old woman on TV saying she would vote for Chavez because he had brought them electricity, a stand pipe and a concrete clinic (manned one day a week). Yes, if you get that much inequality, then you get a (Bolivarian) revolution. It will almost certainly end in tears, since he hasnt actually got a clue how to run a country or an economy, but the elite in Venezuela brought Chavez on themselves.

  • So why does hardly anyone post about the government new package of home buyers.
    news.bbc.co.uk/1/hi/uk_po…

    the package of ideas involves;
    1 “Free” five year loans of up to 30% of a property’s value for first time buyers of new homes in England
    Homebuyers will not have to pay stamp duty on properties costing

  • After all those compliments, I think I’d better read the post now.

  • Thank you for the research.

  • Richard Evans

    Why do most of these graphs end in the late 1990’s? Surely you have more up to date figures than those? I want to see what’s happened to “poverty” during this New Labour govts. time in power