Inequality, Epidemiology and Economics

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Public health is an alternative indicator of well-being and is strongly correlated to levels of equality or inequality. Greater equality means greater well-being for everyone and a smaller need for the state – yet inequality has been increasing dramatically.

My father was called a “public health inspector”, later, an environmental health officer and, although I trained as an economist, I have, for many years of my life, worked on the fringes of the health and social services – having dealings both with mental health services and also with the public health services. During and after this time it always seemed blindingly obvious to me that health statistics provide a far better indicator of improvements (or deteriorations) in well-being than increases in GDP. After all, GDP can rise because business for undertakers is booming and prescriptions for anti-depressant pills are soaring.

As a matter of fact, it is the business of public health professionals to address themselves to what makes a society and community healthier, physically and mentally. They look into this with epidemiological studies to identify what needs to change for positive improvement. They have another way of looking at the issue of what constitutes “improvement” – and arguably a much more tangible one than that of neoclassical economics.

Over time, as social and economic conditions have changed, what public health professionals have addressed has changed too. In the early nineteenth century it was necessary to battle to clean up urban areas and install an infrastructure to improve public hygiene and sewerage disposal – services which proved to be far more effectively developed by innovating local authorities than by the free market.

In our own times however, epidemiological research has shown that improvements in public health require something that free market economists don’t like to hear about – greater income equality. Inconveniently for neo-liberals, there is a great deal of evidence for this – and perhaps even more surprising for them, the well-being of the better off groups in society tends to be higher in more equal societies too. This may seem counter intuitive to people with a neoliberal way of thinking about things but the evidence exists. As a society becomes more equal the health and quality of life of the better off also improves.

The book The Spirit Level by two professors of epidemiology, Richard Wilkinson and Kate Pickett, gathers together a large amount of evidence. (Wilkinson & Pickett, 2010). Since what they have discovered is an unwelcome finding for many academics they have been accused of cherry picking their data but, as they explain in rebuttals of their critics in the second edition of the book, they chose data sources on strict criteria to ensure that genuine comparisons were possible between countries. As they explain too, their findings have been common knowledge among epidemiologists for decades. They quote the editors of the British Medical Journal in 1992 who wrote:

The big idea is that what matters in determining mortality and health in a society is less the overall wealth of that society and more how unevenly wealth is distributed. The more evenly wealth is distributed the better the health of that society. (Wilkinson & Pickett, 2010, p. 81)

Evidence for a correlation between poor health and income inequality exists for physical as well as mental health and drug addiction. Lower life expectancy, higher rates of infant mortality, shorter height, poor self-reported health, low birth weight, AIDS and depression are all higher in more unequal societies.

Many non-health issues are also correlated with the degree of inequality. Indicators of educational attainment, violence, measures of imprisonment and punishment all vary with the degree of income inequality. Some critics have alleged that these are just statistical correlations and that Wilkinson and Pickett have not proven causative connections. Perhaps a book that causes severe cognitive dissonance is not one that they want to read closely for the allegation is not true.

But how does it come about that the better off also have their health and life quality improved if a society moves towards greater equality? One of the first achievements of public health practitioners in 19th century Britain, the improvement of public hygiene and clean water supplies, not only turned out to be good for the poor, it turned out to be good for the relatively well-off too. Wealthy people too had died in the cholera epidemics. They too suffered from the stench of the drains and the failure to clean the streets.

There are multiple knock back effects of income inequality too. Earlier in this book the evidence about consumerism and “affluenza” draws attention to the way in which people with extrinsic values, who pursue income related purposes and status ends, do not achieve happiness. How could they?

The consumer culture systematically muddles things that are not at all the same – if you seek and achieve status then you put yourself above other people. If people look up to you because of your wealth and power then you separate yourself from them and create a treadmill for yourself to maintain or even increase that distance. You may indeed then surround yourself with sycophants – neoclassical economists are good at fulfilling this role for rich people – but the emotional quality of your relationships will not be very high. You may, of course, create stylised rituals with any people who are prepared to believe that they are your inferiors – your butler, chauffeur or chamber maid. Within the constraints of those relationships you may feel the comfort of familiarity as someone gets to know you and appears to accept you for what you are. However, these are not exactly close relationships. You will not be able to share feelings of vulnerability and loss which are bound to occur in life, nor warmth and human closeness. The inability to empathise with others, which is what Adam Smith described in his Theory of Moral Sentiments as the foundation of morality, will be closed off to you. (Smith A. , The Theory of Moral Sentiments, 1759)

You will also have to accept a great many restrictions to your life, for example, living in a gated community; the need for extreme care and for a personal body guard. All this in addition to the inability to understand why your life still feels empty, and the fear of sharing that with anyone which will all degrades your quality of life.

I recall when I worked in Germany in the 1990s, one of my colleagues was a Brazilian professor of architecture from the University of Rio de Janeiro who was on sabbatical leave. She loved it in Germany because she felt safe there. She would explain to me how, in Rio, she would choose a different route
to work each day, at a different time, because she was terrified of armed young men hijacking her car
or kidnapping her. This was a common occurrence and a relative of hers had been murdered when he resisted having his car stolen. Her life in Rio was thus, one of chronic gnawing fear. Rio at that time was one of the most unequal cities in the world with extreme wealth and extreme poverty coexisting side by side.

Meanwhile I live in Nottingham which, a few years ago, was one of the leading cities in the UK for gun violence. It was, and still is, a city with an economic development strategy based on its being the regional shopping capital. Nottingham has had a policy of promoting itself as a major centre for night clubs for the relatively wealthy young people who were at, or had just graduated from, the two universities. The city centre is an “in your face” consumer centre – for those who can afford it. Meanwhile, over many years, the working community of Nottingham, the people who had worked in Raleigh’s bicycle factory, Boots the Chemist, the textile industry, telecommunications and the local pits – and who had lived in the inner city, lost their jobs. Many of them lost their homes too as estates were broken up in slum clearance programmes which in turn broke up supportive extended family relationships and scattered people into new estates on the edge of the city. Many of the young people in these estates, unemployed and without qualifications, looked from the outside at the party in the city centre that they had little money to join in with and developed strategies of their own. Many either sold drugs or took drugs – or both – and then fought turf wars with guns to be top dog. And/or they ended up on psychiatric wards and the drug addiction unit. The (probably very temporary) city centre success story has a dark shadow.

The implications of the Wilkinson and Pickett research, and that of their colleagues, is profound. However you look at it, the evidence is that greater well-being is to be found through greater equality and that, without it, societies become highly dysfunctional. The fact that this idea does not occur
to most economists, indeed that it is an anathema to them, is no doubt because of the very false set of concepts and values that the economic religion has implanted in their minds. Margaret Thatcher expressed their mind set when she claimed that “there is no such thing as society”. And indeed, if you read most economics textbooks it is pushing it a bit to describe them as “social” science. Because the “methodological individualists” take tastes and preferences as givens and do not delve deeper into
how these preferences are formed it is easy for them to be left with the impression that it is as if people calculate their individual interests in isolation. If you amputate the social and institutional processes of preference formation from your theory of the world then you will indeed end up believing that there is no such thing as society because you let no consideration of social processes ever pollute the purity of your individualist theoretical construct. Ignoring leads to ignorance.

But of course “methodological individualism” is a complete nonsense. Much of advertising is to encourage people to show off via their consumption. It is the encouragement of a toxic kind of social relationship but a social relationship it is nonetheless. And we influence each other in many other ways too.

One should also say here that, even in a very conventional economic sense, the inequality research
has multiple economic implications that have scarcely begun to be explored. For example, if more
equal societies have better educational attainments then that has major implications for economic performance and efficiency. Whatever view you have of the economic future, whether you think of it in conventional mainstream terms in terms of a growing “knowledge economy” or whether you think of it, as I do, in limits to growth terms, a better educated labour force is good news. It suggests that economic efficiency is actually encouraged by more equality – an idea that you won’t find many economists exploring.

Greater equality means a smaller need for the state

Yet the idea is plausible, as is, on first impression, the surprising idea that greater equality would probably lead to a smaller state and ultimately to lower taxes. Adam Smith put his finger on the key issue at stake here:

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all. (Smith A., The Wealth of Nations, 1776)

From this follows that the greater the gulf between rich and poor the bigger the government, the more it has to do and the greater the expenditure it will need. As Wilkinson and Pickett explain:

Greater inequality actually increases the need for big government – for more police, more prisons, more health and social services of every kind. Most of these services are expensive and only very partially effective, but we shall need them for ever if we continue to have high levels of inequality that create the problems they are designed to deal with. Several states in the USA now spend more on prisons than one higher education. In fact, one of the best and most humane ways of achieving small government is by reducing inequality. Similarly the assumption that greater equality can only be achieved through higher taxes and benefits, which presumably led the Tax Payers’ Alliance to publish its criticism of The Spirit Level, is also a mistake. We have been at pains to point out that some societies achieve greater equality with unusually low taxation because they have smaller earnings differences before taxes. (Wilkinson & Pickett, 2010, pp. 294-295)

Sadly, arguments on their own are not enough. As the gulf between rich and poor widens, the possibility of any communication of ideas and social feedback across the growing divide gets smaller and smaller. So too does the chance of communicating with a state set up to defend the rich and pre-occupied with their own interests.

Growing inequality

At the time of writing, the gulf between rich and poor in most countries globally is now very wide indeed. There are good reasons to believe that the gap could get wider. One of very few economists to actually study inequality in depth is Thomas Picketty, a professor at the Paris School of Economics, in a very large tome published in French in 2014 and in English translation in early 2015.

Picketty argues that the history of inequality cannot be reduced to purely economic mechanisms:

The history of inequality is shaped by the way economic, social and political actors view what is just and what is not, as well as by the relative power of those actors and the collective choices that result.
(Picketty, 2014, p. 20).

The social and political mechanisms were particularly visible in the shocks during and between the world wars roughly in the period from 1914 to 1950. In this period, inequality fell dramatically in many European countries and to some degree in the USA. This was largely through taxation regimes to pay for the war as well as political responses to the aspirations of mobilised populations.

At other times, economic trends within capitalism have pulled in contradictory directions. There have been those processes that have tended to increase inequality and opposite processes tending to reduce it, such as, the increasing diffusion of knowledge and skills. It is, however, the forces for inequality that have tended to prevail.

The chief driver of increasing inequality according to Picketty is a rate of return on capital, r, which
is greater than the rate of growth, g. In shorthand r > g. This is because the very rich get most of their income, not as a payment for employment (including for management) but as a return on their capital, whereas, most others are earning an income from their work.

When the rate of return on capital significantly exceeds the growth rate of the economy… then it logically follows that inherited wealth grows faster than output and income. People with inherited wealth need save only a portion of their income from capital to see that capital grow more quickly than the economy as a whole. Under such conditions it is inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labour by a wide margin, and the concentration of capital will attain extremely high levels… (Picketty, 2014, p. 26)

His book is full of statistics which make his point about rising inequality – although not as high as it would have been had not “the shocks” of the interwar periods occurred. In that period, inherited wealth took a hard knock in many countries. Throughout most of history, most people have lived in poverty in their old age and then died with little or no wealth at all. However, as society becomes more unequal, the rich are at their most wealthy in their old age and at death and pass on their inheritance. This is observable by comparing the average wealth of people in their fifties to people in their eighties. During the crises early in the 20th century, the ratios changed dramatically. On the eve of the First World War,
in France, octogenarians were two and a half times as wealthy as people in their fifties. In 1930 they were only 50% wealthier and by 1947 the people in their 50s were actually 40% wealthier than those in their 80s. (Picketty, 2014, p. 396)

After a period of reconstruction following World War Two, inequality has been on the rise for several decades. In ball park figures, global GDP has grown at about 3.3% pa and average world wealth per
adult has grown at about 2.1% pa per adult after allowing for inflation. However, the average annual growth rate of income for the top 1/ (100 million) highest wealth holders has been more like 6.8% pa and average. (Picketty, 2014, p. 435)

Other studies at slightly different dates give other figures for income inequality and wealth inequality. The figures differ but they are all huge – greater than at any time in human history. A 2006 study by James Davies of the University of Western Ontario together with Anthony Shorroks and Susanna Sandstrom of the United Nations University – World Institute for Development Economics Research, found that the richest 2% of adults in the world owned more than half of global household wealth. Wealth here is taken to mean net worth – the value of physical and financial assets less debts.

The same study found that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth. (Davies, Shorrocks, & Sandstrom, 2008)
Since 2006, there has been the global financial crisis of 2007 and its aftermath. This crisis has not stopped the concentration of wealth increasing and concentrating even further. The super-rich have governments and central banks to look after their interests. If they get into trouble they are mostly bailed out. It is the rest of us that have picked up the losses… and our increased vulnerability makes it even easier for the super-rich to rip us off.

As growth falls off, the rich are still able to continue to take a rising cut of world income so inequality is likely to rise even further in the absence of equalising political intervention. The processes that limit growth, like depletion of fossil fuel sources, are creating new opportunities for the elite as they corner the increasingly scarce natural capital resources and make everyone else pay high prices for them. This is very clear for example in the high and rising price for oil and natural gas. As the cost of bringing new production of oil and gas rises, much existing production in remaining oil and gas fields will have a lower production cost and will make a big rental income from the difference between the oil and gas price and their lower production costs. This money will likely flow into funds and part of these will be used to buy up other natural capital assets…

Of course we can try to tell these wealthy that they would be better off in a more equal world. However, they are now so far away from us ordinary mortals that it is doubtful that most of the super-rich, and the organisations that work for them, are any longer within communication range. A very large part of their wealth (and operations) is hidden in tax havens and secrecy jurisdictions. According to some estimates to a value of between 10 and 30% of global GDP. (Picketty, 2014, p. 466)

It was this fact that the rich have opted out of responsibility to the community that they dominate that brought the eruptions of the Occupy movement – which was then met by closed minded thugs in uniforms, armed with pepper sprays.

The classic Chinese oracle, the I Ching, says of revolutions: “The object of a revolution must be the attainment of clarified, secure conditions to ensure general stability on the basis of what is possible at the moment.” (Wilhelm(Tr) & Baynes (Tr), 1984, p. 49)

What is possible at the moment are the creation of “lifeboat projects” for a world in crisis. Federated and networked together these can constitute a “solidarity economy” to attract millions of people as the world of the super-rich hits the rocks of ecological limits. No doubt they will try to solve the resultant crises at our expense and we must also devise joint strategies to counter a further increase in inequality in an aggressive and yet constructive way. Then again, violent revolutions in a world armed to the teeth will destabilise rather than stabilise.

These political economic issues are discussed further later…

  1. Simon Grant

    Very compelling addition to and contextualisation of Wilkinson and Pickett, and Piketty (not “Picketty”!) Thanks!