Inequality: What Is To Be Done?
By Anthony Atkinson.
Reviewed by Tom Clark.
“You say you want a revolution,” sang John Lennon, before adding a characteristic barb: “we’d all love to see the plan”.
The way the world’s economic establishment discusses inequality invites a Lennonist response. After decades of denying any problem, it came to accept that there was an issue during the slump. Just before taking office, David Cameron would invoke The Spirit Level, and – more recently still – earnest executives have chatted about Thomas Piketty’s Capital in the 21st century at Davos. It is terrific that such books have become fashionable, but as long as the discussion remains in the realm of generalities – as long as we haven’t seen “the plan” – it will be less than threatening to the have-a-lots, and less than useful to the have-nots.
In this new book, the doyen of inequality economics in the UK, Anthony Atkinson – whose many students have included Piketty – sets out what a real plan for reducing inequality would look like. Where Piketty illuminated his data with the sweeping categories of a continental intellectual, such as “labour” and “capital”, Atkinson writes in the more measured tradition of the British empiricist. The conclusions, however, are just as disruptive.
Atkinson does not want a revolution, nor even to eliminate all economic distinction incrementally, as reformist socialists such as Bernard Shaw once hoped to do. After a lifetime of analysing inequality, the Atkinson ambition is merely to narrow the gap in the UK to where it stood when he started. It ought to be a realisable dream – it is a reality in egalitarian corners of northern Europe – but after an election in which Britain rejected moderate social democracy in favour of an inequality-indifferent Conservative government, it may seem impossible.
Atkinson demonstrates how – without violating any fiscal constraints – different political choices could start to make a difference. To give some examples, he would overhaul the absurd council tax, which charges big homes proportionally less than small ones, and on the strength of the depressed valuations of 1991. New Labour and the coalition both cravenly refused to update these to reflect the windfall that the property market has gifted to homeowners, in London especially; chancellor Atkinson would put that right.
Where George Osborne pledges to cut inheritance tax Atkinson would instead recast it, replacing a leaky levy on the estates of the dead with a harder-to-dodge charge covering large gifts during life, as well as posthumous bequests. He would sharply increase benefits and reduce means-testing. That would cost serious money, of course, but – if the politics allowed for it – this would not be a problem, because a newly progressive income tax, rising in steps to a top rate of 65%, would bring in serious revenues. To those of us who grew up in Thatcher’s shadow, this may sound like impossiblist stuff, but Atkinson demonstrates that the constraints are purely political, not economic. One of his many scholarly assaults on the conventional wisdom exposes the research that Osborne relied on in cutting the 50p rate. Atkinson details how this study, which concluded that the “super-tax” wasn’t raising any money, had dubiously assumed that top incomes were all salaries rather than self-employed fees or anything else, and further that they came about solely because of individual effort. If inflated top salaries are instead, to any degree, awarded at the expense of other people, then higher top tax rates are justified.
Wild as the redistributive menu will seem to the average MP, it transpires that swallowing everything on it would only take Britain halfway back to the 1970s in inequality terms. At this point, lesser spirits would give up, and retreat from a problem that is looking too difficult. Atkinson, however, continues, moving beyond taxes and benefits. This means the book gets more difficult, but also more interesting. The other half of the inequality-reducing work has to be done through policies on competition, technology and jobs, all fields in which the presumption has long been that the market knows best.
A dash of industrial democracy could help, particularly in relation to top pay. So, too, would new rules on corporate mergers. They should no longer be nodded through on the assumption that lower prices for consumers were the only good: the prospects for jobs should become a consideration, too. And instead of passively submitting to an unstoppable tide of technology, public policy should take some responsibility for the direction of its flow.
This is the sort of meddling from which today’s orthodox thinkers run a mile. Their point of departure – first in university textbooks, and then in the analysis that economics graduates go on to perform for government departments – is a complete and perfectly competitive market, which hums along beautifully if left to itself.
Atkinson is a first-rate economist who long ago mastered the orthodoxy, and so is well‑placed to take it to bits. Patiently, he explains why excessive profits may not be competed away, and why laissez-faire cannot be relied on to get the most out of every resource. Some of the specific quibbles and caveats with the orthodoxy are familiar, but I’ve never seen them all pulled together in this way before. He demonstrates that the fantasy world of perfect competition is not the right starting point for analysing reality. That insight discourages the lazy intellectual imperialism that Zoe Williams refers to in her book, Get it Together,when she describes “some idiot with a PPE degree who can’t remember anything except that he knows everything, and nobody else can understand”. If we don’t want such idiots running the country, we need to assault the intellectual edifice on which they stand.
Atkinson also has a keen sense of history. He explains how anti-trust laws in the US, nowadays narrowly justified in efficiency terms, were originally born out of concerns about fairness. He highlights, too, how the course of industrial technology has often been set by the planners’ guiding hand. All this helps him break out of the frighteningly narrow terrain that economists concede to public policy. In a world where City shenanigans are more in evidence than perfect competition, all sorts of interventions could help to reduce inequality – union activity, technology policy, moves to cut corporate companies down to size.
“I don’t care who writes a nation’s laws – or crafts its advanced treatises – if I can write its economics textbooks,” said Paul Samuelson, the man who wrote the most famous textbook of the lot (Economics: An Introductory Analysis, 1948). At one point, Atkinson explains that he is not writing a textbook, but perhaps that’s what he should do next. For as well as demonstrating that something could, after all, be done about the wealth gap, he also shows the urgency of a new economics, one based in the real world, instead of marketopia.