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Economic Inequality and Social Justice –Lessons from the Northern Europe
Presentation of Judy McKnight, Member of EESC, Group 11, (Employees), at the Annual
meeting of the EEA Consultative Committee at Akureyri, Iceland, 3-4 May 2012
I am very pleased to have the opportunity of participating in this debate on the issues
of economic inequality and social justice.
What we can hopefully do in this discussion is start to dig below some of the raw
statistics in this area and hear direct from our colleagues in Iceland, Norway and the
other Nordic countries, about their experience of these issues and the impact of the
banking failure and on-going economic crisis.
In particular, how these policies have impacted on their relative success as being
more equal and more socially just societies than most other developed market
economies. We can then consider the lessons for the rest of the EU; perhaps
especially at a time when there is increasing evidence that growing inequality stifles
economic growth, yet when the social dimension of Europe is under severe threat
from the austerity measures being introduced in response to the economic crisis.
Austerity measures which not only further exacerbate the increase in economic
inequality and further undermine the basic tenets of social justice, but measures for
which there is an increasing body of evidence, are restricting economic growth, and
thereby delaying further, the end of the economic crisis.
I should start by putting my cards on the table and saying that, unlike my fellow
panellists this afternoon, I am not an academic. My background is as a trade union
official in the public sector in the UK since the early 1970s.
While I have been aware in general terms that there was a growth of economic
inequality in the UK over the past decades, however, I was genuinely shocked when
I read an article in The Guardian in February 2011, pointing out that, since 2003,
Britain had mimicked US style income inequality, with income at the very top having
shot ahead such that the top 1% had swallowed 60% of income growth. It also stated
that the average pay in Britain would be no higher in 2015, than it was in 2003, after
taking account of inflation. Thus for most working people, their real net disposable
income would not have increased for 12 years at least.
It made me sit up and do a bit of digging on this subject.
Certainly the research of the OECD very graphically shows that Iceland and the
other Nordic countries tend to be far ahead of other countries in respect of social
justice and the Nordic countries continue to have lower levels of inequality than other
wealthy countries.
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In 2011 for example, the research organisation Bertelsmann Stiftung, produced a
“Social Justice in the OECD”, which included an index on Social Justice , which
showed that out of 31 countries, the top 6 countries, were, in descending order:
Iceland, Norway, Denmark, Sweden, Finland and the Netherlands.
By social justice the OECD identified 6 areas;
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
Poverty prevention;

Access to education;

Labour market inclusion

Social cohesion and non-discrimination

Health

Intergenerational Justice.
Its definition of social justice is as a concept that has the “aim of realising equal
opportunities and life chances” and is “able to garner the consensus needed for a
sustainable social market economy.” It “depends less on compensating for exclusion,
than it does on investing for inclusion.”
Equally, in respect of income inequality, the Nordic countries have traditionally been
in a league of their own.
Again to quote the OECD,
“On average, the richest 10% of the population in OECD countries have 9 times
more income than the poorest 10%. In Nordic countries the gap is less stark – but
still the rich there have 5-6 times as much income as the poor. “
So if the Nordic Countries top one set of indices, the UK tops another.
The OECD’s 2011 Report “Divided We Stand”, showed that since the mid-1970s, the
UK had a greater increase in income inequality among working age people than any
other wealthy country.
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The Report showed that the annual average income of the top 10% in 2008 was 12
times higher than that of the bottom 10%; up from a ratio of 1 to 8 in 1985 and
significantly higher than the average income gap in developed nations of 1 to 9.
Just prior to the 2008 recession, the top 0.1% of highest earners in the UK
accounted for 5% of total pre- tax income, a level of wealth hoarding not seen since
the 2nd World War. In the UK at the same time as increasing their wealth, the rich
have seen their taxes fall, with top marginal tax rate falling from 60% in the 1980s, to
40% in the 2000s. Having increased to 50 % in 2010, under the Labour Government,
in the Conservative/Liberal Democrat Coalition Government’s latest budget, they
have announced that it will revert to 45% in 2013.
The OECD concludes that labour and social policies in rich nations have helped the
wealthy. In Britain, although spending on pubic services increased in the past
decade, benefits to the poor were worth less and taxes were less distributive. The
effect was a weakening in the state’s ability to spread wealth throughout society.
From the mid - 70s to the mid - 80s the tax benefit system offset 50% of the rise in
income inequality, it now manages only 20%.
Although the OECD Report figures stop just before the recession, experts say the
trends continued into the downturn.
The OECD also point out the particular implications for young people, and expresses
concern that: “Youths who see no future for themselves feel increasingly
disenfranchised.”
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In the UK, research conducted by the Financial Times in March this year, based on
statistics from the UK Data Archive, showed that for the vast majority of generations
in the 20th century, real living standards at any age level were higher than those of
the previous generations. This trend ceased in 2000, long before the economic
crisis, when incomes of households headed by people in the 20s stopped rising.
The growth of unemployment for young people across Europe and the EEA is a
concern. Eurostat data shows Spain with the worst statistics, with a staggering
50.5% of under 25 years old unemployed, and the UK does not fare well with 22%
youth unemployment, but the Nordic countries do not do all that well either in this
regard. Norway is not too bad with 7.6% youth unemployment, but Iceland cannot be
complacent with 15.5 youth unemployment, nor Denmark with 14.7%, Finland with
20% and Sweden with a very worrying 23.5% of under 25s unemployed.
And what is interesting is that it is not just people like me with my trade union
background that are shocked and concerned by these developments. Opinion polls
show wide scale concern at the sharp rise in inequality.
There has been an increased recognition that there is something fundamentally
unfair and unjust about societies where the benefits of economic growth go to the
super rich and are not shared across society.
In the UK, traditionally right wing newspapers have recently led campaigns against
the unfairness of the hugely excessive bankers bonuses at a time when ordinary
workers are facing little if any pay rises, when welfare benefits are being slashed and
yet the UK’s Government talks of “us all being in this together”.
According to the OECD in almost all countries apart from the US and Japan, more
than 50% of people say that inequality is too high and in the UK 65% say so.
The rise in inequality led to the rise of the Occupy Movement, and by November
2011 the Occupy protests were taking place in 92 cities and 85 countries worldwide.
Although authorities have cleared away many of the Occupy camps, they remain as
active as ever, albeit being forced to adopt more guerrilla type tactics in their
protests.
So what is to be done?
The OECD Report recommends that to rebalance society there should be a series of
measures that focus:-
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
on job creation,

on increased redistributive effects

and on freely accessible and high quality public services in education, health
and social care.
In other words Social Justice, exactly those measures from which the rest of the
world can learn from Iceland, Norway and the other Nordic Countries.
Some interesting questions arise from these findings. Let me briefly address three of
them:1. Whether the promotion of economic inequality has worked in helping
economic growth or whether the trend to more unequal societies in recent
years been a significant contributory factor in leading to the economic crisis?
2. Whether or not inequality is effective in respect of economic growth, is having
such a divided society a price worth paying?
3. If there is increasing evidence that an increase in inequality is a major
contributory factor behind the economic crisis, why are austerity measures
being adopted that undermine social justice and make inequality greater than
ever?
1) Does a growth in inequality generate economic wealth?
The Austrian- American Ludwig von Mises, one of the leading economists to speak
in favour of the superiority of the markets, wrote in 1955:
”Inequality of wealth and incomes is the cause of the masses’ well-being, not the
cause of anybody’s distress… where there is a lower degree of inequality, there is
necessarily a lower standard of living of the masses”.
This view was also promoted by Keith Joseph, one of Margaret Thatcher’s right hand
men, in 1976 when he said:”Making the rich poorer does not make the poor richer… The pursuit of income
equality will turn this country into a totalitarian slum”
Tony Blair’s Labour Manifesto of 1997 said he had “no time for the politics of envy”,
changing Labour’s approach to wealth distribution. This was spelt out even clearer
by Stephen Byers, a Labour Minister in 1998, when he said that “wealth creation was
now more important than wealth distribution.
In recent years, however, there is not only evidence that that there has been an
increase in economic inequality, but also a growing school of thought that it has
helped trigger the economic crisis.
Stewart Lansley, in his book “The cost of inequality: Three Decades of the SuperRich and the Economy” gives three reasons for this.
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Heavily précised, these are:
1) In most rich economies, wage enabled consumption accounts for 2/3 economic
demand. If wages don’t keep up with output, consumer societies lack the capacity to
consume.
2) Concentrating the proceeds of growth in the hands of a small global financial elite
leads to asset bubbles. Only a tiny proportion ended up in productive investment.
Instead it raced around the world in search of faster and faster returns, creating the
bubbles, in property, commodities and business.
3) There has been an increased disconnect between enrichment and economic
dynamism. Financier’s made money through takeovers, private equity, property and
financial and industrial engineering, not from investing in the productive economy but
often extracting wealth from existing companies and leading in most cases to the
destruction of jobs.
Similar arguments have recently been made by the Asian Development Bank in its
recent report, “Asian Development Outlook 2012: Confronting Rising Inequality in
Asia”.
The report states that “in spite of developing Asia’s great success in raising living
standards and reducing poverty, swelling income disparities threaten to undermine
the pace of progress. Regional policy makers need to ensure that the benefits of
growth are widely shared”.
It urges Governments to tackle inequality in three ways:

Aim to create productive jobs for a wide section of the population;

Improve social inclusion so that access to education, health and other
services are not restricted to the rich

Create social safety nets to protect the poorest in society.
2) Whether or not inequality works in terms of economic growth, is having
such a divided society a price worth paying?
In the UK, a book called “The Spirit Level, Why Equality is Better for Everyone” ,
written by two academics, Richard Wilkinson and Kate Pickett, was published in the
UK in 2009. It has had very good coverage in the UK press and has led to
establishment of “The Equality Trust”, a foundation devoted to the promotion of the
wider understanding of the harm caused to society from inequality.
In essence, it asserts that a smaller gap between rich and poor means a happier,
healthier, and more successful population. It also asserts that more economic growth
will not necessarily lead to a happier, healthier, or more successful population. In
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fact, there is no relation between income per head and social well-being in rich
countries.
The following graph demonstrates this assertion across a range of countries, and
illustrates that countries such as Norway and Sweden have more equality and less
health and social problems than more unequal countries such as the UK.
3) Why are most governments adopting austerity measures that undermine
social justice and make inequality greater than ever?
We are entitled to ask why most governments in Europe are adopting the current
austerity measures, when there is no evidence that they are being effective. We
have to assume that the measures are being adopted because of government’s
political ideology, and/or, the influence exerted by the European policy makers and
international institutions such as the IMF. We might also add the demands of the
credit rating agencies and of course, the financial market.
We might also ask: What are the implications of the austerity measures for the social
dimension of the EU?
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Or what are the implications of the austerity measures for the achievement of the
Lisbon Strategy target of reducing the number of people living in poverty in the EU
by 20m by 2020?
Despite the Europe 2020 Strategy having the aim of “smart, sustainable and
inclusive growth”, the reality is that the current austerity measures being adopted in
most countries make substantial progress on “inclusive growth”, inconceivable in the
foreseeable future.
Perhaps again, there are lessons to be learnt from Iceland and the other Nordic
countries, where the welfare, the social model, of government, has not only sought to
promote economic equality and protect the poorest in society, but it has also
achieved higher growth than most other European countries.
Conclusion
To conclude then, I will quote the Stewart Lansley again, when he said:
“The lesson- for the right as well as the left- is that capitalism that shares its output
proportionately between profits and wages, and fairly amongst all citizens, is not just
likely to be politically more stable, it will also deliver a more productive economy,
faster growth and less turbulence. A generation ago, the baton of economic
philosophy was passed from the social democrats to the market theorists, with
disastrous consequences. It is now time it was passed back.”
References
The Guardian (2011) 28 February 2011 – Interview with Clive Cowdrey of the
Resolution Foundation
Bertelsmann Stiftung (2011) “Social Justice in the OECD –How Do the Member
States Compare? Sustainable Governance Indicators”
OECD (2011) “Divided We Stand: Why Inequality Keeps Rising”
Financial Times (2012) 17 March 2012, “The Jinxed Generation”
Asian Development Bank (2012) “Asian Development Outlook: Confronting Rising
Inequality in Asia”
Richard Wilkinson and Kate Pickett (2009) “The Spirit Level, Why Equality is Better
for Everyone “
Stewart Lansley (2011) “The Cost of Inequality: Three Decades of the Super-Rich
and the Economy”
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