How economic inequality harms societies

RichardWilkinson raises a question “what does Economic Inequality to societies?”, by presenting  the comparison of economically more or less unequal societies and countries. Economic inequality is divisive and social corrosive: In article there is some paradoxical Figure 1.1, showing life expectancy against gross national income, where USA and Norway are in richest position and Israel, Greece and Portugal in poor position, but it make no significant difference between their life expectancy. Then he illustrates Figure1.2 with same contest, but within the societies, considering some parts (cities) in England and Wales. And there is a big difference in people life expectancy between richest and poorest parts. This shows that income makes big difference in life expectancy within the societies, but nothing between them. That for richest people is higher and for poorest too low. According to Richard Wilkinson, the main explanation of such paradox is that within the societies researches are taking into account the relative incomes, social differences between people within the society, where they are in relation to each other, and sizes of such differences. But if we will consider countries as people with their income GNI (Gross National Income), what R. Wilkinson does, there can be more significant factors in this case, that influence life expectancy, rather then GNI, like geographic location and related things. And as soon as people understand this explanation given by R. Wilkinson, there must be an interest, what will happen if we wide those differences, make them larger, or compress them, make smaller. And this is what he shows using not just hypothetical data, but data from UN which is the same as World Bank, on the scale of income differences in its reach developed market democracies. Data in Figure 2 show social economic differences between the richest 20% and poorest 20% in the countries. According to data in more equal countries like Japan, Finland, Norway and Sweden, the richest 20% of population is almost 3.5-4 times richer than the poorest 20%. But in more unequal countries the difference is twice bigger than in equal ones. Then the article shows its consequences of such inequality on societies. They collected internationally comfortable data on most common problems that societies are facing, with social ranking. Data on such issues like life expectancy, math and literacy scores, infant mortality, homicides, imprisonment (proportion of population in prisons), teenage birth rate, levels of trust, obesity, mental illness (including drug and alcohol addiction) and social mobility. Then they put this all in one index, all weighted equally, and the Figure 3.1 shows the position of countries according to their average scores on these things against income inequality level within societies, and here also more unequal countries do worse on that index. But when he presents a Figure 3.2, showing the relation of that index against GNP, there is no correlation. But what is interesting in this figure, in best positions are two different countries Japan and Sweden, and the more important difference is how did they make it? Sweden had big gaps between earnings within the society, but it compressed them trough taxation, generous welfare states, generous benefits and so on. And Japan started with smaller differences between earnings before taxation. It has lower taxes, smaller welfare state. Being concerned by the issue that people might misunderstand the purpose of this presentation, the evidence, that they are taking into account few district factors, they also have obtained data from UNICEF showing index of child wellbeing  (containing forty different components, such as whether the kids can talk to their parents, whether they have books at home, are they bullying at school etc. and put these all to one index)  in dependence from social economic position, mainly from measure of income inequality. And in this case also children in economically more unequal societies are doing worse then in less unequal societies. And again all this in national level shows no correlation. What all this data show, is that average wellbeing is not any longer dependent on national income and economic growth. It is important in poorer countries, but not in rich developed ones. Same observations are done with different indexes, for example trust level, rate of social mobility, rate of dropping out the high school, mental illness, rate of prisoners, homicides levels and the results are same, more unequal countries are doing worse. Levels of homicides are higher, as they are mostly leaded by large income inequality reasons, and accordingly rates of prisoners are getting higher. For the same reason more people are dropping out schools, and as a result, the rate of qualified experts decrease.

            There was also conducted social psychological test to review what kind of stresses rise the level of cortisol most. And there were lot of volunteers in observation, and used more than 208 laboratory studies containing stressful tasks. And the worst effect showed the tasks with social evaluative threat (Figure 4) 

( Dickens SS, Kemeny ME, 2004). 

            Test is done twice, once in rich developed countries, and secondarily in USA 50 states, asking the same question, do more unequal states do worse in all these measures? And it contains data on trust levels from general social survey from federal government on equality, shows the same picture as in previous cases. More unequal states do worse. They found that everything that is related to trust internationally is related to the trust among these fifty states. But trough observations they found out that there are similar things between more equal states and Japan and Sweden case mentioned before. Some of these states reached to this level of equality by redistribution, narrowing gaps by tax system, others by starting with low differences between income levels.          

            I was surprised, almost in the end of this presentation I saw the questions that I was going to rise. R. Wilkinson raises those most reasonable questions and answers to those questions clearly and unbiased.

Is this just picking and choosing data? – When people are criticizing with this issue, the answer is that researchers are not fitting data, they have absolute rule for that, if the data source has any data about the country they are going to observe, it goes to analyses. And the data source decides whether it is a reliable data or not, not they, otherwise, it would introduce a bias.

What about other countries? – There are 200 observations about life expectancy as a result of income inequality in academic journals. This is not confine to the presented countries, giving simple demonstration of the same countries, the same measure of inequality, one problem after another.

Why not control for other factors? - Observations already showed that GNP per capita does not make any difference. And off course others, using more difficult and sophisticated methods and literature have controlled for poverty, education and so on…

What about causality? – The correlation by it self does not prove causality. And he says that they have spent a lot of time on it, and indeed people know the causes of such outcomes, to big change in understanding of the drivers of chronic health problems in developed world. It is very important how this inequality affects our immune system, becoming reason of chronic stress.

And as a conclusion, R. Wilkinson thinks that we mast deal with post tax and pre tax thing, constrain incomes of the bottom of society. For example, in pre tax situation to increase company democracy, present directors from within the company. And in post tax situation, to make taxes again progressive, end tax haven, stop tax avoidance. But in this case, does he consider complexities of the question? How such treatment to rich taxpayers will effect? Will there be dramatic decrease of charity, philanthropy etc? And from other hand, it may have a bad effect on development of strong and healthy competition, as by putting such strong income constraints on rich businessmen (it is considered by R. Wilkinson, in order to achieve this purpose by tax system) the willingness to win in the challenge may decrease, accordingly it will weaken competition. And as it is known in economics, the strong competition generates real good quality. In the article there is no approach to these issues, or, maybe it will be better to say logical consequences. R. Wilkinson presents suggestions, solutions coming from the issue, but he does not consider other consequences, resulted from these solutions, rather than increasing life expectancy or sustainability by narrowing income gaps within the society. It is reasonable to do that, as by applying these solutions there may arise other much stronger factors, influencing on life expectancy, than income inequality, and one of them was mentioned above. As it was already mentioned, weak competition, or even absence of competition will result on decrease of quality of products and services, which in its turn may seriously result in life expectancy of consumers. 

Sustainability needs greater equality.

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