Lottery of birth
Lottery of birth

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Lottery of birth

4 Thinking point: the inequality debate

The inequality debate is very much an ongoing one. Below you will hear from four of the key people working in the field: Thomas Piketty, Angus Deaton, Danny Dorling and Richard Murphy. Their recent contributions to the inequality debate include an argument to recognise the centrality of the ownership of ‘capital’, that which is owned and generates an income (Piketty); thoughts about how policy levers, such as collective bargaining, minimum wages and universal basis incomes could affect inequality (Deaton working through the IFS); the suggestion that we should focus on the richest 1% to help them share better (Dorling); and consideration of widening the redistribution of income and wealth through taxation (Murphy).

Thomas Picketty

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Transcript

[MUSIC PLAYING]

PROFESSOR:
When it comes to inequality, Thomas Piketty's Capital in the Twenty-First Century says we should all worry about capital, not so much incomes and bonuses. So what does he mean by capital? Well, that's anything that can be owned and that generates an income. That can be housing, land, stocks, or shares.
Now, that idea isn't new. In fact, the link between capital and incomes is very familiar, not least to readers of Jane Austen and Honoré de Balzac. Piketty says that, for 19th century novelists and their readers, the two ideas were used interchangeably. The book's big innovation has been to build a massive data set that allows him to look at patterns in the ownership of stuff, going back centuries.
His research found that, in the 18th and 19th centuries, the value of capital grew faster than the economy at large. So by 1900, the amounts of wealth had grown to around seven times national output in Britain. And since that wealth started off being owned by rich people, that means that the rich pulled away from the rest of us. Now you can see that in the way that the proportion of national wealth owned by the top 1% rose, and the top 10%.
But in the 20th century, things were a little different. First of all, because of war, between 1910 and 1950, the World Wars and decolonization clobbered the European rich. All that stuff that accumulated got, well, blown up, or handed back to other people.
Then, after the war, the recovery was historically unusual, partly because it was all catch-up growth. The capital stock grew more slowly than the economy at large and was more heavily taxed. So owning all that stuff didn't really help the top 1% power ahead. The rest actually caught up a little bit.
Since 1980, however, Piketty thinks that things have reverted to the older pattern. Capital has been growing faster than the economy at large. And since the rich start off owning more stuff, that drives up inequality. So far, so uncontroversial. But Piketty's thesis is that this trend might well continue.
And if the rate at which capital grows remains faster than the growth of the economy at large, then the rich will keep pulling away. And the world could look, once again, like a Victorian age. The rich will be rich because of who their parents are, not who they are. And that's a major public policy challenge.
And if the rate at which capital grows remains faster than the growth of the economy at large, then the rich will keep pulling away. And the world could look, once again, like a Victorian age. The rich will be rich because of who their parents are, not who they are. And that's a major public policy challenge.
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Angus Deaton

To generate effective policies to combat inequality, we need to understand the nature of the divides today and what types of inequalities matter most…. How can we best combine policy levers to address inequality and minimise adverse effects? For example, if trade has reduced the bargaining power of the low-skilled workers, would it be more effective to restrict trade, invest in retraining or increase their bargaining power through other means, such as institutions for collective bargaining, minimum wages or a universal basic income…We need a comprehensive approach to answer these big questions – one that spans the social sciences and draws on theory, empirical evidence from different countries and the experiences of citizens. This means looking beyond economic inequality towards health, family structures, norms and attitudes, social capital and political engagement.

(Institute for Fiscal Studies, 2019, p. 27)

Danny Dorling

The gaps between us have grown again, becoming chasms. … In 1912, a century ago, the richest 1% took almost a quarter of all income, and paid far less of that in tax (even less than today). Currently the richest 1% are taking around 14% of all the income that is declared for tax purposes. At the same time their huge share of the annual income cake is growing, even as the overall size of the cake shrinks. It currently appears inconceivable, but, if we were to allow inequalities to continue to grow, the share of total income taken by the richest 1% could again rise to a quarter. If we were to help them to share better, it could again fall below one 17th (to 5.72% even).

(Dorling, 2019, pp. 28-9)

Richard Murphy

…it is entirely appropriate to say that the redistribution of both income and wealth within an economy is [another purpose of] taxing. That does not mean that taxation is the only way to achieve this goal: redistribution of income can, of course, be achieved through government spending. This happens when the government makes payments through a social security system to those in need…It is fair to say, however, that most countries do deliberately use their tax systems to redistribute both income and wealth as a matter of policy.

(Murphy, 2015, p. 73)

If you would like to look more into these publications, full details can be found in the References list. You should now complete the first activity of this week, which asks you to reflect on what you have learned throughout this course.

Activity 1

  • As you worked through this course, did you find yourself agreeing or disagreeing with the causes and cures for growing inequality? Why?
  • Which of those approaches and actions to address inequality would you choose to implement if you could? How?
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In the next section you will complete a self-directed piece of study to consider what might help address inequalities in the future.

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