Could restructuring the markets be an opportunity to decrease income inequality?

Gandhi said that poverty is the worst form of violence. He was talking about absolute poverty, whereas we now, in the UK and the US, are talking about relative poverty, but the point holds good. Even relative poverty has a tendency to disempower and disable people as surely as physical violence does.

The origins of the increase in inequality – and thus relative poverty – in this country are clear. The major welfare state retrenchments in the 80ies and 90-ies by the Thatcher government and its intellectual heirs is directly associated with an increase in inequality. Both the deregulation of labour laws, and the decentralisation of wage bargaining contributed to reducing union strength, leaving the less well educated and trained extremely vulnerable. Shrinking incomes for the worst off were compounded by the attack on state pensions.

Income inequality is especially damaging because it is passed on within families. And in the current environment of inflation again it is the worst off who suffer. The big price increases in transport, food, housing and utilities services combined account for more than half of all purchases of poorer households – a much larger share than for wealthier households.

While New Labour gave lip service to reversing income inequality, in fact it was exacerbated by Blair not having the courage to campaign for it for fear of losing middle class support. Calling it equality of opportunity fudged the issue, and the poor continued to get poorer.

Could the fallout from the credit crunch help?

The credit crunch is hugely dangerous, but by far the larger danger is the total inability in the US and UK of capitalism in its current form to reverse, rather than increase, inequality. (It is true that in the less developed world, like India and China, free markets are freeing millions from poverty. But in China it is estimated that even if wages grew by 6% faster than in the US in dollar terms per year for twenty years they would still be only one tenth of the US level. So for China we are still talking absolute poverty.)

The strong moral hazard lobby in the US could provide a chink of light. A market which has plainly lost not only its sense of ethics but also its basic common sense is standing there with both its hands out. So its bargaining position is not the strongest. Talk from McCain is encouraging - $400,000 as the top salary for bailed out bankers because that equates to the top pay of a civil servant is an interesting proposition. It won’t stick, of course, but it’s a start, and sets down a marker.

The question is, how can the debate about salaries be widened out to include the obscene reward for failure across both US and UK business, and also bring in a dimension of relating pay to wider social cohesion? Can an increased appetite for regulation be stretched to include not just financial regulation, but also social regulation to protect the worst off?

Should we strengthen employment protection, so that the casual labour of migrants and immigrants is not exploited so as reduce both employment and pay levels of all low paid workers? To be clear – should we increase protection both domestic and foreign workers? And instead of fighting the European Commission on employment regulation, should be welcome their intercession? This does not mean going as far as some of the absurd rigidities and protection of employment in some European countries, but it might mean giving up some of our hire and fire practices.

And should we rethink taxes as a tool to increase income equality? Should there be an increased tax level for those on a certain multiplier of the state pension, for instance?

The real answer, of course, is to have a culture where the society all buys into the idea of social cohesion that follows low inequality. The Scandinavian countries have managed it, and even countries like France and Germany have a fairer society than we do. The right wing press in the UK– which seems to drive the agenda whoever is in power – will prove a huge inhibitor to this. But the press reflects its readership, so if we change, it will change.

What can companies do within this context to be a force for good? Fair employment practices within the company is the start point, and lobbying within bodies like the CBI, IOD  for employment policies that will reduce inequality while maintaining a sustainable bottom line is another. And companies within the financial services industry, where high pay and bonuses can be part of the inequality problem, mechanisms might be created which reduce or eliminate obscene levels of pay. Putting all bonuses or remuneration above a certain level into a charitable foundation could be a start point.