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4 February 2013

Tony Atkinson paints complex picture of inequality

Public authorities should learn from previous historical periods when the gap between rich and poor was kept in check. This was the main messages of Professor Tony Atkinson when addressing the second conference of the cycle ‘The crisis and inequality’ organised by the ETUI on 25 January 2013.

“The post-war sense of optimism that advanced societies were evolving towards becoming fairer and less unequal has given way to pessimism that inequality is on the rise” said the British economics professor at the beginning of his lecture. But he re-assured his audience that the historical record he wanted to paint of the development of inequality in the 100 years gives rise to some optimism too.

Reading a direct quote from a recent speech by Head of the IMF Christine Lagarde in Davos, Atkinson said that there is growing recognition now that excessive inequality is not good for the economy: “Excessive inequality is corrosive to growth; it is corrosive to society. I believe that the economics profession and the policy community have downplayed inequality for too long”.

He then went on to give an overview of the inequality trends since 1911 pointing out that the figures coming out of his research show more complexity than is generally expected. Looking at three groups of countries (Nordic, English-speaking countries and continental Europe), he showed a few graphs indicating some surprising results. In the Nordic countries, the impression of 1950s and 60s as a ‘golden age’ is not borne out by the data on inequality. There was a decrease in these countries during the 70s and early 80s but a salient rise from end of the 80s, levelling off for most countries later, except for except for Sweden where inequality continued to rise.

For the English-speaking countries, one surprising result of Atkinson’s work is that, contrary to assertions by famous economists Paul Krugman and Joe Stiglitz that inequality in the US is rising, the data do not confirm this. “If you look in detail, you’ll see there’s been virtually no change in inequality over the Clinton, Bush and Obama years”, said Atkinson.

In continental Europe there was a decline of inequality from the 50s to the 70s with an upturn later and a special steep rise of inequality in Germany in recent years.

Atkinson concluded that “the picture is not all pessimistic in the sense that, except for Germany and Sweden, none of these countries have had a continuing rise in inequality in the last ten years.” He added that a “final reason to be not so gloomy, is there have been peacetime periods when inequality fell.”

What he did point at is the fact that in most countries the real top has been racing away also helped by the excessive pay for “super stars”, like footballers or media stars.

In the last part of his lecture professor Atkinson then turned to the policies needed to keep inequality in check. There are lessons to be learned from those periods when inequality was reduced and he mentioned as examples of good policies higher levels of progressive taxation, a luxury VAT tax and more effective inheritance taxes. There are shifting attitudes in many countries on more just taxation, Atkinson claimed.

In conclusion, he reiterated the real reasons for concern: “the upper part of the income distribution does seem to be racing away” and “the way in which we held rising income dispersion in check in the 1950s and 1960s doesn’t seem to be in operation today.” However, he listed the slight grounds for optimism: the rise in overall income inequality may have reached a plateau in some countries; there have been periods in past when inequality was reduced and we can learn from these; and there are measures that can be taken. In which case the answer to the question “Where is inequality headed?” is that “it all depends on ourselves.”

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Professor Tony Atkinson: Where is inequality headed?
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