6.7.2.4 Mechanisms to Reduce Economic Inequality

(This is a current page, from the Patterns of Power Edition 3 book contents.  An archived copy of this page is held at https://www.patternsofpower.org/edition03/6724.htm)

Government attempts to directly control disparities in income are dysfunctional (3.3.6), but politicians can use their economic powers to take other steps to reduce overall economic inequality:

  • It is possible to incentivise changes in corporate governance to rebalance the negotiations by which wealthis shared, so that workers are better paid (3.5.6.3), in what Democracy Journal referred to as “Post-Redistribution Liberalism”.
  • Benefit payments (3.2.3.3) can help the poorest in society.
  • If more services are provided by government (3.2.3.1), they are available to everybody – so there is less inequality in people’s standard of living (6.7.1.1).
  • Government spend has to be paid for by taxation and, if the taxation is progressive (3.2.4.1), it reduces the differences in disposable income between rich and poor. Rich Americans now pay less tax than they used to (3.5.6.2), so there is considerable room for manoeuvre without causing harm.
  • Corporations could be made to pay their taxes if Congress leaned more towards people’s concerns and less towards lobbyists (3.3.7.3).
  • An increase in the minimum wage (3.3.3.3) reduces low-paid workers’ dependence on taxpayer-funded benefits.

Such steps to reduce overall inequality can be beneficial to society: Sweden and Japan show comparable levels of social well-being, although Japan has less difference in pre-tax incomes.[1]

In addition to the policy measures itemised above, there can be a need to address regional variations in wealth – for example those caused by the movement of jobs overseas.  Prospect Magazine published an article by Paul Collier in its November 2018 issue, entitled How to save Britain from London, which listed several ways of addressing regional disparities; these included active local government encouragement of new businesses, skills training with apprenticeships, and the movement of national government offices to provincial cities.  Societies which have broadly benefited from globalisation can afford to compensate regions which have lost jobs, by redistributing wealth and reallocating power (6.6.7.1).

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[1] Wilkinson and Pickett, The Spirit Level, p.  176.