Is inequality a problem?

A few years ago Russell Brand, comedian, may have been a strange place to start an economics blog, but now Russell Brand, revolutionary, has the voice to dispute the problems of this country. Even though I don’t agree with everything he says, Brand is very vocal on the issue of inequality which has been growing in the UK ever since the Thatcher Era.

Russell Brand comments largely on problems with transgenerational inequality, meaning those with rich parents are more likely to be rich themselves due to unfair advantages given by private schooling and parent contacts helping job searches. This poses the question of what is fair rather than inequality itself. It is difficult to dispute inequality if it is those who work hardest earning the most, however in todays society this is not the case. Inequality is often the result of the ‘accident of birth’. Hierarchical systems have historically set out the make up of society causing a poverty trap for those in the working class. These low social and economic classes, Brand argues, are abandoned by the political system which emphasises problems within their societies, causing social unrest. The exploitation of these poorer people has become a norm in society today. For example, Brand points out that during austerity following the financial crisis, caused by banker’s, welfare payments to the poorest in society were slashed while at the same time the conservative party were fighting in EU courts for banker’s bonuses.  This policy strategy is detrimental to the lower classes, further widening the gap between rich and poor.

Not all inequality is bad. Some is required to provide ambitions to those who are poorer. By having a gap between rich and poor this provides an incentive for the poor to work harder and strive to better themselves in order to earn more. But when the gap is too large this may be counter-productive as people see the gap being unbridgeable and therefore lose their ambitions, leaving the inequality gap to widen further.

Trickle-down inequality is another argument used to support inequality, often used to justify Thatcher’s policies during her reign as Prime Minister. Theoretically, by giving business owners more they will expand their firms, employing more workers and therefore sharing their wealth with the poorer through greater employment. However in reality this does not work with the big businesses keeping the wealth at the top, as seen by the sharp increase in inequality from 1979 onwards.

Therefore, in the UK there does need to be action to reduce inequality between the classes.

To start to bridge the gaps you need to find the source of the problem, which is education. Inequality in education leads to income inequality later in life. The arguably unethical Perry Pre-School Study shows the importance of education, with those randomly selected to be put in smaller classes of a disadvantaged school (therefore receiving better quality education) were more likely to graduate high school, earn £20000 by the age of 40 and less likely to have been arrested. Therefore, equal levels of education for all children would help to reduce levels of transgenerational inequality, making equal opportunity for those of all classes.

In my opinion, May’s plans to reinstate Grammar Schools in the UK, allocating places based on ability is a positive step towards more equal education, so those from poorer backgrounds will have the chance to receive a high quality education. It could be argued that these grammar schools accentuate inequality since those from the poorest backgrounds may have not had the primary education to enter into a grammar school, therefore inequality within the lowest classes may be increased. Nevertheless, grammar schools are a positive step towards closing the gap between the working and middle classes later in life.

Private schooling from aged 5 in 2003 to aged 18 in 2016 would have cost, on average £180000. This is a luxury the majority of people simply cannot afford. However there are questions about the effectiveness of some private schools and whether they are worth the money. Fees have risen and will continue to rise due to an influx of foreign students coming over for the high standards of education. To a certain extent private schooling may be classed as a positional good, however it is also responsible for high levels of income inequality giving richer students an advantage into higher education and then higher paid jobs in future, as shown by Card and Krueger’s paper on ‘Does school quality matter?’.

Further government funded or endorsed programmes such as apprenticeships and other work schemes are positive steps to helping the poor or less educated make a start in a career. Increasing participation rates in these schemes will benefit the UK economy through increasing the skill level of the workforce and by increasing the general wealth of its citizens in the long term.

While I have mostly spoken of UK inequality, it is a worldwide problem with global inequality rising over the past decades. At the most recent G20 summit in Hangzhao, China there has been a discussion on how to reduce this with Mr Xi saying he wishes to ‘make the pie bigger and ensure people get a greater share of it.’

Therefore, inequality is effecting the smooth running of economy’s with unrest amongst working classes. With some government help and investment into the state education system this can be reduced to more sustainable levels.