Tuesday, April 07, 2009

Financial Times - The Spirit Level: Why More Equal Societies Almost Always Do Better

This looks like an interesting book - nice to see it reviewed by the Financial Times.

The Spirit Level

Review by John Kay

Published: March 23 2009 06:00 | Last updated: March 23 2009 06:00

The Spirit Level: Why More Equal Societies Almost Always Do Better
By Richard Wilkinson and Kate Pickett
Allen Lane £20, 320 pages
FT Bookshop price: £16

homeless man in New York City subway
Neglected - A homeless man in New York City. In Wilkinson and Pickett’s book, the United States, the most unequal of all the countries considered, scores poorly on nearly all the social indicators used in their argument

For more than two decades, we have been encouraged to believe that the prosperity of the few is to the ultimate benefit of all. We should not begrudge bankers their bonuses, or oligarchs their billions. Their actions make us all better off. In 2009, this argument seems less persuasive. As taxpayers chip in yet more billions to bail out the world’s financial institutions, and economic growth in Russia and China falters, it is a timely moment to present again the case for a more equal distribution of wealth.

Richard Wilkinson has long been associated with the important and careful Whitehall studies of the social determinants of health, pioneered by Sir Michael Marmot in 1967. These analyses of the experience of British civil servants over several decades show that the incidence of illness and mortality, even among people with secure jobs and incomes, is substantially affected by social class and economic position. Wilkinson himself has been a campaigner against inequalities in health – inequalities in physical health, that is, not just inequalities in health provision – since the 1970s.

In The Spirit Level, Wilkinson and co-author Kate Pickett attempt to draw wider implications. They argue that, among the rich countries of the world, states with less inequality in incomes perform better on a wide range of social indicators. The claim is supported by evidence on diverse phenomena such as reported happiness, mortality, obesity, teenage pregnancy, social mobility, drug use and the incidence of violence.

The book will probably irritate most economists, including those who, like me, are sympathetic to its basic stance, and believe that economic success is culturally embedded. The irritation partly comes from the superficiality of the two policy chapters, which make a convoluted connection to climate change, and wax eloquently in support of worker-controlled enterprises.

But a larger source of irritation is the authors’ apparent belief that the application of regression methods to economic and social statistics is as novel to social science as it apparently is to medicine. The evidence presented in the book is mostly a series of scatter diagrams, with a regression line drawn through them. No data is provided on the estimated equations, or on relevant statistical tests. If you remove the bold lines from the diagram, the pattern of points mostly looks random, and the data dominated by a few outliers.

The United States, the most unequal of the countries considered, scores poorly on virtually all the social indicators used. Japan, rated one of the most equal, has long life expectancy, a small prison population and low levels of violence. Within Europe the Scandinavian countries are generally distinguished by high levels of both equality and social performance. These observations probably account for most of Wilkinson and Pickett’s findings.

This is not to downplay the significance of the issue. The argument is a powerful counter to any simple equation of social progress and the advance of GDP. But the causal relationships involved are complex. Many factors differentiate the US, Sweden and Japan. The ongoing World Values Study by Ronald Inglehart and associates is probably the most careful attempt – though there are others – to classify the different cultures of advanced societies. These differences feed into both observed inequality and social indicators.

An obvious conclusion is that there are many societies which perform well in terms of their own criteria. America, Sweden and Japan are just different from each other – their achievements are not really commensurable. But Wilkinson and Pickett are not content with this relativist position. The subtitle – “more equal societies almost always do better” – makes a universalist claim. The political right has often argued that inequality makes everyone better off, even if more of the benefit goes to the rich. Wilkinson and Picket want to assert instead that equality makes everyone better off, even if more of the benefit goes to the poor.

The authors provide some arguments and figures to support this proposition. If more equality means less violence, for example, the potential victims of violence benefit even more than the potential exponents of violence. Death rates among working-age men are lower in egalitarian Sweden than in less equal England and Wales. Such death rates are lower not just in the lowest social class but in all social classes, although the difference in mortality in the higher social classes is less marked. Wilkinson and Pickett offer a biological explanation for this observation – greater social equality implies less social stress, not just for the poor, but for all.

But they do not have data to support a more general claim that equality benefits the rich as well as the poor. They would have to show, for example, not just that average levels of educational attainment are higher in more equal societies, but that the educational attainments of the children of rich families are higher in more equal societies. In the paradoxical modern world in which obesity is a problem of the poor rather than the rich, they would have to show that not just the poor but the rich are fatter when resources are distributed more evenly. But they don’t.

And probably can’t. I suspect the claim that equality benefits everyone is just not supportable. Rich Americans may suffer more stress and greater risk of crime and be surrounded by a crumbling public infrastructure. But affluent people in the US believe that their higher material standard of living and the greater opportunities available to their children make them better off and it is very difficult to present a convincing argument that they are wrong.

So we shall just have to continue believing that bankers’ bonuses and preposterous remuneration packages for chief executives are bad for society, not that they are bad for the bankers and chief executives. That argument is a lot easier to present than a year or two ago.

John Kay is author of ‘The Long and Short of It: A Guide to Finance and Investment for Normally Intelligent People Who Aren’t in the Industry’ (The Erasmus Press)

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