The Bad Society

Rising income inequality over the last 30 years has left capitalism’s ideological defenders unfazed. But indifference to income distribution is a recipe for moral and practical disaster, because it is bound to destroy the social cohesion on which democracy, or indeed, any type of peaceful society, ultimately rests.

LONDON – How much inequality is acceptable? Judging by pre-recession standards, a great deal of it, especially in the United States and Britain. New Labour's Peter Mandelson voiced the spirit of the past 30 years when he remarked that he felt intensely “relaxed” about people getting “filthy” rich. Getting rich was what the “new economy” was all about. And the newly rich kept an increasing part of what they got, as taxes were slashed to encourage them to get still richer, and efforts to divide up the pie more fairly were abandoned.

The results were predictable. In 1970, the pre-tax pay of a top American CEO was about 30 times higher than that of the average worker; today it is 263 times higher. In Britain, the basic pay (without bonuses) of a top CEO was 47 times the average worker’s in 1970; in 2010, it was 81 times more. Since the late 1970s, the post-tax income of the richest fifth has increased five times as fast as the poorest fifth in the US, and four times as fast in the UK. Even more important has been the growing gap between average (mean) and median income: that is, the proportion of the population living on half or less of the average income in the US and Britain has been growing.

Although some countries have resisted the trend, inequality has been increasing over the last 30-40 years in the world as a whole. Inequality within countries has increased, and inequality between countries increased sharply after 1980, before leveling off in the late 1990’s and finally falling back after 2000, as catch-up growth in developing countries accelerated.

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