Tuesday, 19 September 2017

Book Review: Inequality - What Can Be Done?

Earlier this month, I finished reading "Inequality - What Can Be Done?" by the late Tony Atkinson, who sadly died at the start of the year. This book is thoroughly researched (as one might expect given it was written by one of the true leaders of the field) and well written, although the generalist reader might find some of it pretty heavy going. The book is also fairly Britain-centric, which is to be expected given that it has a policy focus, although there is plenty for U.S. readers as well. Unfortunately for those closer to my home, New Zealand rates only a few mentions.

Atkinson uses the book to outline his policy prescription for dealing with inequality (hence the second part of the title: "What can be done?"). This involves fifteen proposals, and five 'ideas to pursue'. I'm not going to go through all of the proposals, but will note that many of them are unsurprising. Others are clearly suitable for Britain, but would take much more work to be implemented in a different institutional context (that isn't to say that they wouldn't work in other contexts, only that they would be even more difficult to implement).

Atkinson also isn't shy about the difficulties with his proposals and the criticisms they might attract, and he addresses most of the key criticisms in the later chapters of the book. However, in spite of those later chapters, I can see some problems with some of the proposals that make me doubt whether they are feasible (individually, or as part of an overall package). For instance, Proposal #3 is "The government should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it". These sorts of guaranteed employment schemes sound like a good solution to unemployment on the surface, but they don't come without cost. I'm not just talking about the monetary cost to government of paying people the guaranteed wage. This guaranteed employment offer from the government might crowd out low-paying private sector employment, depending on the jobs that are on offer. Minimum-wage-level jobs are already unattractive for many people to work (consider the shortage of workers willing to work in the aged care sector, even though there are many unemployed people available for such jobs). So in order to encourage the unemployed to take up the guaranteed work offer, these jobs would need to be more attractive than existing minimum-wage-level jobs in other ways. Maybe they will require less physical or mental effort, or maybe they will have hours of work that are more flexible or suitable for parents with young children. These non-monetary characteristics would encourage more of the unemployed to take up the guaranteed employment offer, but they might also induce workers in other minimum-wage-level jobs to become 'unemployed' in order to shift to the more attractive guaranteed work instead. Maybe. The system would need to be very carefully designed, and I don't think Atkinson fully worked through the incentive effects on this one.

Proposal #4 advocates for a living wage, which I've already pointed out only works well when not all employers offer the living wage, but a higher minimum wage would simply lower employment, as the latest evidence appears to show. Proposal #7 is to set up a public 'Investment Authority' (that is, a sovereign wealth fund) to invest in companies and property on behalf of the state, but the link to inequality reduction of this proposal is pretty tenuous. In his justification for this proposal, I felt the focus on net public assets being a problem ignores the value to the government of the ability to levy future taxes, which is very valuable So, it's not clear to me that low (or negative) net public assets are necessarily a problem that needs solving.

Finally, it is Proposal #15 that is most problematic for the book: "Rich countries should raise their target for Official Development Assistance to 1 per cent of Gross National Income". I'm not arguing against the proposal per se (in fact, I agree that rich country governments should be providing more development aid to poorer countries). But if the goal of these proposals is to reduce inequality in Britain, this proposal would have at best no effect. If the goal instead is to reduce global inequality, the policy prescription is quite different, and could be more effectively achieved by avoiding most (if not all) of the other proposals put forward in the book, and simply raising the goal in Proposal #15 from 1 percent to 2 percent of Gross National Income, or 3 percent, or 5 percent. None of the other proposals would be as cost-effective in reducing global inequality as would increasing development aid.

That's about all my gripes about the book (note that they only relate to four of the fifteen proposals). Overall it is worth reading and I'm sure most people will find some things to take away from it. I certainly have a big page of notes, that I'll be using to revise the inequality and social security topic for my ECON110 class that's coming up in a couple of weeks. Especially, there is an excellent discussion that explains changes in inequality over time, and especially the increases in inequality that have happened across many countries since 1980 (this is an interesting place to start, since the time period then covers the period in the 1980s through to the mid-1990s, when inequality really was increasing in New Zealand).

If you're looking for an easy introduction to the economics of inequality, this probably isn't the book for you. But if you're looking for a policy prescription, or ideas on policy, to deal with the problems of inequality, then this may be a good place to start.

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