By Bill Rosenberg, CTU policy director/economist

If there is a single theme that has run through the history of the labour movement it is fairness, including a dislike of high levels of inequality whether of income or of power. And many early settlers from Europe came here to get away from extremes of inequality.

The need to play fairly

There is increasing evidence that people are built to dislike unfair shares. For example in an experiment called the Ultimatum Game that surprised economists who believed people were simply self-interested, a person (the “proposer”) was given some money (say $10) and told that he and a second person (the “responder”) could keep the money if the responder agreed to the way the proposer offered to share it. If the responder rejected the offer, neither would get anything. If people are indeed simply self-interested, responders would accept just one cent, on the basis that was better than nothing, and proposers would offer no more than that. Apparently chimpanzees do behave like that! But human responders regularly reject such miserly offers even though it means they get nothing. Proposers on average offer a little under half of the money. Fairness is in some way hard wired into humans.

There is now evidence that the consequences of inequality are considerably more than offending most of our senses of fair play. A large number of social and health problems are worse in societies in which income is more unequally shared. For example, levels of violent crime are higher in more unequal societies, so are imprisonment rates, infant mortality, mental illness, obesity, teenage births, dropping out early from school and underachievement measured by adult literacy rates.

Equal societies are healthier

This evidence is presented in a recent book, “The Spirit Level: Why More Equal Societies Almost Always Do Better”, by Richard Wilkinson and Kate Pickett (publ. Allen Lane, 2009), in which the graph below appears (it is available from their web site http://www.equalitytrust.org.uk). The authors are health researchers who discovered these results in a surprising number of areas of health. Their research led them to discover that the same applied in many other areas of society: “we became aware that almost all problems which are more common at the bottom of the social ladder are more common in more unequal societies”. They describe such problems as having a “social gradient”.

It is vital to be clear what they are saying. Very unequal societies do have more people in poverty, so we would expect such societies to have more low income people afflicted by these problems. But it is not just people in poverty who suffer more from these problems in more unequal societies. Almost everyone does, right up the income and status ladder. For example, comparing rates of diabetes, hypertension, cancer, lung disease and heart disease between the US (the most unequal society in their study) and England (also very unequal, but less so than the US) shows US people are worse off whether we compare people at low, medium or high educational levels. Finland, Belgium, the UK and the US are in order of decreasing equality. The literacy levels of adults in the four societies also decrease in that order – across all levels of educational achievement of their parents. Wilkinson and Pickett give many other examples, all statistically tested, both between countries and between states of the US. Just about everyone loses from inequality and benefits from greater equality. “Inequality is a pollutant because it affects everyone”, says Wilkinson.

It’s more productive to focus on inequality

Perhaps these differences are just a result of some countries (like the US or Norway) being higher income than others (like Greece or New Zealand)? Wilkinson and Pickett have a two-part answer to this. Of course higher incomes do matter. The health, literacy, life expectancy and many other measures of wellbeing of people in Zambia or Uganda are far below those of New Zealand or the US. But what the authors demonstrate is that higher incomes only go so far in improving wellbeing. At some level – and they provide evidence suggesting that most of today’s high income countries are above that level – further increases in average income do relatively little to improve wellbeing and that in fact inequality becomes more important. The gain of an extra dollar in income at some point is of comparatively little value in improving people’s wellbeing measured by outcomes such as life expectancy and their own assessment of their happiness. It is much more productive – an economist would say efficient – to focus on reducing inequality.

Their book looks only at relatively rich countries – 23 of the 50 richest in the world chosen to have over 3 million people and good information on inequality. New Zealand is one of the 23. They also compare the 50 states of the US. Even within this group, the richest nation (the US) has twice the national income per person of the one with the lowest income (Portugal). Yet these two score worst of the 23 on an index of health and social problems. Medium-income Sweden and Japan score best. You will probably have guessed. The US and Portugal are the most unequal societies studied; Sweden and Japan are among the four least unequal. Wilkinson and Pickett are able to conclude that “health and social problems are only weakly related to national average income among rich countries”, and have similar findings for the states of the US. They can show on the other hand that there is a strong relationship to inequality.

The rat race is bad for our wellbeing

Wilkinson and Pickett explore what might be the underlying reasons for inequality leading to such destructive outcomes. It might be summarised as “the rat race is bad for our wellbeing” but is more sophisticated than that. Their recommendations are not that we should have completely equal societies. They are that we should make a priority of working towards greater income equality and giving people greater control of their lives. Their web site contains videos, papers and other resources and its summary of possible remedies includes:

As well as more progressive income and property taxes and more generous benefits, we also need policies to reduce differences in incomes before taxes and benefits. That means higher minimum wages, more generous pensions, running the national economy with low levels of unemployment, better education and retraining policies, increasing the bargaining power of trade unions.

This seems like an old idea, well rooted in the founding beliefs of Aotearoa/New Zealand and the union movement. But it is actually a new one with scientific foundations and radical implications. It suggests that New Zealand – and rapidly rising inequality in the 1980-90s made us one of the most unequal societies in the world – will make more efficient and effective use of its resources when they are more equally distributed. While more money can fix some things (particularly problems without a “social gradient”), many important problems will not be resolved at current levels of inequality. The best use of our resources is to redistribute them rather than pour money into problems which thrive on inequality. This is a particularly appropriate message at a time when the global financial crisis has demonstrated the failure of economic policies which favoured leaving “the market” to amass wealth for a small minority, and when environmental pressures are taking us to the limits of economic growth.