Why equity matters more than growth: The Spirit Level

May 6, 2009

     By Duncan Green     

‘Growth with Equity’ is motherhood and apple pie in economic policy-making these days. But in a great new book, Spirit Level, authors Richard Wilkinson and Kate Pickett argue that ‘economic growth, for so long the great engine of progress, has, in the rich countries, largely finished its work.’ Above a certain average income (the authors put it at $25,000 per capita GDP, others put it lower, as in the chart shown here), growth ceases to improve wellbeing in areas such as life expectancy or the subjective sense of happiness.

If growth has run out of steam, where should rich countries turn to improve the lives of their citizens? The answer is equity. Spirit Level boils down mountains of literature and data to show that across an extraordinary range of measures of well-being, including levels of trust, life expectancy, obesity, teenage pregnancy, crime, low birthweight, HIV and AIDS and depression, more equal countries do better. They combine all these indicators into a general ‘Index of Health and Social Problems’ and the correlation with equity is clear (see chart). Dozens of scatter plots drive home the message – above that 25k threshold, wellbeing is linked to equity, not income. The book contains detailed analysis on each dimension of wellbeing and enough discussion on causality to satisfy most wonks.

How much equity matters on a given issue depends on its ‘social gradient’. The more an outcome depends on income within a country (e.g. poor people die younger), the more strongly it will also be related to inequality between countries. Women’s obesity levels are more closely related to inequality than men’s, because the social gradient in obesity is steeper among women. This helps explain the one exception they find – suicide is more common among more equal countries, and within a given country is not linked to lower income.

Why does inequality matter so much? Spirit Level argues that it strikes at the core of our identity as a gregarious/social species. Greater inequality heightens people’s awareness of social status, triggering feelings of shame and rivalry and eroding trust. The authors paint a grim picture of unequal rich countries (I live in one, and it rings true): people in more unequal countries do the equivalent of two or three months’ extra work a year trying to stay ahead in a nastier rat race. What’s striking is that even the better off are contaminated. When you compare groups of people with the same income, you find that those in more unequal societies do worse than those on the same income in more equal societies.

What matters is the level of equity, not how you get there – ‘greater equality can be gained either by using taxes and benefits to redistribute very unequal incomes (Sweden) or by greater equality in gross incomes before taxes and benefits (Japan), which leaves less need for redistribution.’ Japan and Sweden do equally well on wellbeing.

So what next? The authors argue that rich country policy makers must switch their attention from growth to equity and get back to the French Revolution mantra of ‘liberty, equality and fraternity’: ‘It is now clear that income distribution provides… a way of improving the psychosocial wellbeing of whole populations.’

Their policy recipe? A bit of a mishmash, unfortunately, but some useful ideas:
– tax and spend is necessary, but ignores the structures that generate inequality and can be easily reversed by subsequent governments
– trade union membership was ‘the most important single factor’ in determining equity levels in rich countries in the 1980s and 90s
– the nearest thing to a big idea is an extensive plea for employee share ownership systems as a way to transform attitudes and practices within the private sector
– a clear recognition of the role of shocks (wars, crises, political unrest) in triggering redistribution

The book ends with a call to arms for a global social movement around inequality/equity – see the linked Equality Trust website for details.

This is a book about rich countries, but what messages does it hold for discussions on development?

– the importance of equity to wellbeing goes way beyond its impact on growth (it is increasingly acknowledged by economists, the World Bank and everyone else that high levels of inequality are bad for growth)
– whatever growth can be accommodated within climate change-imposed constraints on carbon use is wasted on rich countries – growth increases wellbeing in poor countries, not in rich ones.

I’ll return to this issue in a blog later this week on the intriguing new report from the UK Sustainable Development Commission.

Any criticisms? I’ve read at least one negative review – Julian le Grand in Prospect – but didn’t find it very convincing. For my part, the book rather ignores the importance of structure and history – Latin America is unequal because of the skewed land tenure systems introduced by the conquistadors, natural resource-dependent economies tend to be more unequal because they generate fewer jobs etc. As a result it overstates the importance of agency – of governments or citizens. But overall, a great piece of work.