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The Austerity Strategy Has Failed - March for A Future That Works

The Austerity Strategy Has Failed - March for A Future That Works

Why Inequality Matters ,which has recently been produced by the Labour Movement based think tank Class, is just the right pamphlet at just the right time.

It starts with Richard Wilkinson and Kate Pickett’s The Spirit Level. This showed that physical and mental health, social mobility, community life and education are all worse the more unequal a rich country is. People in more equal countries trust each other more, score higher on UNICEF’s index of child well-being, and have lower homicide rates. Inequality and social stress go together.

But Why Inequality Matters is more than just a précis of this. It takes these international correlations and puts them into the British context. The UK used to be a comparatively equal country, but has become a very unequal one, and is getting more so.

Government cuts will hit the poorest harder than anyone else – and the richest will suffer least. Women workers face the majority of public sector job losses, two thirds of the jobs lost in local government have been lost by women.

And, as Howard Reed has argued, inequality is an economic problem too. Social problems create costs that undermine productivity and output. Inequality can directly harm innovation and growth. The right’s argument that you have to choose between equality and economic efficiency is wrong. International comparisons show no correlation between post-tax inequality and real GDP growth. Indeed a majority of recent academic studies have found a negative relationship - as inequality rises, growth falls.

How should we respond to this crisis of inequality and inefficiency? Part of the answer must be for politicians to remember the case for redistribution. Official statistics show that taxes and benefits massively reduce inequality – together, they shrink the gap between the richest and the poorest from 29 to 1 to 6.3 to 1.

But redistribution is not the only game in town. Ed Miliband has introduced us all to the term ‘predistribution’ – an ugly word perhaps, but pure common sense. The more equal that we can make the original distribution of income, the less heavy lifting has to be done by the tax and benefit systems.

The new pamphlet shows that the gap between those at the top and everyone else has been getting bigger, with the richest pulling further and further ahead of the rest of society and most workers left behind.

As the Commission on Living Standards has revealed, the two most important forces behind this process are the falling share of economic growth that goes to wages and increasing pay inequality in every industry.

So a starting point for a strategy to fight inequality must be “wage-led growth”. Prospects of recovery are being held back by painfully inadequate demand and higher wages will be a vital stimulus to growth.

Secondly, we need a commitment to boosting skills across the workforce. Better trained and qualified workers with transferable skills will be in a stronger position to demand higher wages, and a better educated and trained workforce is a necessary condition for higher productivity.

This skills strategy must be integrated into an industrial strategy that learns from other countries that the future of good jobs and good firms cannot just be left to the whims of the marketplace.

We need policies that address both extremes of the wage distribution. At one end, a higher minimum wage and the living wage as the goal for public sector employers and contractors. At the other end, a high pay policy that puts workers on remuneration committees and brings some sense of decency to reign in the bonus culture.

And the most important predistribution policy is to strengthen trades unionism, so more workers can benefit from the trade union “wage premium” – 18 per cent in 2011.

You might expect me to say that, but organisations as varied as the International Monetary Fund and McKinsey both report that inequality has grown at least in part because the “countervailing power” of unions has been weakened and collective bargaining coverage narrowed.

A recent US study shows that “bad jobs” accounted for 18 per cent of the American economy in 1979 but this rose to 24 per cent in 2010 and the main reason for this increase was a “deterioration in the bargaining power of workers, especially those at the middle and the bottom of the pay scale.”

What we do not need includes vindictive plans for lower compensation for workers who are sacked unfairly. This country already has one of the least regulated labour markets in the developed world; measures like this will not revive flagging UK demand and they certainly won’t reverse the deterioration in workers’ bargaining power.

The austerity strategy has failed, but the government lacks the imagination to introduce anything except more cuts in services, cuts in benefits and cuts in workers’ rights.

More and more people recognise that austerity isn’t working.

Join us on October 20 when we will be marching for A Future that Works. Join us and show you have had enough of cuts. Join us to insist that Inequality Matters.