Inequality in modern society is often seen as an inevitable fact of life that can only be mitigated against. But as Stewart Smyth explains, modern day inequality is created by the exploitation the capitalist system is built on – and with system change, it could be overcome.
Income inequality is a major global issue. This is now recognised by almost all except the most hard-line defenders of free-market capitalism. It’s not just those on the left who adopt this position but even major global organisations like the IMF. Back in 2015 the IMF published a report with the opening lines stating,
“Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades.”
Since 2015 income inequality has continued to grow, so much so that in 2022 the World Inequality Report found that:
“The richest 10% of the global population currently takes 52% of global income, whereas the poorest half of the population earns 8.5% of it.”
In Britain the levels of income inequality have been growing since the 1970s (which was the most equal decade since reliable records began). Danny Dorling, who has been analysing the data on inequality in Britain for over a decade, estimates that the levels of current income inequality are comparable to those in 1937.
Inequality in Ireland
Of course, Ireland is no exception. In 2021, The Nevin Economic Research Institute (NERI) published a report that included the 90/10 measure of income inequality. This looks at how much bigger the income of the earners at the 90th percentile is over the 10th percentile. The 90th percentile is the income at which 10 percent of earners earn more and 90 percent earn less. The 10th percentile is the opposite.
Therefore, 90th percentile represents high pay and the 10th percentile represents low pay. When we divide the latter into the former we get a measure of how much more high paid earners get over low paid workers. Using EU wide data from 2018 NERI calculates that in Ireland the 10th percentile is €10.37 and 90th percentile is €41.29, giving a 90/10 measure of 3.98.
This measure is the highest of the 11 most affluent economies in the EU (at that time) (see Table 1). Indeed, it is nearly twice the size of the most equal country in the sample, Sweden (2.06)
Another well-known measure of inequality is the Gini Coefficient. While the calculation of this measure is more technical the results can be assessed easily within the two logical points, that where everyone receives the same income, the Gini Coefficient is 0. While if just one person received all the income the Gini Coefficient is 1.
For Ireland the OECD calculated a gross income Gini Coefficient of 0.48; while the average for the sample was 0.41. The OECD commented on the results that “Ireland ranks 32 of 34 among OECD members for income inequality before taxes and transfers.”
A hegemonic battle
While these numbers illustrate the very large inequities in income levels across Ireland, there is one specific characteristic that is relevant. The OECD also reports that once taxes and transfers (e.g. state support payments) are taken into consideration the Irish Gini Coefficient falls to 0.29, when the sample average is 0.31. As the OECD states,
“Taxation and transfers does more to reduce income inequality than in any other member … [but]… Ireland remains moderately unequal after taxes and transfers, ranking 15 of 34.”
It is at this point that the elites in government and other defenders of Irish capitalism start their hegemonic battle to downplay and dismiss the levels of inequality in the country. The initial tactic is to dismiss that Ireland is an unequal country, usually accompanied with a comparison to a country in South America or the Middle East/North Africa region, where levels of inequality are much greater. This, of course, is deliberately misleading and the numbers quoted above from the OECD and NERI use relevant comparator countries. Ireland remains one of the two most unequal countries sampled.
Some of the more ideological defenders of capitalism will argue that inequality is only natural, it is part of human nature and some people are just better equipped (often because of family characteristics such as inherited wealth or being able to afford private school education) to earn more money. Others will try the argument that those who receive higher incomes do so because they have done something in the past that changed our world and therefore should be rewarded. They will then trot out Bill Gates or Steve Jobs (or equivalent) examples.
Some may even go as far as arguing that inequality is a good thing as it drives people to achieve, be innovative and take risks to earn more money. This is what ultimately drives capitalism and our societies forward.
The more pragmatic politicians and defenders, however, go straight for the second Gini Coefficient measure and argue that it is proof positive of Ireland’s progressive tax system. This is a highly contested topic and one we will come back to in a future article. It will suffice now to point out that first the transfer system masks the extent of income inequality in the state and second the transfer system does nothing to attack the underlying social structures (i.e. class) that give rise to its need in the first place.
Missing the point
However, these bourgeois defences of income inequality are largely missing the point – which is why this inequality exists in the first place? To get a satisfactory answer to this question we need to go back to some of the debates in classical political economy about what was then addressed as questions of income distribution.
Income inequality is a necessary component of class society, including capitalism. Classical Marxists start from the position that labour is the source of all value; it is through our labour that we first must produce what is needed to survive and maintain ourselves. Labour then becomes the source of profit for the capitalists.
But you don’t have to be a card-carrying Marxist to subscribe to the Labour Theory of Value. Adam Smith in the Wealth of Nations states,
“The value of any commodity, therefore, to the person who possesses it … is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”
The liberal American economist J.K Galbraith (among others) highlights that Adam Smith having adopted that position was then lacking when it came to seeing through its logic. Smith was writing at a time when capitalism was in its infancy but he was an advocate of the new capitalist and the manner in which it was remaking society.
This left Smith in a quandary – if labour produces the value in the commodity and should therefore receive that value back, then what of the capitalist, who is receiving a return? Galbraith provides an answer that Smith could not – the return to the capitalist “is the appropriation of a surplus value that the worker creates over and above what he is paid”, and is rightfully due to them.
To put this more straightforwardly, income (and wealth) inequality is deeply embedded at the heart of the capitalist system. And the logic of that analysis is that we will only end such inequality when we end capitalism. However, we cannot just stand around and wait for a revolution to sweep away income inequalities.
What can be done
After last year’s budget Social Justice Ireland criticised the government policy choices for actually making inequality worse. The gap between the poor (a single person on Job Seekers Allowance) and the rich (a single person on €100,000 income) grew by €199 a year. This may not seem like a lot but it is going in the wrong direction and comes on top of a decade of such benefits for the richest in our society.
However, if it is possible to have policies that increase income inequality, it is also possible to have policies that decrease it. That would be the task of any government of the Left and reducing various measures of economic inequality will be a key indicator for the success of any such government.
Finally, there is a more immediate way that we can challenge income inequality and that is by joining a union and organising in our workplaces. We can see the importance of unions with regard to income inequality both in a negative sense and a positive one. Over recent decades where unions have become less powerful and combative there has been a corresponding rise in income inequalities, with the share of income going to labour decreasing. This is found both by left-leaning think-tanks (like the IPPR in Britain) and neoliberal bodies like the IMF. The decline of organised labour (in various forms) is not the only driver of income inequality; policy changes and taxation cuts are also important.
We can also see that in countries where union membership and collective bargaining has maintained important influence the levels of inequality are not as great. As the NERI report states, “Only 33 percent of Irish employees are covered by a collective agreement compared to 99 percent in France and 90 percent in Sweden”, and the latter two countries have considerably lower levels of inequality than in Ireland.
Of course, in the same manner that just waiting around for the revolution is a mistake, so too it is a mistake to limit our ambition to just improving collective bargaining or slightly better government policies.
All this brings to mind Rosa Luxemburg’s formulation that for socialists there is an “indissoluble tie” between social reforms and revolution, where “the struggle for reforms is its means; the social revolution, its aim.”