Why Is Economic Inequality Higher in English Speaking Industrialized Democracies?

by Henry on July 29, 2010

Andrea Brandolini

What I really find conspicuous in the comparison of top income shares across rich nations is the similarity of the patterns observed in English-speaking countries as opposed to those found in continental European countries. It is striking that, after a prolonged period of moderate decline, the income share of the richest 1 percent suddenly began to rise in the mid-1980s in the United Kingdom, Canada, Ireland, Australia, and New Zealand as well as in the United States, while it exhibited no upward trend in France, Germany, the Netherlands, Spain, and Switzerland.
The difference between these two groups of countries confirms that market and technological forces cannot be the whole story, but the similarity of trajectories, including the time of the turning point, in the English-speaking countries defies an explanation based only on the national characteristics of the U.S. political process. Hacker and Pierson recognize the potential problem, but play it down by positing that the close interdependence of the markets for top executives can largely account for the common trends in English-speaking economies. Perhaps, but why should interdependence be so much stronger between London and New York than between London and Frankfurt in today’s highly integrated financial markets? Can common language be the only critical factor, or are there more fundamental reasons?

{ 68 comments }

1

rea 07.29.10 at 3:57 pm

Thatcherism and Reaganism had a lot in common, ideologically, and led to similar results.

2

JulesLt 07.29.10 at 4:11 pm

I think Rea has a good point – there was an intellectual consensus that was able to operate within the English speaking world, with alumni of the Chicago school spreading across most of these countries, and able to aggressively promote their views through the media.

I’d also throw off-shoring and outsourcing into the mix – firms in developing countries are basically a lot more likely to target English speaking businesses than Francophone ones – even when it comes to things like manufacturing, it’s simply a lot easier to do business where you have a common language.

3

Steve LaBonne 07.29.10 at 4:15 pm

Universitas chicagoensis delenda est.

4

Antonio Conselheiro 07.29.10 at 4:39 pm

Calvinism. The New Deal was an aberration.

5

john b 07.29.10 at 4:51 pm

I’m not convinced that Thatcherism is a sensible analogy even for Reaganism (see: % of GBP derived from state), and suggesting that might be relevant for Aus and NZ is just bloody ignorant.

My conjecture for main reason: educated labour is completely mobile between the Anglosophere across that time, both legally and actually. The reason why dependence between London and New York is greater than dependence between either and Frankfurt is that, while half the important people in Frankfurt speak perfect English, half of them don’t (probably fewer, because if you work for DB and speak perfect English and are ambitious, you’re in London).

Also, Jules is bloody mad: one of the clearest and most obvious points about globalisation is that goods are easier to offshore than services.

So far, Antonio is the plausible-est beyond “well, yes, that’s what basic economics and William of Occam would suggest”.

6

Doctor Science 07.29.10 at 4:51 pm

Bruce Baugh and I are arguing in the other thread that MBA training and culture are central. “Calvinism” as an explanation doesn’t work: The Netherlands and Switzerland are much more consistently Calivinist than the UK, and probably than the US.

What is the equivalent of the MBA for the UK?

7

Seeds 07.29.10 at 5:05 pm

Uh, the MBA?

8

Aulus Gellius 07.29.10 at 5:09 pm

“The Netherlands and Switzerland are much more consistently Calivinist than the UK, and probably than the US.”

A good deal more Calvinist than Ireland, too.

9

Milton Recht 07.29.10 at 5:25 pm

It could just be an apple and oranges problem. The GINI data input, used to measure inequality, varies by country. For example, France includes government benefits, such as its equivalent to food stamps as income, while the US does not. France shows a lower GINI number because it includes in the income of the poor the value of government benefits.

The underlying trends in all the countries may be the same, but it is masked in some countries because they include offsetting government transfers, while other countries do not.

Much of the US anti-poverty strategy for the last several decades has relied on government transfer programs, such as subsidized housing, food stamps, earned income tax credit, Medicaid, etc. These transfer dollars are not included in inequality computations.

Additionally, household, family and worker income almost always does not include the value of employer-paid employee benefits. For example, for those US citizens who get their health care and other benefits paid for in whole or part by their employers, the value of that transfer from the employers to the workers is not included in US income data.

It makes more sense to take the lower percentile income groupings and compare them across countries. One would then see that the income inequality numbers do not reflect the plight of the poor in the different countries and that the poor are much better off in the US than in almost any other country.

10

Jeff R. 07.29.10 at 5:28 pm

Is there a facile Whorfian argument to be made here? Based on different connotations of the most commonly used words for the poor and the wealthy in languages used in places with less economic inequality?

11

gmoke 07.29.10 at 5:36 pm

English, obviously, is the language of natural aristocrats, plutocrats, and oligarchs.

12

Quasilobachevski 07.29.10 at 5:37 pm

Portugal, as a non-Anglophone developed country with high income inequality, seems an interesting test case for these theories. Does anyone know whether its income inequality also dates from the ’80s?

Surely the Calvinism theory makes no sense unless you think ‘English-speaking industrialized democracies’ = America?

13

Doctor Science 07.29.10 at 5:42 pm

One would then see that the income inequality numbers do not reflect the plight of the poor in the different countries and that the poor are much better off in the US than in almost any other country.

This is a joke, right?

14

P O'Neill 07.29.10 at 5:44 pm

An extension of the MBA hypothesis would be the role of management consulting firms. These have proven very adept at (a) getting themselves paid lots of money and (b) advising other firms that they need to pay people from the same circle lots of money to “retain talent”, have better Powerpoint presentations etc. The separation of Arthur Andersen/Accenture in late 1980s is a telling date. The consultants knew where the real loot was. And this appears to be an Anglophone phenomenon.

15

EWI 07.29.10 at 6:03 pm

Can common language be the only critical factor

Yes. The American disease found it easy to leap across the Atlantic and Pacific because of the low (language) barrier to entry, which means that any idiot can transmit it. Non-Anglophone countries have more capability to resist the American capitalist hegemony.

16

Matt L 07.29.10 at 6:16 pm

Long live Reagan-thatcher thought! [waves little blue book in clenched right hand]

17

burritoboy 07.29.10 at 6:30 pm

The common language is a bit misleading – it’s not so much just that there is a common language among the English-speaking countries, but there’s a common academia. Things which become dominant at the very top level of British – American academia will extremely quickly propagate and become quite dominant throughout the whole. But the trends will greatly abate or even cease when the trend hits an academic barrier – what rules at the two Cambridges and Oxford rules all of English-speaking academia (simplifying the picture somewhat) BUT that’s not similarly the case within non-English speaking academic status hierarchies.

Some major examples are: analytic philosophy and Chicago School economics (but there are multiple other examples). One piece of data that can be added is that, as Israeli academia moved closer to American / English academia over the 1970s (as opposed to it’s 1930s origination in Central European models staffed by refugees from Central Europe) and afterwards, the Chicago school was rapidly exported to Israel and there too income inequality skyrocketed.

18

burritoboy 07.29.10 at 6:39 pm

An addition to that: the Anglophone academic world also widely shares a great deal of common assumptions that are strongly challenged when you meet language barriers. It’s not a language barrier so much as it is a common set of ideas. If a trend is readily seen as an extension of that common set of ideas (again, analytic philosophy or marginalism) then it can rapidly propagate throughout Anglophone academia. Meanwhile, these trends tend to conflict with the (various sets of) assumptions underlying non-Anglophone academia. Another variety of marginalism is going to be appealing throughout the Anglosphere, but another variety of marginalism is simply going to be much more critically examined as it encounters non-Anglophone environments (or, more correctly, any academies which don’t share the same status hierarchy of Anglophone academia).

19

Hidari 07.29.10 at 8:02 pm

‘An addition to that: the Anglophone academic world also widely shares a great deal of common assumptions that are strongly challenged when you meet language barrier’.

Anecdata alert but hey…wtf.

IMHO, the vogue for cognitivism in Anglo-American psychology is another thing that can really only be explained by cultural presuppositions (specifically a desire (cf neo-classical economics) to model psychology as much as possibly on Newtonian physics, and a love of ‘numbers’ and ‘equations’ and quasi (or pseudo) mathematical models)…something which makes it highly appealing to those in Anglo-American academia but not nearly so appealing to those outside it.

The alleged ‘horror’s of Freudianism are often discussed by psychologists, along with a desire never to let ‘such a terrible thing’ happen again. But as a colleague of mine frequently points out it is by definition true that it could ‘never happen again’ as it is almost inconceivable nowadays that a non English speaking psychologist could be the Main Man in Anglo-American psychology. Since WW2 psychologists in the Anglosphere have, generally speaking, paid no attention whatsoever to any non-English speaking psychologist, or sociologist for that matter.

It would be an interesting task for a sociologist to look at the precise prerequisites for a Theory (of any sort, really) to be taken seriously in Anglo-American academia. But there is something about neo-classical economics that seems uniquely ‘Anglo-Saxon’, at least subjectively. *

*FWIW I am very aware that in literary studies more or less the opposite was the case, at least in the 1960s and 1970s and 1980s, in that it was very difficult for anyone who wasn’t French to get taken seriously. But those days are now very much over, I think.

20

Tim Worstall 07.29.10 at 8:08 pm

@9….You’ re right about “measurement of the poverty line” in the US. This is done entirely differently from everywhere else and does not, as you say, include much of what is done to alleviate poverty. It is more a measure of those who would be in poverty without help, as opposed to just about everywhere else, where it is a measure of those who are in poverty after help (and yes, the measures of poverty are entirely different, in the US it’s relative to food budgets in 1963 and for others to median income this year)

However, I believe that (and am of course open to correction) that gini and the like figures, (90/10, 80/20 ratios etc) are calculated differently…that is, including the effects of EITC, Section 8 and so on.

So while you can use exactly that critique of “poverty” as it is measured in the US (as I have done) I’m deeply unconvinced that you can use it to explain measured inequality in the US.

The US is, after the influences of the tax and benefit systems, a much more unequal country than most other large industrial nations. Whether that’s important or not is a political issue but I think that the statistical one has been settled.

It is more unequal.

21

snuh 07.29.10 at 11:20 pm

I’m not convinced that Thatcherism is a sensible analogy even for Reaganism (see: % of GBP derived from state), and suggesting that might be relevant for Aus and NZ is just bloody ignorant.

i dunno, rogernomics and ruthanasia seemed pretty thatcherite to me, plus vaguely similar economic policies were being implemented in australia at pretty much the same time.

22

Brett 07.29.10 at 11:34 pm

The Law and Finance literature suggests that common law countries have more extensive and deeper financial markets. Financial markets, in turn, may be a major factor driving inequality, e.g. through stock options for public corporation officers and through private equity and hedge funds.

23

idlehands 07.29.10 at 11:45 pm

There’s a nice check on this provided by the Quebec income inequality over time. Basically francophone income inequality in Canada has increased a lot less than in the anglophone population, which has roughly kept pace with the US (despite no real Reagan analogue (Mulroney, cmon?) or sharp tax cut). All shown in this paper: http://elsa.berkeley.edu/~saez/saez-veallAER05canada.pdf

24

JGabriel 07.30.10 at 12:41 am

Can common language be the only critical factor, or are there more fundamental reasons?

Is it possible that this can partly be attributed to the large increase in English language pro-capitalist propaganda beginning in the Reagan and Thatcher eras?

.

25

burritoboy 07.30.10 at 1:40 am

“IMHO, the vogue for cognitivism in Anglo-American psychology is another thing that can really only be explained by cultural presuppositions (specifically a desire (cf neo-classical economics) to model psychology as much as possibly on Newtonian physics, and a love of ‘numbers’ and ‘equations’ and quasi (or pseudo) mathematical models)…something which makes it highly appealing to those in Anglo-American academia but not nearly so appealing to those outside it.”

Precisely. The Anglosphere shares the same understanding of what knowledge is. Things that look like (or pretend to look like) that preconception of knowledge are (often) rapidly adopted, and can only be dislodged with difficulty. Other language spheres also share their respective understandings of what knowledge looks like, and are similarly difficult to dislodge within their respective “zones”.

The point, however, is not the languages, but rather the ideas: the idea zones do cross linguistic lines. It’s possible (if highly unlikely in practice) that an Anglophone country could fall outside the Anglo-idea zone while still obviously retaining the same language. To some extent this was true of American academia in the nineteenth century and very early twentieth century, since the American academics of that era had a much higher likelihood of being trained in continental Europe than they do now (with the resulting academic status hierarchy in nineteenth century America leading to it not necessarily following, and sometimes explicitly rejecting, the lead of Oxbridge). To some extent this was also true of Israeli academia, since it was technically conducted in Hebrew and English but was actually staffed by immigrants from Central and Eastern Europe (now that this generation has now died out, Israeli academia has generally reverted back to imitating Anglophone models).

26

Peter Whiteford 07.30.10 at 2:09 am

@9

Actually the income surveys used to make international comparisons with the USA do include food stamps and they also include the EITC (partly as a cash transfer, but mainly as a reduction in tax).

They do not include Medicare and Medicaid, but then they don’t include publicly provided health services anywhere (or housing or education or child care etc).

If you have a look at chapter 9 of the OECD publication ” Growing Unequal” then you will see that adding in the value of government non-cash services reduces income inequality everywhere. While it is correct that the effect is largest in the USA, it still remains the fact that the USA is the most unequal country for which these calculations can be made.

In addition, the southern European countries, Japan and Poland all have income inequality levels about the same as the United Kingdom, Canada and New Zealand (but less than the USA).

Also the most recent OECD figures show that income inequality in Australia is just below the OECD average and about the same as in Germany. (It has subsequently increased in the period 2005 to 2007.) It is also worth noting that between the 1990s and the mid 2000s the income share of the top 1% and top 10% rose in Australia – see the work of Andrew Leigh – but overall household income inequality fell somewhat. So the correlation between the top income share and household income inequality trends is not straightforward.

I think the evidence also suggests that Australia, the UK and Ireland also increased the generosity of social welfare payments quite significantly after 1995 while the USA did not – in fact they did the opposite. New Zealand and Canada fall somewhere between these two extremes.

27

bad Jim 07.30.10 at 4:24 am

Mightn’t the differential acceptance of Marxism explain some of this?

28

bad Jim 07.30.10 at 4:51 am

Or, to put it another way:

Ein Gespenst geht um in Europa – das Gespenst des Kommunismus.

Perhaps it simply doesn’t swim very well.

29

engels 07.30.10 at 9:22 am

‘Can common language be the only critical factor or are there more fundamental reasons?’

As a patriotic British citizen it does occur to me that the fact that Ireland, Australia, NZ, Canada, US and UK all (mostly!) speak the same language (and have mostly similar legal systems) isn’t purely a coincidence.

30

EWI 07.30.10 at 9:56 am

@25

It’s possible (if highly unlikely in practice) that an Anglophone country could fall outside the Anglo-idea zone while still obviously retaining the same language.

Any such occurrence would seem to be temporary though, cf. Ireland.

As a patriotic British citizen it does occur to me that the fact that Ireland, Australia, NZ, Canada, US and UK all (mostly!) speak the same language (and have mostly similar legal systems) isn’t purely a coincidence.

One of those countries is just coming to the conclusion of complete anglicisation (with the imminent death of the original vernacular in its remaining pockets of use).

31

dsquared 07.30.10 at 10:03 am

I’m not convinced that Thatcherism is a sensible analogy even for Reaganism (see: % of GBP derived from state),

this shows what a bad measure of anything the state % of GDP is rather than anything else (mainly because it’s a ratio of two big numbers and thus very difficult to change). Thatcher and Reagan regularly gave speeches saying how much they ideologically had in common, and so did their Australian and New Zealand equivalents.

if you work for DB and speak perfect English and are ambitious, you’re in London

not even nearly true, not even if “London” is synecdoche for “somewhere other than Frankfurt”.

32

Matt Heath 07.30.10 at 10:17 am

Quasilobachevski@12: I don’t have any data, but the based on the history of Portugal I know from living here, Portuguese inequality is older than dirt.

33

Alice 07.30.10 at 10:18 am

Gawd – am I surprised the richest of the rich has increased their share of the pie since the mid 1980s (try even earlier). They have been given tax cut after tax cut after concession after subsidy. They have been living high on the hog of all other ranking groups (middle and poor). It doesnt take Da Vinci’s genius to work that one out. It all comes from lobbying and so called trickle down theory over decades (where is the blocked pipe – way back with the deciders of the high income tax cuts??).
Doh.

34

Alice 07.30.10 at 10:23 am

Oh and what Peter Whiteford seems to be saying above is that public non cash services to the poor help reduce inequality – its a shame tax cuts for the wealthy also came as combo rate with mass privatisations of pulic services in many western countries.
Do we really wonder why inequality has risen? Surely not. Surely it is obvious. We have been looking after the rich on the premise of trickle down which trickled sideways into useless unproductive unmanned assets for the rich.

35

ajay 07.30.10 at 10:42 am

Well, Brandolini isn’t actually asking “Why Is Economic Inequality Higher in English Speaking Industrialized Democracies?” He’s asking “why did it suddenly rise more or less simultaneously across all English-speaking industrialised democracies in the 1980s?”

Because the first statement isn’t actually true, apart from anything else. Australia and Ireland are both more equal than the EU average, and therefore more equal than a lot of non-anglophone industrial nations, including Italy, Spain and France. Canada is more equal than France. All the English-speaking nations except the US are more equal than Japan and Israel. Sorry to hark back to the “quantitative methods” discussion, but I’m sceptical that there would be a significant link between “speaks English” and “high inequality” even if you limit it to OECD members.

So, starting from that, you can rule out anything to do with Calvinism or similar legal systems or international markets in labour. The mid-80s didn’t mark a sudden opening up of the high-end labour markets (CEOs etc), as far as I know – there was no sudden flood of American directors into Britain.
I would guess that there are a lot more continental executives working in the UK now than ten or 20 years ago (thanks to closer European union) – has this had an effect on equality?

36

Jo Jordan 07.30.10 at 11:22 am

Maybe we should tease out the mechanism that leads to the differentials? The cause might be further back in the process.

Somewhere I read the turning point as 1974. These countries lost their political commitment to a strong ‘middle class’ [called working class in some]. Capital was intentionally aggregated in the hands of the few rather than spread across the many.

A further test would be whether big corporates in the countries with low differentials are sitting on the same mountains of unallocated capital as the corporates in the English speaking countries.

The process is also represented in labour law. English speaking countries always had a them-us model. In the late 70′s, 80′s, the big battle was to break the unions. European countries didn’t begin with the same them-us model and in Scandanavian countries, they even have a commitment to providing happy workplaces. I am told the obligation is embedded in Norwegian law. My dim understanding is the difference tracks back to Weber and understanding of power. When we begin by acknowledging power, we paradoxically arrive at more collaborative models. When we begin by sweeping power under the table as the human relations school of Elton Mayo did, then we end with perpetual conflict.

The mechanism might be helpful. Even by rolling forward with what-if? If we changed something today (and what), what might be the result?

37

Hidari 07.30.10 at 11:30 am

‘Australia and Ireland are both more equal than the EU average.’

Really? I could believe it about Australia, but Ireland? Even after the crunch?

38

ajay 07.30.10 at 11:47 am

36: that’s based the latest Gini figures from CIA and it actually seems to be a 2008 figure. So: probably not, no.

39

deliasmith 07.30.10 at 11:49 am

I think 4 is on the right track – where the dominant right-wing political party has been Christian Democratic, or has sought / needed to emulate CD, income inequality is less marked.

40

Bill Benzon 07.30.10 at 12:08 pm

@ 19

Since WW2 psychologists in the Anglosphere have, generally speaking, paid no attention whatsoever to any non-English speaking psychologist. . .

Not so sure how far “generally speaking” stretches. During the 1960s Jean Piaget was “discovered” and taken quite seriously; and so was Lev Vygotsky, and, for that matter, A. R. Luria. The first two remade developmental psych while the last was important in neuopsych.

41

dsquared 07.30.10 at 12:18 pm

The mid-80s didn’t mark a sudden opening up of the high-end labour markets (CEOs etc), as far as I know – there was no sudden flood of American directors into Britain.

wouldn’t be so sure of this. Remember that exchange controls were only lifted in the UK in 1979. The Thatcher government started with a very significant move in the direction of internationalisation of British capital markets (and given the relative sizes of markets, “internationalisation” effectively meant “Americanisation”).

Financial deregulation in general does seem to match up pretty well in time and place, although of course the direction of the causal arrow is not clear.

42

ajay 07.30.10 at 1:06 pm

Hmm, good point dsquared.

But in a way that just pushes the question further back. You’re either saying “inequality was caused by deregulation”, which is entirely plausible, but raises the question “well, why did English speaking nations all deregulate at the same time and others didn’t?”, or you’re saying “inequality rose and markets were deregulated at roughly the same time and for the same reason” and then the question is “what was the common factor that caused both of these things?”
(Or else it was coincidence…)

43

ajay 07.30.10 at 1:23 pm

Also, that only works for the UK. Did Canada deregulate in the mid-80s? Did New Zealand and Australia?

44

Tim Worstall 07.30.10 at 2:46 pm

Japan? More unequal than the UK?

Not by income distribution it isn’t (although it can be argued that that of the social hierarchy is)….umm, looking it up the CIA number is very high. But the UN number puts it right behind Denmark as second most equal, ahead of Sweden.

http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

CIA here: https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html

And I think we would have heard about something happening in Japan if the gini had gone from 24.9 in 93 to 38.1 in 02. That is rather a large move.

Given that The Spirit Level (you know, based on all those peer reviewed papers) consistently uses Japan as an example of a country with a low gini, a low level of inequality, I think we might want to put that CIA estimation of Japan’s gini as being 38.1 over *there*, along with the WMD and purchasing of uranium claims…..

45

ajay 07.30.10 at 3:22 pm

I think we would have heard about something happening in Japan if the gini had gone from 24.9 in 93 to 38.1 in 02. That is rather a large move.

And it’s not like there was any kind of a decade-long economic slump in Japan in the 1990s, after all.

46

Leinad 07.30.10 at 3:29 pm

Ajay@43 Google “Rogernomics” and “Hawke-Keating”.

47

Uncle Jeffy 07.30.10 at 3:36 pm

Simple – the same gang of thugs who’ve managed to pervert the political process to their economic ends in the US and UK all speak English, but no other language.

48

Tim Worstall 07.30.10 at 3:42 pm

@ 45…slumps, recessions, tend to reduce income inequality…..

49

piglet 07.30.10 at 6:53 pm

In interesting data point from the 2008 Growing Unequal summary (http://www.oecd.org/dataoecd/45/42/41527936.pdf; it seems the full report is not available for free):

Income inequality has risen significantly since 2000 in Canada, Germany, Norway, the United States, Italy, and Finland, and declined in the United Kingdom, Mexico, Greece and Australia.

The increase has been particularly marked in Germany, despite (?) a nominally social democratic government in that period.

50

BillCinSD 07.30.10 at 8:40 pm

The answer is Rupert Murdoch and the expansion of News Corp

51

Greg 07.30.10 at 10:52 pm

The official story in Australia & NZ (and probably the USA and Canada) is that the persistent high inflation of the 1970s was blamed on wage-increase demands: supposedly, people’s inflation expectations had become entrenched at very high levels, and it was necessary to lower expectations.

Accordingly, there was a concerted effort to demonize and de-fang unions; union membership in NZ fell from 44% to about 17% of the labour force in (from memory) seven years. In NZ, there was an overt effort to reduce labour’s share of income with the cutting of many transfer payments (“the mother of all Budgets”) and legislation that had the avowed purpose of cutting wages, especially at the low end.

(The opportunity was also taken to corporatize many publicly owned enterprises, with a view to donating them to private ownership, but the privatization process was arrested part-way through. Interestingly, the corporations remaining in public hands have done rather better than those that were privatized –the Post Office is usually profitable — demonstrating that ownership is irrelevant to how well an organization meets its goals. A fat lot of good facts will do in the argument, though.)

There is still debate about the cause of the high inflation – obviously the oil price shocks triggered it, but it is thought that persistent attempts to maintain unemployment at too low a level were the reason it became entrenched.

Outside the Anglospere: I don’t know about France, or Italy, but I understand that in Germany there is a tradition of cooperation between labour and management, and a pattern of interlocking holdings and directorships that reflects a view of society as an organic whole rather than as a collision of competing interests.

As I understand it, the official view of Japan since the mid-1980s is that extreme labour-market inflexibility has lead to a situation where one-third (and rising) of Japanese workers are now casual and mostly employed in low-productivity jobs; hence the once-low but now sharply rising Gini index.

My take from this history is that the elites of most English-speaking countries liked the descriptions of teeming slums in their history books, and set out to re-create them. (The Aussies have a discourse about “the little Aussie battler on Struggle Street” that shapes their policies and moderated the Randist assault; maybe the Canadians had something similar.) Alternatively, most Anglophone countries are young and therefore not yet inclined to learn from other’s experiences or their own history.

The Japanese, on the other hand, seem to be unable to let go of a core cultural value about mutual lifetime loyalty between employer and employee.

52

meno 07.30.10 at 11:49 pm

“I’m not convinced that Thatcherism is a sensible analogy even for Reaganism (see: % of GBP derived from state), and suggesting that might be relevant for Aus and NZ is just bloody ignorant.”

As a New Zealander with a good deal of knowledge about my nations recent economic and political history I don’t the idea of similar political change across the english-speaking nations ignorant at all. “Well-informed” would seem a better term.

In New Zealand they called it “Rogernomics”, after Roger Douglas the finance minister who pushed through the reforms. Our marcoeconomic reforms were far more brutal than your or the UK’s, with larger changes to our political/economic setup than Reagan or Thatcher. They were pushed by a clique Chicago-School economists who dominated our Treasury, and by leaders and advisors coming back from the USA after studying with the many various well-funded conservative “think-tanks” there. Australia was more moderate in their “free-market reforms”, and saw less of a rise of inequality as a result (and stronger economic growth too).

53

cripes 07.31.10 at 1:37 am

Anglo-american bankers and politicians since at least Bretton Woods make no secret of their cabalistic plans for world domination, via the IMF, University of Chicago and various organs of state/corporate power. They call it the “Anglo-American free-market system.” (™) Usually preceded with military force and followed by rapacious carpetbagging.

Bufoons like Thatcher and Reagan merely took orders, as Obama does today. Current plans call for the pauperisation of host country populations and disaster capitalism style “austerity” programs, once practised on Latin Americans, Africans and Asians; now here.

Any questions?

From NYT March 28, 2009 http://www.nytimes.com/2009/03/29/weekinreview/29burns.html

(Prime Minister Gordon Brown’s) goal at the G-20 meeting is to make a start on reforming, and eventually saving in more regulated form, the model of the Anglo-American free-market system. It is a plan that Mr. Brown hopes will give Canary Wharf a place in history somewhat like Bretton Woods, the New Hampshire resort where, in July 1944, the United States and Britain led other nations in creating the International Monetary Fund, the first of a group of international organizations that became the pillars of the postwar international system.

54

Nur al-Cubicle 07.31.10 at 3:33 am

I blame some of it on the rise in the 1980s of corporate raiding. Carl Icahn’s raids alone on US corporations obliterated large swaths of high-paying middle management positions not to mention depleting corporate treasuries, which had to lay out funds to stave him off or swallowed when he took over. The consequence was less for the middle class at large and its children and no corporate investment in the future. I would be interested to know if such raids were carried out elsewhere in Greater Anglosaxonia.

55

Charlie Stross 07.31.10 at 9:02 am

Nur-al-Cubicle: you might want to google on [sir] James Goldsmith’s activities.

56

urgs 08.01.10 at 1:14 am

“and a pattern of interlocking holdings and directorships”

That one is mostly gone. And if it were not for some very dark idears about it getting relaced with overpaid fund managers in London, id chear that one. Whats left is a small stock market. Many companies are private, relying heavly on bank lending to finance.

57

herr doktor bimler 08.01.10 at 11:31 pm

there was no sudden flood of American directors into Britain.

What matters is whether there is a plausible threat of international movements for the Boards of Directors to use as a rationale for raising their remuneration packages. This has been the case in New Zealand, at least, as companies explain that they have increased the CEO’s pay by another 50% to keep pace with movements elsewhere in the Anglosphere. We hear a lot about the international labour market for the higher echelons, with warnings that if they did not receive such large amounts of money then they would immediately change citizenship and decamp for executive positions in the US or the UK.

It doesn’t matter whether there is in fact any large-scale brain-drain. That would require our executives to show international levels of skill as well as income.

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Peter Whiteford 08.02.10 at 4:52 am

A comment on data sources, particularly Tim Worstall at 44 and others.

Looking at the CIA link it is not clear to me what their sources are, and I can’t find anywhere where they discuss sources so I simply would not use them for international comparisons. The fact that they put together two such widely different estimates for Japan seems to me to indicate that they do not check for consistency.

The UN database also needs to be used with care as they compile from a large number of sources, and the measures used are not necessarily consistent across countries. If you use different equivalence scales for example then results should not be regarded as comparable.

The two best sources are the Luxembourg Income study and more recently the OECD. LIS does not include Japan nor New Zealand, but the OECD does.

The OECD estimate that Japan is more unequal than the OECD average, but not as unequal as the UK. However, the view in the Spirit level that Japan is or was a low inequality society is probably mistaken – early data sources for Japan were prettl low quality.

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ohwilleke 08.03.10 at 5:34 am

Point one: In the English speaking world, industrialization was financed mostly by private interests in financial markets and privately owned banks. In most of the non-English speaking world, industrialization was financed mostly by state owned or controlled national financial institutions. As a result, the English speaking world, even today, has a private financial sector that is a much more important part of its economy than in the non-English speaking world where the size of the financial markets relative to GDP is much smaller and publicly affiliated banks are much more important even now in financing economic growth.

Point two: The boom from the 1980s on in the English speaking world was dominated by the financial sector. Financial company profits and financial company executive compensation rose much faster than that of companies and executives in the “real economy.” Something on the order of 40% of all of the economic growth in the U.S. was captured by Wall Street financial companies and their executives. In contrast, in the non-English speaking world, a lot of that growth was not diverted to the financial professionals who helped to facilitate it.

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ohwilleke 08.03.10 at 5:44 am

Third point: All of the English speaking countries escaped occupation during or after WWII. Yet, London was bombed, but the trauma the U.K. experienced was nothing relative to Continental Europe.

The Europeans had to rebuild their societies from scratch, after having had regimes interrupted (so did the Japanese), at a time when a war created sense of national unity was at a high, private institutions were disrupted, and the sense that a good person could fall on hard times for reasons that were no fault of his own was great. As a result, the rebuilt post-war societies started out more leveled, and built stronger safety nets. In contrast, the elites of the English speaking world were not similarly interrupted in their wealth and while they mostly created social safety nets as well, their societies were not nearly so leveled.

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ajay 08.03.10 at 3:58 pm

60: which would predict that inequality would also be high in (neutral and unbombed) Sweden.

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burritoboy 08.03.10 at 9:20 pm

Following on from ajay, what we’re trying to explain is that the behavior of inequality since the 1970s: it grew much more rapidly (yes, from a higher base, but also more rapidly) in the Anglo-sphere than in other environments. The explanations of WWII aren’t especially relevant, since we are talking about a period 30-40 years after the war. Concerning the role of finance within the respective spheres: it then begs the question of why private finance is universally so important within the Anglosphere and universally less important outside it (though you can also point to places like Switzerland, who are outside of the Anglosphere with extremely large private finance sectors).

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piglet 08.03.10 at 10:50 pm

“(though you can also point to places like Switzerland, who are outside of the Anglosphere with extremely large private finance sectors)”

Switzerland is an anomaly in terms of the importance of wealth management for international clients, but internally the banking sector is more in line with continental Europe. The biggest financial institution in terms of the number of clients (of course not in terms of the amount of deposits) is federally owned Postfinance, and most states operate their own banks (Kantonalbanken). Then there is a very active cooperative sector (Raiffeisen, Migros Bank). From the perspective of domestic private and business customers, the financial landscape looks very different from that in the US.

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Colin Reid 08.04.10 at 9:22 am

One impression I’ve got is that in Anglophone countries, the high end of the labour market is much more cosmopolitan, so a relatively large proportion of influential figures in these countries are foreign or of recent foreign origin. This would stand to reason, given that knowledge of English is so widespread compared to other languages. One could work perfectly well in a factory in Finland say with very limited knowledge of Finnish, but to succeed as a lawyer or a university lecturer, you would need a very high degree of proficiency in the language; but of course very few people have such proficiency apart from the Finns themselves.

Perhaps this is something that has developed or accelerated in recent years, and a more cosmopolitan/mobile elite tends to promote a more ‘loose’ society and/or make the elite more powerful with respect to everyone else. I don’t have any figures to back this up though.

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chris 08.04.10 at 3:36 pm

though you can also point to places like Switzerland, who are outside of the Anglosphere with extremely large private finance sectors

And how high is inequality in Switzerland? Do the heads of the famous Swiss banks make as much as US hedge-fund managers? If not, then the role of finance isn’t a very convincing explanation, at least standing alone.

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Steve LaBonne 08.04.10 at 4:06 pm

Funny how the word “Chicago” keeps popping up. The University of Chicago is damn lucky its endowment can’t be tapped for compensation (albeit only pennies on the dollar before being exhausted) for the vast economic damage its economics department and business school have been doing all around the world for decades.

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ogmb 08.05.10 at 2:45 pm

There seems to be an implicit undercurrent in this thread that income equals income from salaries and wages. For the top 1%, or more exactly the fraction of the top 1% that drives the increasing disparity (the top 0.1% or even the top 0.01%) this is most certainly not true. Even the increase in CEO compensation is mostly equity-driven.

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Mark Lovas 09.14.10 at 7:26 am

@Milton Recht #9 “…the poor are much better off in the US than in almost any other country.”
I would not be inclined to accept that conclusion unless you took into account the research of Loïc Wacquant. If I understand his thesis correctly, the poor in the United States in particular are faced with a double attack: a decline in help from the state combined with increased criminalization as a form of social control. Although some European countries have been inclined to imitate the United States, the US continues to be more brutal in its treatment of the poor.

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