Comments on: Why Is Economic Inequality Higher in English Speaking Industrialized Democracies?

By: Mark Lovas

Mark Lovas — Tue, 14 Sep 2010 07:26:50 +0000

@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.

By: ogmb

ogmb — Thu, 05 Aug 2010 14:45:31 +0000

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.

By: Steve LaBonne

Steve LaBonne — Wed, 04 Aug 2010 16:06:36 +0000

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.

By: chris

chris — Wed, 04 Aug 2010 15:36:36 +0000

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.

By: Colin Reid

Colin Reid — Wed, 04 Aug 2010 09:22:27 +0000

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.

By: piglet

piglet — Tue, 03 Aug 2010 22:50:38 +0000

“(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.

By: burritoboy

burritoboy — Tue, 03 Aug 2010 21:20:41 +0000

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).

By: ajay

ajay — Tue, 03 Aug 2010 15:58:13 +0000

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

By: ohwilleke

ohwilleke — Tue, 03 Aug 2010 05:44:00 +0000

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.

By: ohwilleke

ohwilleke — Tue, 03 Aug 2010 05:34:11 +0000

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.

By: Peter Whiteford

Peter Whiteford — Mon, 02 Aug 2010 04:52:30 +0000

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.

By: herr doktor bimler

herr doktor bimler — Sun, 01 Aug 2010 23:31:17 +0000

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.

By: urgs

urgs — Sun, 01 Aug 2010 01:14:08 +0000

“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.

By: Charlie Stross

Charlie Stross — Sat, 31 Jul 2010 09:02:17 +0000

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

By: Nur al-Cubicle

Nur al-Cubicle — Sat, 31 Jul 2010 03:33:47 +0000

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.