Cormac Staunton: Irish people know that the world is an unequal place. The exact scale of this divide was brought home to viewers who watched David McWilliams’ documentary, Ireland’s Great Wealth Divide on RTE 1 this week.
It showed that people believe that the Top 20% in Ireland have more than 60% of all wealth. In fact they have 72% of all wealth – that’s 1 in 5 people owning almost three quarters of the value of all the land, housing and financial assets in the State.
In Ireland as elsewhere, the issue of inequality goes to the heart of most discussions in economics and indeed politics. It is, after all, the age-old question of who gets what, when and how. It’s about how we allocate resources which are, ultimately, scarce.
The programme showed how growing inequality in Ireland was part of a global phenomenon which is causing great concern amongst economists and leaders across the political spectrum. They have called economic inequality ‘dangerous’ (Alan Greenspan), ‘the most important problem we are facing today’ (Nobel-winning economist Robert Shiller), and ‘the root of social ills’ (Pope Francis). International bodies like the OECD, the World Bank, the IMF and World Economic Forum have all stressed the challenges and risks posed by economic inequality.
Critics of the programme point out that data from the investment bank Credit Suisse used in the programme to indicate the scale of the wealth divide was not sufficiently robust. To be clear, the Credit Suisse data is based on a thorough academic method using Irish data sources. It also tallies well with data on wealth produced by the CSO and Central Bank’s Household Finance and Consumption Survey.
For example, one figure that was published by the Central Bank earlier this year was the wealth held by the Top 20%. Their figure was 72.7% - is very close to the Credit Suisse figure of 72.5% cited in the documentary.
The programme also cited Credit Suisse data showing how the ‘middle 60%’ in Ireland had 30% of all wealth, which is less than that held by the Top 5%. Again, the CSO data shows similar results.
Haggling over data and sources, or judging the level of inequality only in relation to other countries, ignores the bigger picture. The simple fact is that that inequality of wealth and income has been growing in every country in the developed world over the last 30 years.
Ireland has not been immune to the forces that have driven this. While we may sometimes appear better or worse than our neighbours depending on the measure you use, the overall trend has been of growing inequality.
And this is a problem because we see time and again how a concentration of wealth and income like this is bad news for our society. There is increasing evidence that more equal societies do better in terms of health and well-being, and also have lower crime rates.
But inequality is also bad news for the economy. Studies from the IMF and others have shown that higher inequality can negatively affect the economy because the wealthy spend less of their incomes than middle-and lower-income groups. While it is often claimed that the rich create jobs, in fact jobs are created by consumers buying and trading goods and services. The more assets are hoarded by the wealthy, the less money there is driving the real economy.
In addition, the IMF has found that inequality dampens investment by fuelling economic, financial, and political instability. A growing body of evidence suggests that rising influence of the rich and stagnant incomes of the poor and middle class makes an economic crisis more likely.
While much is done by the State in Ireland to reduce inequality through taxes and social welfare supports, this is not evidence of greater equality. In fact it is the exact opposite. It is evidence of a problem of inequality in the first place, as more unequal societies tend to redistribute more - the same way that you only tend to find peacekeepers in war zones.
Finally, economic inequality is not just about wealth or incomes. It’s about how people meet their needs to a greater or lesser extent than others. And so public services that are available to all play a vital role. This includes housing, transport, healthcare, education and more. Ireland, being a low-tax and low-service economy, does not provide enough services to off-set rising inequality. We need only to think of the high cost of childcare and how this affects people’s ability to go out to work.
Tackling inequality is not about simple measures of taking from the rich to give to the poor. Economic inequality can only be reduced if policies join the dots between taxes, public services, jobs, wages and the cost of living.
What’s abundantly clear from the documentary is that our economy has no problem generating wealth – the real issue is how we share it.
Cormac Staunton is Senior Policy Analyst with TASC. You can follow him on Twitter @Cormac_Staunton
This article originally appeared in the Irish Independent on Friday 25th September 2015
Cormac Stauton is currently a policy advisor on EU and international policy in the Central Bank of Ireland. Prior to this, he was a policy analyst in TASC, and co-authored the first economic inequality report, Cherishing All Equally.