The spirit level: Why more equal societies almost always do better.
The central thesis of the book is disarmingly simple: economic growth in rich countries is unlikely to make for a better society. The authors claim that to understand well-being in the rich countries, we need to look not at per-capita GDP but at income inequality. The weight of evidence the authors assemble in support of their argument is impressive. Different chapters consider in turn: social relationships; trust; happiness; mental health; health outcomes; life expectancy; obesity; educational performance; teenage births; violence in society; imprisonment rates; and social mobility. At the heart of each of these chapters is a series of graphs showing the statistical relationship between the chosen health or social problems and income inequality in the richer countries. In many cases the authors also present a similar chart using the income inequality data in the 52 US states. In most of the cases the correlations they unearth look very strong. Income is not a strong predictor of how a country will rank. Indeed, the richest country in their sample, the USA, often ranks last for many of their social or health measures. The countries consistently near the top are the Scandinavian countries. The income inequality within their sample group of rich countries varies widely. The most equal (Japan, Finland, Norway, Sweden and Denmark) have the top 20% of society earning about four times more than the poorest 20%, while for the most unequal (New Zealand, Australia, the UK, Portugal, the USA and Singapore) the income inequality ratio varies between seven and nine.
The central claim of the book is that the average level of social well-being is closely correlated to income inequality. Wilkinson and Pickett present less convincing evidence for a second claim they make, which is that reducing inequality makes everyone better off. That is, if you are a top income earner say in Denmark (low inequality) you are better off than someone who is a top income earner in the USA (high inequality) even if your absolute income level would be substantially lower. At times they do present data substantiating this claim but mostly not. Thus, we do not know if the poor outcomes of the very unequal countries are due to the outcomes for the bottom 10 or 20% dragging down the average with those on medium incomes no worse off than their counterparts in other more equal countries. One of the few charts they present along these lines is in the chapter on educational performance where they present a chart comparing literacy scores to educational achievement of parents (and presumably income). The more unequal countries have a much steeper gradient (so their poor do perform much worse); however, even the very well off in the USA or UK (where inequality is high) perform less well than their counterparts in Finland or Belgium (low inequality). It would have added considerably more to the story that Wilkinson and Pickett present if there were more such comparisons.
So if more unequal countries do worse the natural question is 'why?' The authors argue that the correlations they unearth are causal. More unequal countries are more stressful, which results in a range of physiological responses leading to poor social or health outcomes. One of the key pieces of evidence they present is the Whitehall studies in the UK on social determinants of health for civil servants. Researchers had expected to see highest risk of heart disease and other illnesses among men with the highest status jobs (and presumably most stress)--in fact they found the exact opposite. Those in low job status jobs had the worst health outcomes even after controlling for risk factors such as obesity, physical activity and blood pressure. The authors note that 'of all the factors that the Whitehall researchers studied over the years, job stress and people's sense of control over their work seem to make the most difference ... Numerous studies show the same thing, in different societies and for most kinds of ill health--low social status has a clear impact on physical health and not just for people at the very bottom of the social hierarchy' (p. 75). In short, more unequal societies are more hierarchal, which leads to a more acute sense of where one is in the social pecking order. They argue that a stress reaction in our body to a short-term traumatic 'fight or flight' situation is healthy. However, if the stress becomes chronic and continuous it becomes damaging. 'The immune system is suppressed.., neurons in some areas of the brain are damaged and cognitive function declines. We have trouble sleeping. Chronic stress wears us down and wears us out' (pp. 86-87).
Economists tend to be a bit irritated with aspects of the book. For example John Kay, writing in the Financial Times (March 23, 2009), complains that 'the evidence presented in the book is mostly a series of scatter diagrams, with a regression line drawn through them. No data is provided for estimated equations ...'. He suggests that the data 'mostly looks random, and [is] dominated by a few outliers'. A fair point if somewhat overstated in my view. Many of the correlations they find look very strong, some less so.
The book is weakest when it tries to suggest alternative models to 'build the future'. The authors are probably right in saying that redistribution is not the answer, and that it is better to build in income equality as part of market outcomes. However, their suggestions as to how we might achieve this are not particularly convincing.
What does modern economics have to say about the central concern of this book? The dominant school of macroeconomics (real business cycle) has nothing much to say at all. Indeed, based as it is, in the main, on a representative agent, it cannot say anything useful about income inequality and well-being. There has been a small amount of work done looking at the link between inequality and growth and, of course, there has been much empirical work looking at the same question (mostly finding very little evidence of any relationship). Moving to the policy and political discourse over the last two decades, the argument is often made that policy needs to reward the well off, implicitly at the expense of the poor. In the end, such policy settings will benefit all as it will lead to higher growth and hence higher incomes across the board. Wilkinson and Pickett suggest that in rich countries these arguments are in fact spurious. Even if more inequality leads to higher growth (a doubtful claim in any case) we will still be worse off in terms of health and happiness.
If we take inequality seriously, as the most important factor in our well-being (for rich countries), then clearly there is an implicit challenge for the economics profession to move beyond the standard theory of an individual maximising their consumption level, independent of their position in the social hierarchy. Behavioural economists have for many years been documenting how we are motivated by other concerns, such as fairness. Wilkinson and Pickett provide yet more impetus for the need to develop a new theoretical framework for understanding economic behaviour.
The importance of The spirit level for politics is that it places equality firmly on the table as the central consideration if we wish to work towards building a better society. What on the face of it look to be diverse social and health problems often have a common underlying theme--namely income inequality. The evidence here on the negative impact of inequality is strong enough that we need to take it seriously in policy debates. Clearly further research along these lines could well be fruitful.
Department of Economics, University of Auckland
Owen G Glen Building, 12 Grafton Road
Auckland 1142, New Zealand
[C] 2010, Stephen Poletti
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|Publication:||New Zealand Economic Papers|
|Article Type:||Book review|
|Date:||Dec 1, 2010|
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