Inequality in the UK: what can we learn from Norway, Brazil and Germany?

Inequality has become a major problem in the UK – but can the solution be found within other countries? Rob Griffin investigates.

The gulf between the rich and poor is a growing problem in the UK that we can no longer ignore.

A report from Oxfam last year revealed that the richest 1% of the population in Britain now owns 20 times more than the poorest 20% of the population – equating to nearly 13 million people – combined.

A separate study from the Legatum Institute found that the UK’s cities were letting down many of their residents by failing to turn their higher wealth into real prosperity - and struggling to provide basic life chances to the large numbers living there.

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Searching for solutions

Labour leader Jeremy Corbyn has pledged to fight rising inequality across the country with a package of measures that includes capping executive wages at firms with Government contracts.

In a hard-hitting speech, he warned the UK jobs market was being turned into a “sea of insecurity”, with six million workers earning less than the living wage and nearly a million people on controversial zero hours contracts.

“Record numbers of people in work are living in poverty, while in fat cat Britain the chief executives had already received more than most people will earn all year by the third day of January,’ he insisted.

He offered some solutions.

These include requiring executive pay to be signed off by remuneration committees on which workers have a majority and offering lower Corporation Tax rates to companies not paying anyone more than an agreed multiple of the lowest earner.

“There are many options but what we cannot accept is a society in which a few earn the same in two and a bit days, what a nurse, a shop worker, a teacher does in a year,’ he said. “That cannot be right.”

Learning from others

Of course, inequality is a global problem. In fact, the discrepancy between the wealthiest and poorest has now become a powerful threat to progress around the world, according to a report from the World Bank Group.

“Inequality is constraining national economies and destabilising global collaboration in ways that put humanity’s most critical achievements and aspirations at risk,” it states. “This includes the goal of ending extreme poverty by 2030.”

But Soumya Chattopadhyay, a senior research fellow in the Growth, Poverty and Inequality Programme at the Overseas Development Institute (ODI) believes the UK can learn lessons from the experience of other countries.

“Good policies to reduce inequality are definitely not a monopoly of the developed world," he says.

"Many have been tried in the developing world so there is a bigger sample from which to find successful – and unsuccessful – examples.”

Let’s look at how such schemes have worked.

Brazil and Mexico

Brazil and Mexico have both enjoyed success with innovative social policies that have helped change the lives of millions of people over the past decade.

Both the Bolsa-Familia scheme in Brazil and Mexico’s Oportunidades have provided financial support to families in exchange for a commitment to keeping their children in school and taking them for regular health checks.

Although it costs a significant amount to establish and run such programmes, Soumya Chattopadhyay argues it’s an investment in the future as ensuring children are healthy and receive an education helps improve their prospects in the jobs market.

“The conundrum is that although it’s done very well in small districts, it hasn’t been quite so successful when they’ve tried to scale it up to a national programme,” he says. “That’s a policy challenge for those running the country.”

Social protection schemes

The Nordic countries receive a lot of praise for their social protection programmes and that’s because they have been successful safety nets for a number of years, according to Chattopadhyay.

“They have social protections for the elderly, the marginalised, and struggling households,” he says.

“Making sure that the basic needs of life are not threatened every time there’s an economic downturn provides peace of mind and security.”

Of course, they also require the funding – and the associated political appetite to generate enough revenues to breathe life into such schemes – which means they are not suitable for every country to adopt.

“The Nordic countries have had these programmes for an extended period of time and this gives them stability,” he adds. “People can take them for granted because they are not new schemes that have only been around for the past five or six years.”

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Economic diversification within countries

While Germany has issues to tackle, Chattopadhyay believes it’s been successful in preventing economic hotspots appearing – as they have done in major UK cities.

“You have German industrial production happening all over the country,” he points out.

It’s something from which the UK can learn. “If you have a diversified economic base that can be spread out beyond cities such as London and Manchester, you have a better chance of reducing inequality in terms of earnings,” he explains.

An increase in better-paid people staying in smaller neighbourhoods will result in improved levels of education and healthcare.

“This can only happen if you have a diversified economic portfolio drawing a diverse talent,” he says.

Conversely, if the best-paying jobs are in London, the taxes will be paid there and it will have better facilities.

This, in turn, draws people in. “The challenge is how you break the cycle and spread the prosperity of London into wider geographic areas,” he adds.

Access to financial instruments

Of course, not everything tried has been successful. One of these, perhaps surprisingly, has been the drive across the world of improving access to financial instruments, such as banking and credit facilities.

Giving people access to credit streams – particularly to set up their own businesses – was once regarded as a way to solve poverty.

However, not knowing the difference between good and bad deals is a problem, according to Chattopadhyay.

“The evidence is that giving people access to banking and credit has not really reduced inequality or poverty,” he says.

“The idea seemed plausible but financial inclusion without financial literacy can actually result in more indebtedness among the poor.”

How do different countries compare?

The success – or otherwise – different countries have enjoyed in tackling inequality has varied enormously, according to a study from the World Economic Forum, entitled ‘Inclusive Growth and Development Report 2017’.

One of the best is Norway, whose strengths are identified as being “a high degree of social mobility, low unemployment, and high female labor force participation”.

In particular, it has generous policies on parental leave and affordable childcare that keep talented women and parents in the workforce. In addition, strong collective bargaining protects workers’ rights.

Elsewhere, France suffers from significant red tape when it comes to creating or growing businesses, which applies brakes on employment creation. The study also highlights a tax system that “distorts incentives to work and invest”.

Such factors are blamed for France’s youth unemployment levels being among the highest in advanced economies.

Youth unemployment in Germany, meanwhile, remains low by European standards, while it also boasts high median living standards and an economy that delivers a high share of income to workers.

The report claims this is partly due to successful vocational training programs that equip workers with skills that the market demands. Citizens also benefit from strong social protection and businesses can access the finance they need.

Conclusion

It’s clear there are numerous ways to tackle inequality. Unfortunately, however, there is no silver bullet. What works in one country may not necessarily work in another.

To stand any chance of success, though, people need to have confidence that whatever is introduced will stand the test of time, points out Soumya Chattopadhyay at the ODI.

“You can offer any scheme but it’s not much help if you don’t know whether it’s going to survive the next annual budget and ends up being a flash in the pan,” he says. “You need a system of tracking who is getting the benefits and whether the criteria are being met.”

Harriet Maltby, head of policy research at the Legatum Institute, believes many of the obstacles to prosperity are on a local level. The answer, she suggests is empowering local Government and communities to take action.

“If there is no good school for your child, your environment and lifestyle is unhealthy, and you don’t have people around you to depend on, then many more life opportunities are closed to you,” she explains.

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