Testimony to the demise of recovery

Paying For Inequality
January 27, 1995

The determination the present Conservative Government has shown in refusing to contemplate possible connections between the failing social order over which it currently presides and unemployment, is the raison d'etre of this book. Paying for Inequality systematically documents the consequences of growing inequality in the United Kingdom over a range of economic and social activities.

It questions the supposed positive connection between inequality and efficiency that the right has promoted, arguing instead that theoretical and empirical evidence demonstrates that inequality leads to inefficiency and instability, and thus to real net social and economic costs. The book represents another round in the efficiency versus equality debate that has sustained much post-second world war social policy discussion in the UK, but which has recently been given a new and important twist. This debate has broadened to encompass macroeconomic policy, thus dramatically expanding its traditional purview. Broadly speaking it is the welfare incentives and consequences for macroeconomic outcomes that have been forced on to the political and policy agendas, with the right claiming inequality as a key mechanism in encouraging macroeconomic as well as microeconomic performance.

The central issue posed by Paying for Inequality is the way British economics (and perhaps the "Anglo-Saxon" tradition more generally) has been progressively hijacked by what can be termed this new "welfareisation of the economic". The admirably clear and pertinent essays collected in this volume are responding to a seemingly all-embracing character of contemporary economic analysis: the conception of economic problems as driven by individual incentives and a reaction to them in terms of their welfare effects. Nowhere is this trend more eloquently demonstrated than by current discussion of "work-fare" as a response to the stubborn refusal of unemployment to disappear.

The essays testify to the demise of a proper macroeconomic response to the "long recession". Mainstream British economics is partly guilty of falling prey to this trend by concentrating upon the labour market as the exclusive arena for macroeconomic analysis and policy response. What has happened to the role of aggregate demand, investment, the financial system and other pressing issues that cry out for action and reform? They have slipped from focus as the microeconomics of welfare and individual incentives take centre stage. As a result the chapter dealing with macroeconomic policy in this book is forced to confront it solely in terms of the effects of the growth of inequality since the mid-1970s on aggregate economic efficiency and competitiveness.

But what is here inelegantly termed the "welfareization of the economic" is more than just a re-emphasis on the supply-side. It is a comprehensive attempt to change the whole "technology of governance" of the modern economy, so that issues of aggregate demand, investment, training, technology and the financial system are discussed in an official policy context, and are increasingly treated as simply another realm for the action of the welfareist framework. All economic problems are treated in the shadow of this single "gaze". This is clear in the way the relationship between tax changes, interest rate changes and inflation are presently under discussion in the UK -- seen exclusively through the prism of their effects upon the incentive to individual performance and competitiveness. What the authors included in this book have done is to engage with this trend on its own ground; to provide sensible antidotes to the narrow-mindedness of the right, the half-truths of its analysis, and its often silly and counter-productive policy initiatives. However, they do not set out to counter its systematic conditions of appearance and operation. Thus the question that still remains is: can the embrace of this new "welfareization of the economic" be dislodged, and if so by what?

Grahame Thompson is senior lecturer in economics, the Open University.

Paying For Inequality: The Economic Cost of Social Injustice

Editor - Andrew Glyn and David Miliband
ISBN - 1 85489 058 1 and 059 X
Publisher - IPPR/Rivers Oram Press
Price - £30.00 and £12.95
Pages - 2pp

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