LSE Institute of Global Policy
Inequality Matters to the G7
Erik Berglof
Professor, Director, Institute of Global Affairs, London School of Economics and Political Science
Erik Berglof

Inequality within countries has not traditionally made it to the tables of international cooperation. Rather, individual countries have to determine the extent to which unequal distribution of income and wealth should be tolerated, and within countries the topic was politically divisive. There has also been little agreement within the social sciences on the drivers of inequality and the impact it has on economic growth and development but also on general wellbeing.

Rising populism in both advanced and emerging economies has now catapulted inequality onto the agendas of the G7 and the G20. There is a growing consensus that we need to better understand the distributional dimension of economic policies and how inequality affects the effectiveness of different policies. We are only now beginning to seriously consider how inequality and perceptions of inequality affect people’s sense of wellbeing.

It is against this background that researchers from London School of Economics and Political Science and Sciences Po in Paris have come together in this issue of the LSE Global Policy Lab to discuss research on inequality and what it says about the impact of unequal distribution of outcomes, but also of opportunity, on different parts of the population. In this series of articles, they discuss the implications of their findings for policymakers at the national as well as the global level.

The engagement on inequality is part of a broader commitment of these institutions along with 25 other universities across the G7 countries and beyond to address important global challenges. In June 2019 the leaders of these institutions signed the U7+ initiative identifying a set of urgent topics and a division of labour (the document is presented in this issue).

While the world with some glaring exceptions has been quite successful in reducing differences in income and wealth across countries, inequalities within countries have been growing, in some cases at unprecedented speeds and to combustible levels.

While the world with some glaring exceptions has been quite successful in reducing differences in income and wealth across countries, inequalities within countries have been growing, in some cases at unprecedented speeds and to combustible levels. These inequalities in outcome reflect and produce large inequalities in opportunity. There is a wide range of views on what inequality of income and wealth are acceptable but most people agree that factors beyond the control of an individual, like gender, ethnicity and place of birth, should not affect success in life.

In the opening article Abigail McNeal advocates a broader approach to inequalities. She argues that we need a framework that goes beyond just economic consequences and considers differences in people’s needs and ability to convert resources into valuable things they can do or be. Such a framework should also help select the dimensions on which to focus – gender and ethnic inequalities appear particularly important. But McNeal also identifies drivers of and policies to address inequalities.

It is tempting to suggest that high income inequality is necessary to generate economic growth which can alleviate poverty. But John Hills argues that there is no support for this idea, at least not in industrialised countries. On the contrary, countries with high income inequality also tend to have high poverty, with often the same underlying variables driving each. He also points out that labour market discrimination correlates strongly with both poverty and inequality. It is hard to tackle poverty without addressing inequality.

Rana Zincir Zelal points to the need for a new language and new measures to address inequalities. We also need to engage much more those with lived experience of inequality in shaping that language and those measures. Only then, she suggests, can we make capitalism fairer and more sustainable. One could say the same thing for democracy. She points to examples from Africa, like Cape Verde, Mauretania and Senegal to show that it is possible to tackle inequalities.

We know that inequalities in wealth and income often amplify inequalities in access to health care and life expectancy. In an extreme example Tim Allen and Melissa Parker look at access to treatment in the West African Ebola epidemic in 2014-15. Western governments were much more willing to intervene in parts of the region that were more connected to their own interests. This does not bode well for the current outbreak in eastern DRC where the stakes of the West are much smaller.

Inequality Matters to the G7

But how is the issue of inequality linked to rise of populism and nativism. In an attempt to understand this link Yann Elgan suggests that inequality feeds lack of trust in institutions along with elites and experts that fail to deliver improvements in living standards. In the absence of widely trusted institutions and a society where citizens share common interests also general trust between individuals break down further feeding populist tendencies.

Inequalities must be addressed through many different policies. Education is a prime candidate, according Carlo Barone and co-authors. A wide range of inequalities can be tied to variation in higher education achievement, and the [propensity] to attend university is very much determined by social background. To promote equalisation it is not enough to encourage high-school students to go to university. Intervention has to come much earlier – counselling in secondary schools can encourage students to make more ambitious choices in high school, but what really matters is early child care and targeted measures to support parents.

Another anchor in the fight against inequality has been taxation. In discussions about economic growth and inequality it is often claimed that we should first find the most efficient solutions and then use taxation and other forms of redistribution to compensate “losers”. Philippe Martin refers to overwhelming evidence suggesting that these compensation schemes rarely work. Tax evasion, particularly by corporations, as Cornelia Woll shows, is an important part of the explanation. Recent global efforts have helped reduce evasion and some progress has also been made in the G7 to impose minimum tax rates for tech companies.

All this leads us back to the U7+ initiative and the role of universities in helping to inform the public debate and ensuring that political decisions are based on careful academic research. In the agreement LSE and Sciences Po have agreed to champion different aspects of the broader agenda. With respect to inequality Sciences Po will focus on broader community engagement as a selection criterion for higher education and how to encourage students’ international experience, while LSE will take leadership on widening recruitment.

As Enrico Letta puts it in the context of international exchanges between universities an increasing number of students can now benefit from spending time at universities abroad, but we must ensure that these students come from all parts of society.