When looking within individual nations, the distinction between ‘gross’ income (before the application of taxation or provision of benefits) and ‘net’ income is important. Much of the European social policy discourse on this was developed in the era of full employment and (often) relatively strong trade unions. This led to an approach summed up by the kinds of measures, advocated in the Beveridge Report, concerned with the needs of those temporarily or permanently outside the labour market. In the UK the path-breaking work of Abel-Smith and Townsend (1965), identifying poverty among families where there was employment on the part of at least one member, started to change the terms of discussion. Yet even then, the ensuing debate about poverty tended to focus on children, with ‘child benefit’ as the crucial remedial measure.
In the UK in the 1970s means-tested benefits for those in work began to be developed. A consensus dating from the 1832 poor law reforms, that it was undesirable for the state to subsidize wages, began to be challenged. This has led to the development of an extensive (and confusing) system of benefits to subsidize low wages. The latest radical alternative to existing measures to combat poverty, noted earlier in the chapter – universal basic income – does not really depart from an approach that sees public action as focusing on issues outside the labour market.
But there are other policies, in many advanced economies including the UK, that address the problem of low wages by focusing on gross income: laws that specify minimum wages. These have the weakness that they target the very bottom of the wage distribution, and do not address the equally problematic issue of excessive earnings at the top (for wider discussion see Orton and Rowlingson, 2007). There are other policies of wider application that address themselves to many aspects of the contractual deals between employers and workers. Significantly, they have featured strongly in European Union social policies. Approaches to the reduction of inequality concerned with gross incomes inevitably rest upon the extent to which unemployment (or the related issues of part-time and insecure employment) can be avoided. Notably here, variations exist in the extent to which social goals are identified in discussions of economic policy. In much of the debate between advocates of neoliberal ‘laissez faire’ and Keynesian ‘demand management’ policies in the last years of the twentieth century, a key difference was between the argument, by the former, that minimization of inflation should be the dominant policy goal and the argument that, as in the early post-Second World War years, the central concern should be to aim for full employment. In the twenty-first century so far, high inflation has not been experienced in most industrialized countries while the definition of ‘full employment’ seems to have been adjusted downward in orthodox economic analysis. However, since the global economic crisis of 2008 the dominant emphasis on ‘austerity’ with respect to government policies has replaced the concern about inflation as an argument against active policies to promote employment (see Farnsworth and Irving, 2015; McBride et al., 2015).
However, while there remains a political consensus that the right economic policies (whatever they may be) offer the best approach to tacking inequality by means of growth, there are voices suggesting that the combination of technological and global economic change make that an increasingly difficult ideal to realize in the advanced economies (see Baldwin, 2016, 2019). In that sense the reduction of inequalities between countries is seen as offering a challenge to the conventional approach to reducing inequality in individual countries. We now shift attention, therefore, to the issues about inequalities between countries.
Inevitably the emphasis in development economics has tended to be upon facilitating economic growth in the poorer countries of the world. We will not explore here the questions that can be raised about the ‘good faith’ of the exponents of this view, inasmuch as international capitalist enterprise tends to involve concern with the low cost rather than the welfare gains of its workforce (Artaraz and Hill, 2016, Chapter 3). Rather, the questions applicable to this chapter are about the notion that growth will necessarily reduce inequality. It was observed earlier that much of the recent economic growth has been in countries in the region of Asia. In contrast, most nations in the central and southern African region have seen very little.
Optimistic statements about growth in the global South are tempered by recognition that two very large nations – China and India – have done particularly well. But there is a key question about the extent to which national growth has been accompanied by increasing internal inequality. Bourguignon (2015, p. 53) observes that inequality tends to go up with market reforms in economies in ‘transition’, and that this was particularly evident in China between the 1980s and the 2000s ‘where the Gini coefficient for this period increased from 0.28 to 0.42’. Cook and Lam (2011, p. 139) report the Chinese response to the financial crisis post-2007 as involving a massive fiscal stimulus package, including ‘a range of social policy instruments, including interventions aimed at boosting consumption and protecting the vulnerable’.
With respect to the smaller countries of the global South, commentators on development (Anand et al., 2010; Surender and Walker, 2013; Bourguignon, 2015) tend to stress the need for aid policies that are linked to efforts to steer support towards less advantaged people. Much discussion of development emphasizes the need for the countries of the global South to develop governmental institutions that can support economic development with progressive social policies. The special cases of rapid modernization – particularly South Korea and Taiwan – have involved strong governmental controls (Kwon, 1997), but also exceptional support from the US. What has been widely criticized as the ‘Washington Consensus’ with respect to aid policies dominated by the notion of growth depending upon open free markets, though perhaps less influential in the 2010s (Serra and Stiglitz, 2008), has, where it has succeeded, set up a dynamic in which inegalitarian forces in the global North reinforce those in the South. The potential for the use of capital from the former and labour from the latter has threatened to generate a global ‘race to the bottom’ in labour standards and social protection, a threat which has re-emerged in the years since 2008 (Milanovic, 2012; Sørensen, 2012).
There is one other route towards the reduction of inequality that must be briefly mentioned, which is the movement of people (see Chapter 6). Migration presents opportunities to reduce inequalities between countries in the global North and those in the global South, for example through remittances (see Figure 6.1), as well as the capital (economic, human and social) accrued by migrants and contributed to countries of origin via return migration. However, it also represents the opposite given the benefits to countries of migration which receive largely prime working-age, highly skilled individuals whose educational and training costs have been borne elsewhere, or particularly in the case of women migrants, where demand for their health and welfare work may contribute to the gender equalization of care work in advanced economies but leaves a care gap filled informally, and at a cost, in their countries of origin. Collier’s (2013) analysis notes that the benefits of migration offered to countries of origin depend largely upon the permanence of the move. Restrictions on permanence, such as countries of destination making specific efforts to limit migrants to ‘guest worker’ status without security and without families, may thus benefit countries of origin while creating insecurity and diswelfare for those migrating.