Saturday, February 08, 2014

Globalisation and the Common Good

How the system traps people on benefits
Effective marginal tax rates of 65-100%
from this excellent Spectator article
Very busy week.
  • Monday: business dinner
  • Tues: Chinese New Year dinner with Michael Gove as guest of honour - rightly emphasising to importance of building even closer links with China in education and research, a theme warmly welcomed by the Chinese Embassy official who also spoke.
  • Weds: very big dinner/party attended by (amongst many others) PM, Chancellor, Foreign Secretary and Defence Secretary, all of whom seemed in good form. It's great that the strong economic upturn in the UK is creating so many new jobs. I also introduced myself to Iain Duncan Smith to thank him and his team for their work in tackling the terrible problems faced by people on benefits who seek to better themselves - quite apart from anything else the current system traps them because if they work more than about 14 hours a month (on a minimum wage) they lose £1 of benefits for every £1 they earn until they have worked 65 hours, and then get further draconian marginal rates.This is a politically thankless task and fiendishly difficult to deal with.  Because of the strike I came by bike and thus had to decline offer of lift home from a minister friend - another minister friend also cycled home as I did. 
  • Thurs: another Chinese New Year reception and then to an LSE Lecture by Cardinal Peter Turkson the head of the Pontifical Academy for Justice and Peace. He spoke of the need to develop a new approach to economics and business that went well beyond a simplistic focus on GDP and GDP per capita to orient economies to the common good. He was also very interesting about the dialogue they are having with the leaders of the Mining Industry and about their work on The Vocation of a Business Leader (the pdf of their excellent booklet/vade mecum on this is here).
  • Fri: busy working day and then another Piano lesson - great although difficult to concentrate on the sublime and very difficult music of Brahms 5 minute after complicated emails to/fro clients.
Insofar as there is a theme in all of these it is probably globalisation and the common good. People say that globalisation has increased inequality but this isn't really true. It seems to me that globalisation has increased inequality within countries but decreased inequality between countries and globally. 30 years ago a Brit on benefits received more than a middle class Chinese worker (and most Chinese workers were peasants and much poorer than the middle class) whereas now the gap is much better. Though it is worth reflecting on the fact that the Average Teacher's Salary in China is still just under $18k (ppp adjusted).

The trouble is that voters care far more about inequality in their country (and specifically about the fact that people earn more than they do) than about reducing poverty globally.

If you calculate the GINI coefficient of the distribution of PPP per capita income between nations in 2012 (treating each nation as though it were a single "person") it comes to 0.71 which is very bad. If we remove Quatar and Luxembourg as outliers whose reported per-capita isn't real (most people who work in Luxembourg commute from outside the Grand Duchy) it's a bit better at 0.54. I'll see if I can find out what the situation was 10 years ago it was 0.59 and has been falling quite smoothly until a slight uptick between 0.502 in 2008 and 0.509 in 2009.

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