OECD head right to challenge inequality, but misses one crucial element of the cure
The OECD is not, traditionally, a hotbed of radical left-wing economic thought, so it’s either surprising or depressing that its Secretary-General’s latest blog challenges inequality. Surprising because it’s rare for the trade union movement and the OECD to agree on what the main problem is with the global economy. Depressing because when even the OECD recognises equality as the key concern, so many governments and politicians of all colours are so resistant to addressing the issue. His call to increase marginal taxation rates for the rich would be considered radical even in most European social democratic parties, although it’s a major endorsement of Francois Hollande’s programme just days ahead of the French Presidential second round.
What Angel Gurria is saying, however, is absolutely right – inequality is bad, not least because it inhibits growth, and (generally) it is increasing. He cites Latin America as one of the few parts of the world bucking this trend. Even in Scandinavia, with some of the most egalitarian countries, inequality is growing. He is also right to suggest employment for all, better education and skills training, and more progressive tax and benefit systems, as key solutions.
Where I would want the OECD to go further, though, is precisely in the mechanisms for redistribution. Tax and benefit policies are likely to have an effect only at the extremes, providing more resources for the poorest and taking more away from the richest. And a lot of recent thinking about inequality has pointed out that the major area where it has grown is actually between the very rich and the squeezed middle (the relative income of middle earners and the poor has not increased anywhere near as much). OECD research into inequality has identified the decline in collective bargaining and union power as a key reason why inequality is increasing, but the OECD hasn’t gone that extra mile to suggest restoring collective bargaining as a key element of economic policy. A really radical OECD policy would urge governments to unshackle unions and promote collective bargaining.
But three cheers out of four for Angel Gurria’s latest pronouncement!