How much should inequality be reduced?

Most people agree that inequality is too extreme and needs to be reduced.

India inequality
High-rise residential towers under construction are pictured behind an old residential building in central Mumbai [Vivek Prakash/Reuters]

More than a decade after Occupy Wall Street, inequality remains a major political issue in the world today. Most people agree that inequality is too extreme and needs to be reduced.

In Britain, the income ratio between the richest 0.01 percent and minimum-wage workers has reached around 150 to one.  Within the FTSE 100 firms, pay ratios between CEOs and lower-paid workers hover at about 100 to one.  Similar inequalities prevail in many other countries, while in the United States the figures are much worse, with pay ratios sometimes reaching into the thousands.

There is nothing natural or inevitable about extreme inequality. It is the predictable result of an economic system that distributes income based on who owns the means of production and who has the most market power, rather than according to any common-sense principle of labour contribution, human needs or justice.

Inequality corrodes society and poisons democracy, but it is also ecologically dangerous. The rich consume an extraordinary amount of energy, resulting in high emissions and making decarbonisation more difficult to achieve. Recent research by Joel Millward-Hopkins published in Nature Communications shows that if we want to ensure decent lives for everyone on the planet and also decarbonise quickly enough to feasibly achieve the Paris Agreement goals, we will need to dramatically reduce the purchasing power of the rich, while distributing resources more fairly.

But how much should inequality be reduced? What is an appropriate level of inequality? Millward-Hopkins’ research shows that if we ensure everyone has access to resources necessary for decent living, then a distribution where the richest consume at most around six times that level would be compatible with achieving climate stability.  This may sound radical, but in fact, this distribution is very close to what people around the world say is a “fair” level of inequality. In many countries – such as Argentina, Norway and Turkey – people say they want inequality to be even lower, with ratios less than four to one.

People want to live in a fair and equitable society. This is clear when we look at public sector pay scales, the closest thing we have to a democratically determined distribution. In major British institutions like the National Health Service (NHS) and the universities, where staff unions have a say over pay scales, the gaps between the highest and lowest salary bands rarely exceed five to one. If we correct for career stage, the gaps are much smaller: the starting salary for a doctor or a lecturer is only about twice as high as that of a cleaner.

When distributions are decided democratically, people tend to opt for more egalitarian outcomes. From my own experience in public sector unions, I know that many members would prefer – and argue for – an even more equitable distribution than present pay scales represent. And there is strong opposition from employees and unions to the recent tendency in British universities and hospital trusts to have vice chancellors and CEOs who are paid outside the normal pay scale – a practice that should clearly be abolished.

For another benchmark, we can look at cooperatives. The Mondragon Corporation is a massive federation of democratically run businesses in Spain, with more than 80,000 workers.  Across Mondragon enterprises, pay ratios average five to one. In some, it’s as low as three to one. Again, this provides evidence that when people are given a fair say in the matter, they gravitate towards figures like these.

If the same democratic logic was applied to any national economy, it would deliver dramatic reductions in inequality. This would help cut corruption out of our political systems, it would improve our sense of solidarity, and it would deliver the impressive benefits that are known to be associated with a more egalitarian distribution of income: everything from lower crime rates to less anxiety.

People tend to think of income as an abstract number, and this abstraction gives rise to the impression that there’s no reason to impose a limit.  But in reality, income represents control over the collective product, and command over labour. A pay ratio of five to one means that one person can command the labour of five, and can consume five times more of everything the economy produces: five times more houses, cars, flights, televisions and food. Put in these terms, five to one may well seem too high, and it makes sense that unions often opt for career stage-adjusted ratios closer to two to one.

Income also represents command over finite resources and energy.  We should ask ourselves: how much more of our planet – and of the global carbon budget – should one person be allowed to consume than another?  In an era of ecological breakdown, it is clearly irrational to continue devoting resources and energy to supporting an overconsuming class.

For decades, ecological economists have called for a cap on pay ratios: the introduction of strong living-wage or minimum-income laws to put a floor on the bottom, and the use of a maximum-income policy to put a ceiling on the top. Income inequalities can also be reduced with policies like a public job guarantee and universal public services, which would dramatically improve the bargaining power of labour, and allow us to organise production around urgent social and ecological goals. This approach would allow us to rebuild social solidarities, rebuild democracy and ensure good lives for all on a habitable planet.

Once we understand income as control over the collective product, and as command over the planet’s resources – with social and ecological consequences – it is entirely reasonable that pay ratios should be democratically decided, with strong protections against extreme inequality. Indeed it is concerning that this is almost never the case in practice. If we claim to value democracy, democratic principles should be applied to the question of distribution.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.