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Calum Crichton: The flaws and faults in the SNP's argument about equality

Crichton CalumCalum Crichton is a Finance graduate from the University of Strathclyde. Calum won the 2012 University of Strathclyde's Journal of Economic Studies Prize and recently received Glasgow City Council's 2013 International Finance Services District Award. He lives in Glasgow and is a Youth Rep for Better Together.

The Scotsman this week featured an interesting article from Gerry Hassan about the role inequality is playing in the debate about Scotland's constitutional future. His analysis was framed in the traditional way: do Scots really want to be part of a country that is, according to OECD statistics, the fourth most unequal in the world? Do Scots really want to be part of the same country as London, the most unequal city in the developed world?  These are questions the SNP have been asking Scots over the past few months.

But, like most things the SNP say, the initial picture is misleading. Inequality is measured by the OECD using the Gini coefficient, which ranges from 0 (everybody has identical incomes) to 1 (all income goes to one person). It can basically be thought of as a snapshot of the income gap of a country, which is the result of a series of outcomes over time. It does not inform us what these outcomes are, nor does it tell us how these gaps have opened up.

Increases in the Gini coefficient often trigger calls for more redistributive policies, but increases in inequality are not necessarily by themselves a problem. Although empirical studies show there is a point at which inequality becomes damaging to an economy, it may also be the result of robust economic growth. A series of research papers stretching back to the 1950s, for example, identify the channels through which inequality can rise due to economic growth.

In a capitalist society, market forces allow those who acquire new technology or skills to be rewarded through income gains. Over time, this group accrue wealth and increase their savings, enhancing the rate of capital accumulation and generating higher investment. Such a system, whereby individuals and firms are rewarded for productive work, creates a wave of entrepreneurial talent and drives up economic growth, increasing overall employment in the economy. That is why affluent, knowledge-based cities tend to be more unequal.

So it could be argued that inequality is the consequence of what is essentially a good outcome of a capitalist society - a thriving private sector. Equally, increases in the Gini coefficient can arise because of bad outcomes, such as the inability of individuals to earn more than the minimum wage. This of course implies that people are either leaving education with inadequate qualifications, or are unable to start apprenticeship schemes or other forms of training. Poor lifestyles, such as alcoholism and drug abuse, can also be a factor in increasing inequality.

In a similar vein, decreases in the Gini coefficient can arise for a variety of reasons. A fall in inequality because of the introduction of a progressive tax system, or because the lowest earners receive wage increases could be seen as a good reason. But reductions in inequality caused by falling earnings is bad (the UK's Gini coefficient has fallen from 0.36 to 0.34 for this reason).

So what's all this got to do with Scotland's constitutional future? Firstly, it is important to note that not all inequality is bad, and not all equality is good. Unequal wage structures occur right across the UK, including in Scotland. Due to the success of their respective North Sea oil and financial services industries, for example, Aberdeen and Edinburgh have much higher levels of inequality than Glasgow, which has a larger proportion of its population on benefits. A key challenge for policymakers is therefore to look at the underlying factors driving Gini coefficient outcomes, and take action accordingly.

The SNP like to argue that only independence would reduce inequality for Scotland. Yet there are lots of powers the SNP already have to achieve this aim. In the recent budget they could, for example, have decided to invest in the education and skills of young Scots instead of slashing the enterprise and college budgets. They could take steps to address the fact that Scotland has the lowest proportion of students from poor backgrounds attending higher education anywhere in the UK. They could also introduce measures to tackle the ridiculously high health inequalities in Scotland.

Yet they are not addressing these issues, instead opting to use taxpayers' money to fund 'free' prescriptions, eye tests, tuition fees, bus passes and elderly care whilst obsessing about Scotland's constitutional future.

If the SNP want to make the case for independence based on reducing inequality, then ultimately the Scottish people will need a lot more detail and explanation than they've been getting. 


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