Saturday, 30 August 2014

Biased management, biased state? A comparison of the role of the state in reducing inequality across the U.K and Germany



By Jaume Martorell Cruz
 
The recent report of the Social Mobility and Child Poverty commission, chaired by former Secretary of State for Health Alan Milburn, has ignited the public debate about elitism in Britain. According to the report, public schools enjoy a firm grip on Great Britain’s top posts across a wide range of sectors. While only 7% of the whole population is educated in independent public schools, 71% of senior judges, 53% of diplomats, 50% members of the House of Lords, and 45% of public body chairs are ex-pupils from independent public schools. A starker contrast is the comparison between the 1% of the general population educated at Oxbridge and the 75% of senior judges, 50% of diplomats, 44% of public body chairs, and 38% of members of the House of Lords that attended Oxbridge. 


It would seem to point that the levers and resources of the state are mainly controlled by a small elite, which has followed a similar route across life: public school, Oxbridge, top offices of the state.  A question that follows is how this shapes the intervention of the State in public life, if the apparent entrenchment of a cadre of public schoolboys on Great Britain’s state offices biases the resources of the state. This piece, rather than make a judgement of how much tax should be collected as most of the press seems to focus when analysing the influence of elitism on Government, aims to explore if a biased management implies a bias on how these revenues are used. 





In the chart, we compare the levels of taxation and inequality across the UK and Germany. On the background we can see the percentage of tax revenue over GDP according to OECD data, where there are some minor divergences across the two countries: The tax revenue decreases considerably in Britain across the early 90s but catches up with Germany during the late 90s and the 2000s.  Therefore, with similar levels of resources, Germany will suffice as a counterfactual to the UK on how these resources are used. In order to do it so, we compare the Gini levels before state intervention and after state intervention. The Gini is a measure of inequality between 0 and 1, with 0 being a completely egalitarian society.  In this case we are using data from the Standardized World Income Database, which incorporates Gini values before and after taxes and transfers, standardized between 0 and 100, for 173 countries. 


Looking at the Gini comparison, we see how initial levels of inequality are similar between the UK and Germany but there is a striking divergence across final levels of inequality.  We should bear in mind that Germany is what Esping-Andersen has qualified as a “Conservative” welfare state, aimed to provide insurance to middle classes rather than to redistribute between classes. In Germany, inequality is higher than in social-democratic welfare states such as Finland and even slightly higher than other conservative welfare states such as Austria.   Taking this into account, the results are quite startling. It is especially interesting to point that this divergence starts in the 80s and keeps increasing afterwards. As stated before, the aim of this piece is not debate how much government should tax but if a bias in management implies a bias in use of state resources, as it seems so. 


This quick snapshot does not allow to stablish a causal relationship between the low diversity on Great Britain top offices and the lack of efficiency of British state when it comes to reduce inequality, for which we would need a detailed analysis of UK taxation and spending structure, beyond the scope of this piece. However, it would not seem farfetched to say that such a narrow pool of vital trajectories and environments could explain why, despite similar levels of taxation and initial inequality, Germany is considerably better at reducing inequality than the U.K.
 

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