It is a common refrain these days: the rich are getting richer, and the poor are getting poorer. But the COVID-19 pandemic has put this into stark relief. In July, Jeff Bezos – already the richest man in the world by a longshot – increased his net worth by $13 billion in a single day. A month later, he became the first person ever to be worth $200 billion. To put that into perspective, the GDP of entire countries like Greece and New Zealand hovers between $205 and $210 billion.
The net worth of high-profile businesspeople, especially in the tech sector, has ballooned just as academic and media interest in inequality has gained greater traction in recent years. In 2014, Thomas Piketty’s seminal book Capital in the Twenty-First Century spurred massive debate by providing a wealth of data depicting the historical trends of global income and wealth inequality over the last hundred years. He argued that top income shares, especially those held by the top 1%, have increased dramatically in Anglo-Saxon countries (USA, Canada, Britain, Australia) in recent decades. Although the income share of the top 1% fell sharply during WWII and continued to decrease slightly in the following decades, we see their share increase again in the 1980s, roughly doubling between 1980 and 2010.
Today in the UK, ONS data shows that the income of the top 20% was more than six times higher than the poorest 20% in FYE 2020, and that the income of the richest 10% was 50% higher than that of the poorest 40%. Moreover, in the last ten years, the Gini coefficient (a measure of inequality within a region or country) for UK income has remained relatively stable; it is, however, 6.4% higher than the average of the 1970s and 80s (28.4% in 1979 and 34.8% in 2016). These numbers also place the UK amongst the most unequal countries in Europe, and while it is still some ways away from the inequality levels in the USA, Sir Angus Deaton, a Nobel laureate for his work on inequality, notes that there is real risk of the UK following the same path.
Wealth inequality in the UK has also gotten worse. Eye-catching statements like, ‘the six richest people have as much combined wealth as the poorest 13 million,’ highlight this extreme disparity. This research and analysis, conducted by the Equality Trust, concludes that an estimated 14 million people in Britain live in poverty, and, of those, 1.5 million are destitute. ONS data also point to increasing wealth inequality: in the last decade, the difference between the mean wealth and the median wealth has grown, indicating higher wealth disparities.
Moreover, wealth in the UK is not evenly distributed across the country. Wealth and higher incomes are concentrated in the South East and particularly in London, and this regional inequality has been widening over the last decade. It is now worse in the UK than in 28 other advanced OECD countries, including the United States, according to analysis by the University of Sheffield. Professor Philip McCann, the researcher behind the analysis, stated that ‘major differences in local productivity are a primary source’ of the UK’s regional inequality. The Life Sciences industry is the most productive sector of the UK economy and provides significant return on investment, alongside a slew of health benefits. However, the North of England receives just £72 of health R&D investment per person, compared to £168 in the South. In general, both productivity and earnings are 30% higher in London compared to the national average; in Wales, they are 15% lower.
Productivity is critical to economic growth, so this discrepancy has economic implications both in the short and long-term. Greater productivity helps raise the value of labour, thus generating increased wage growth and higher government revenue. Without a boost to the country’s overall productivity – through consistent and targeted investments from both the public and the private sector – regional inequality will continue to inhibit growth.
Attention has turned to this issue – not least because the Brexit referendum threw a harsh spotlight on it – and the Government is attempting to address it through its ‘Levelling Up’ agenda. This agenda aims to distribute more public spending beyond London and the South East, and there is potential for more devolved political authority. The agenda also aims to increase trade and investment support for the UK regions. At the Department for International Trade, new jobs are being created explicitly as part of the Government’s strategy. This is a step in the right direction. FDI can deliver enormous benefits by injecting new money into an area, creating new jobs, generating greater competition and more skills diversification through knowledge sharing. Piketty notes that one of the key forces working against inequality is the increased diffusion of knowledge and skills.
We don’t yet know what the pandemic’s lasting impact will be. Lockdown, social distancing and other restrictions will carry complex long-term social and economic consequences as millions have been forced to stay home to stay safe. But in building back, it will be important for the government as well as investors to keep ‘Levelling Up’ in mind. Covid-19 has exposed the risks associated with lengthy global supply chains, and efforts to re-shore and near-shore are already underway. This is creating opportunities to build new, more local business networks. Being stuck at home has also led many to re-evaluate their priorities, now hoping to move out of the capital where smaller spaces and long commutes were the norm. The success of working from home means that high-paying jobs can be located practically anywhere, that they don’t have to be concentrated in south east England.
The regions outside Greater London and the South East had strong offers before the pandemic; great talent and easier, more transparent collaboration between industry and government attracted investors from across the globe. While Covid-19 presents many new challenges, it also presents new opportunities for regions to attract FDI, generating economic activity and raising productivity. It will be interesting to see how the next months, indeed years, unfold. Some of these changes may happen organically, but they should be reinforced and encouraged with a clear strategy and steadfast commitment from the government.
OCO Global works with national and regional Investment Promotion Agencies to develop investment and economic development strategies, facilitating investment and creating jobs.
For further information contact Julia Bach – Julia.email@example.com