Inequality in Western societies

An interesting article by John Kay in Financial Times tracks trends in inequality in developed countries. It suggests that in most countries inequality fell from 1920 – 1970 and public expenditure on social benefits increased. However, from 1970 onwards, societies generally became more unequal, the pace of inequality varying with culture. 

I can state at least one major reason why this was so. I refer to my previous post in which I track global economic trends. During time period 1950-1970, governments implemented managed privatization where they controlled large parts of economy and privatized certain sectors. Large government control also coincides with large welfare expenditure. 1970s was the decade of oil crises and consequent liberalization programs, thus reducing government role in economies. This led to growth but also higher inequality. 

If we agree with this, then in today’s world, solutions proposing preserving existing economic structures will lead to even greater inequality (as is happening). Slow economic growth and high inequality is a very inflammable mix, and Europe is walking right into it. Expect a very volatile year for Europe.