Fixate on the Gini coefficient

By any standards the United Kingdom is a very rich country. It has the sixth largest economy in the world, when comparing Gross Domestic Product, at 3.32% of global production. Its citizens enjoy, on average, the 24th highest income in the world at $42,526 per capita. 

Why then are we obsessed with growth? It is clear that we are already consuming more than our share of the world’s resources and we need to ask why we are pursuing a policy of more? Why can’t we be happy with what we have got?

As the saying goes, a man can drown in a pond that averages four inches deep and the headline GDP and per capita income figures bely more disturbing information. When it comes to income distribution the UK fares much worse.

According to Wikipedia, income distribution can be measured using the Gini coefficient. This measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient of zero expresses perfect equality, where all values are the same. A Gini coefficient of one (or 100%) expresses maximal inequality among values.

The UK has a wealth Gini coefficient of 73.2%, 112th in the world. Compared to other developed countries the UK has a very unequal distribution of income.

The truth then is that the UK is a very rich country, populated by a large number of poor people. The Guardian published figures in February 2020 stating that ‘Approximately 14 million people are in poverty in the UK – more than one in five of the population, including 4 million children and 2 million pensioners, up by 400,000 and 300,000 respectively over the past five years.’

The focus on GDP does nothing for a large group of people.

What then is to be done? The UK should forget its fixation with GDP. A 2% rise, accounting for inflation would keep us as well off as we are. Instead it should aim for a reduction in income inequality and become obsessed by the Gini coefficient, with set targets to reduce this by both an absolute lowering of the number (that is a more even distribution) and a reduction in the relevant number, pushing us up the league of countries.

Such a move will bring more people into economic activity as they will be less poor. This in itself will increase GDP and the tax take. It will also make the country a better place to live.

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