In solving the financial crisis, let’s not resort to ‘social cleansing’

TheGlobeandMail.com – news/opinions/opinion
Published Saturday Nov. 13, 2010.   Doug Saunders, London

Every crisis gets its tagline: From oil shock to dot-com crash to credit crunch. Their attempted solutions, too: Reaganomics, the Big Bang, trickle-down.

The current situation, against its own best wishes, has just been awarded a name by London mayor Boris Johnson, who bestowed on his own government’s recovery policies the title “social cleansing.”

Actually, what the foppish mayor said was that his Conservative Party colleague David Cameron’s program of slashing public-housing subsidies (a big part of welfare in Britain) was “Kosovo-style social cleansing of London.” He backed away from the hyperbolic Balkan comparison, but the phrase has sticking power.

Mr. Johnson, in his inimitable way, was speaking of London’s famous social mix, in which rich and poor live cheek by jowl almost everywhere in the city: My middle-class house has a public-housing project directly across the road, as, for that matter, did Conrad Black’s Kensington mansion.

This is no longer a natural function of the economy, which left to itself and stripped of government incentives would make London and its surroundings almost entirely an enclave of the prosperous – with no living quarters for those who clean their chimneys and teach their children.

And, while Britain’s large-scale dependency on government housing is an odd anomaly and not a terribly healthy habit, the mayor had a point in saying that now is not the time to deal with that problem: It would turn the economy’s less successful participants into permanent losers, and drive them to less salubrious regions where there’s no economy at all.

But Mr. Johnson could well have been speaking of the whole world. There is a terrible danger that the solutions to the financial crisis, whether domestic fiscal policies or international trade and currency measures, will create walls that will prevent people and nations from improving their lot when growth resumes.

In Seoul this week, G20 leaders failed to do anything substantive about the rising trend of trade protectionism and currency devaluation that threatens to paralyze international trade. Too many countries are slashing spending and tightening money supplies at a moment when domestic consumption needs to be kick-started. Together, these moves could freeze large groups of citizens out of the economy – the same mistake that was made in the recovery of the 1990s.

At core is a problem of inequality: While a minority of people, and countries, will have the wherewithal to get themselves going again, a much larger group are increasingly unable to participate.

I live in a country where there are 10 million working adults who earn less than $24,000 a year (and stuff is expensive here), but policies are aimed at the 400,000 who make more than $160,000. Postsecondary education has become prohibitively expensive, as has living in the regions where quality jobs and entrepreneurial activities exist.

This is what the economist Will Hutton – an adviser to the Cameron government on its public-sector wage policy – calls, in his new book Them and Us, “a disastrous social geography,” in which “the poor and disadvantaged live in ever more concentrated wards that are blighted by run-down social housing and over-stretched schools.” Indeed, life expectancy for Britain’s wealthy is 14 years more than for the poor. The economic bubble, he writes, “fostered social polarization” in many countries.

Inequality is a badly misunderstood topic, and recent books like Richard Wilkinson and Kate Pickett’s The Spirit Level: Why Equality is Better for Everyone don’t help – they argue rightly that more equal societies are often better, but create the false perception that a change in equality means an improvement in life.

If that were the case, then governments should never pursue economic growth, because it almost always causes a rise in measured inequality, even when the incomes and living standards of the poor rise dramatically, because the ultra-wealthy distort the figures. Likewise, periods of increasing poverty usually see rises in equality.

The gap between the poor and the super-rich is not important (as long as we are able to tax the super-rich). What is important is the gap between the poor and the middle, and the ability to move from one into the other – whether you’re a person or a nation. We don’t need India to become Monaco; we’d be happy if it became Poland. For the poor, the ability to own a house permanently and to send children through university is what matters, regardless of how much Bill Gates is earning.

If we manage to bring back growth at the expense of equal opportunity, it will be, as the mayor suggests, a time of social cleansing and lasting impoverishment and division. The consequences of that would be far more serious than a mere recession.

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