Monday, March 14, 2011

The Haves and the Have Nots

When I moved to the United Kingdom, I expected to see a population with a more homogenous standard of living than in the United States.  Not quite right.  And this chart from this week's Economist confirms the wide disparity I've seen here.

This chart shows the highest and lowest GDP/head regions (as a % of average national GDP) for certain developed countries.  It took me a minute to understand this view, something the OECD monitors regularly. 

From personal observation, Britain is bifurcated.  There are some incredibly wealthy individuals who live in London (many are foreigners who settle in London for personal and commercial reasons).   And then there is everyone else who manages to get by.  Compare that with the United States where there truly is a middle class that drives the economy through personal consumption.  I can also sense this general two-tier split on a basis of everyday things I see.  When it comes to clothing, the two options seem to be very high end, custom tailored fashion foward clothing.  Or cheap Primark, H&M, etc. clothing options.  Also, I see alot of small Fiats slightly bigger than go karts and alot of BMW's, Benz's, and Range Rovers.  Not many Toyota Camrys or Honda Accords.  (Realize that you will pay a good bit more for even the smaller vehicles in the UK than you would in the US because of taxes and the like).

So, why are there these differences?  A number of guesses I have...
1. Not as many people pursue higher education (college).  While many students go to incredibly respected universities such as Cambridge, Oxford, Imperial, etc., many others don't go to college at all.  They may pursue some sort of vocational education, but that's not required. 
2. High taxes and red tape in starting a business.  SMB in the US create alot of wealth for many Americans.  While the UK is sometimes called "a nation of shopkeepers", these shopkeepers are also being taxed at 50%.
3. Wealth is highly concentrated in London.  The chart is a bit tricky in that it graphs regional averages, not absolute highs and lows.  London obviously is the high point for the UK.  Wealth seems to be more geographically dispursed in the States.   It makes sense for wealthy people to settle in NYC, SF, LA, Chicago, Miami, etc.

So what? Is having this big gap a bad thing?  Not necessarily.  Look at it from the flipside.  Is not having a large gap a good thing?  Japan and Italy are countries where there isn't as much income disparity.  However, I'm not bullish on those economies for a number of reasons.  At the same time, Germany has a smaller gap and is the GDP gem in the EU.  I think the bigger issue with having the sort of disparity that the US and UK have are the socioeconomic and racial tensions that can flare up. 

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