Inequality of wealth is nothing to be proud of

The USA has the unenviable reputation of leading the world in terms of wealth inequality. Not something to be proud of. However, it also leads the world in another sense. It has some of the most innovative policies designed to deal with such inequalities. Most interestingly, the last 15 years has seen the development of a plethora of asset-based welfare policies. The UK doesn't lag all that far behind the US in its own record on wealth inequality, and has only just started the debate on progressive asset-based policies.

The USA has the unenviable reputation of leading the world in terms of wealth inequality. Not something to be proud of. However, it also leads the world in another sense. It has some of the most innovative policies designed to deal with such inequalities. Most interestingly, the last 15 years has seen the development of a plethora of asset-based welfare policies. The UK doesn't lag all that far behind the US in its own record on wealth inequality, and has only just started the debate on progressive asset-based policies.

After the Second World War, policy-makers developed policies to help the middle classes to build up assets. The most prominent today are tax breaks for home ownership, retirement accounts and capital gains. But these polices, on which the United States now spends well over $300bn per year, exclude low and middle-income families. They have become a major part of the structure of wealth inequality.

Since the late 1980s, progressive US thinking has been focusing on encouraging the accumulation of wealth by low-income households. It has been recognised that the benefits that asset-holding brings to individuals should be extended to all.

Asset-based policies have developed rapidly from their roots in self-help, community-based organisations. Perhaps the most ambitious proposals were the centrepiece of President Clinton's 1999 State of the Union address. In 2000, he proposed a similar plan, called Retirement Savings Accounts (RSAs), saying: "We should do more to help all working families save and accumulate wealth. I propose to match their [low-income groups'] contributions, however small, dollar for dollar, every year they save."

Yet policies encouraging the accumulation of assets are not the preserve of the Democrats. They typically have bipartisan support and form part of any debate on social security policy. In the recent presidential campaign, both candidates proposed asset-based policies. Even George W Bush got in on the act.

"Many people who are now successful can remember how hard it was to save - but how important it was to start," Mr Bush said. "And we can help many Americans make that start. As president, I will propose Individual Development Accounts... This proposal should result in over a million new savings accounts."

Debate in the United States has come to focus on the possible pathways to reach a large, inclusive and progressive asset-building policy. This is a sign of how far ahead of the UK the American debate has come.

Another option being developed is the creation of Children's Savings Accounts. Under the plan, every new-born child would be given a "start in life" account, with deposits gradually accumulating into a significant asset. We believe that Children's Savings Accounts would have political support while at the same time being genuinely progressive.

If the United States spent 1 per cent of GDP (around $80bn per year), every child in America under 18 could receive a $1,000 deposit every year. This is an idea being developed in the UK by the Institute for Public Policy Research (IPPR), but which has yet to take off.

Taking the long view, we are reminded of Hugh Heclo's observation of the welfare state of the 20th century: "If there has been a direction to our century's struggle, it seems to have been mainly a question of expanding presumptions of inclusiveness, of assuming that more people matter and that they matter as equals in aspirations for social welfare."

This is a challenge being faced in the US in relation to wealth and assets. It seems likely to us that 40 to 50 years from now, asset accounts will have replaced social insurance as the dominant social-policy strategy. It is exciting for the UK that policy makers here have begun to engage with the same crucial issues.