By Don Pittis, CBC News, May 22, 2015
Even the OECD says inequality is bad. But making it go away is much tougher.
It almost feels like an old story. Ever since the economy crashed in 2008 a growing chorus of voices has warned that inequality was wiping out the middle class and damaging society.
This week the Organization for Economic Co-operation and Development, the rich countries` think-tank, made headlines for declaring that growing inequality is not only bad for social cohesion, but is actually cutting points off economic growth.
If we all agree, why is it such an intractable problem? The story is complex, but here are just a few reasons why inequality is so hard to fix.
1. Equality where?
While inequality within rich countries has been getting worse, many point out that global inequality has been shrinking.
Countries like the US and Canada used to consume a majority of the world’s wealth. As the rich and middle class in places like China and India get a bigger piece of the action, some argue that morally, increasing global equality outweighs a relative decline in wealth by some people in the rich world.
2. Free trade and globalization
The push to create open trade between countries means that the low- and unskilled workers of rich countries are increasingly competing directly with workers in China, Bangladesh, Vietnam and India. Even within North America, industrial jobs often move to where wages are lowest, meaning middle class industrial jobs disappear.
3. Automation
Even in developing countries, manufacturers are replacing jobs with robots and automation. Here in North America, computerized processes are already taking jobs done by factory workers, clerical workers and even professionals as clever software learns to search legal titles and write simple news stories.
Some warn that humans will never get those jobs back and that eventually rich societies will have to set up a guaranteed basic income.
4. Ideology
Letting markets set wages is a traditional cornerstone of free market ideology. In that economic model, government interference is seen as hurting economic growth.
The US model, where high GDP growth has happened in concert with high inequality, seems to recommend it. However, the relationship may not be cause-and-effect, as other countries with high inequality, such as Portugal, have weak economies.
5. Chasing GDP
GDP is the most common measure of economic success, but economic commentator Edward Hadas says it may be a poor measure for rich countries.
In the developing world fast growth is directly correlated with overall welfare. But in rich countries, where most people already have the basics, maximizing GDP is in conflict with maximizing welfare, where higher value is placed on environment, job security, “and something GDP measures badly, quality of life.”
6. Personal interests
While people may speak out against inequality in the abstract, at the personal level they are unwilling to give up the things that make them better off: the second car, the nice house, the summer cottage.
Attempts to integrate rich and poor in schools result in howls of protest. The rich often seek private alternatives.
Politicians who say they will raisetaxes for purposes of redistribution get few votes. And in the US surveys have even shown that people with incomes below the median object to losing the potential of one day being among the rich.
7. Peace and stability
Since people rarely give up their advantages voluntarily, radical changes such as overthrowing the landowning aristocracy of Europe or raising taxes only arrive during times of upheaval.
The plague times that created labour shortages, the First and Second World Wars and the Great Depression were disruptive enough that governments had the licence to overturn inequality.
But even after the equalizing impact of revolutions in Russia and China, a long period of stability allowed a wealthy commissar class to emerge.
8. Capital flight
The open borders of global free trade deals mean that even governments that wish to fight inequality may find their hands tied. One of the greatest fears of governments considering raising taxes is capital flight.
Companies and rich people move to places where taxes are low. Investors withdraw their funds to places where returns are high and wages low.
9. Decline of organized labour
Until the mid-1970s wages were the leading component of inflation. But according to research by a Canadian political economist, since then, wages have fallen behind inflation because fewer private sector workers belong to trade unions.
However, another explanation might be that shrinking demand for the unskilled due to globalization means they have less clout to enforce their demands.
10. Population pyramids
As the OECD notes, one of the reasons for inequality is the divide between the young, forced to take transient work, and older workers entrenched in long term jobs and sitting on nest eggs accumulated before asset prices began their meteoric rise.
However, the population pyramid is beginning to narrow at the bottom, putting a premium on young workers, especially those with skills.
To end on a relatively optimistic note, so long as job creation exceeds population growth, eventually those young people may be back in demand with the clout to demand higher wages.
Our Comment
In The Price of Inequality, How Today’s Divided Society Endangers our Future, Joseph Stiglitz, analyzes “clearly and provocatively…what’s driving inequality and why it is dangerous” (Dante Chinni, Washington Post). He “exposes the myths that provide justification for ‘deficit fetishism’ and the rule of austerity.”
He acknowledges that “markets have clearly not been working in the way that their boosters claim.” His underlying thesis is that “we are paying a high price for our inequality – an economic system that is less stable and less efficient, with less growth, and a democracy that has been put into peril.”
He traces the links between economics and politics and argues that growing inequality is both a cause and the result of this dynamic relationship. He identifies the specific effect of inequality on the economy, on our sense of community, on our imperilled democracy…
He concludes that “the economics is clear: the question is, What about the politics? Will our political processes allow the adoption of [a fairer, more just] agenda? If that is to occur, major political reforms must precede it.” (Like, for example campaign finance reform, that would remedy the privatized “support and maintenance of the public good, by defusing the influence of rich individuals who invest money in [“informing”] us of the merits of alternative policies and candidates.”
Now, more than ever, we need to challenge the rationale that has been marketing the market economy. We’re most fortunate to have resources like this analysis to help us.
The “10 reasons,” while daunting, might rather be recognized as reasons to get to it!
10 reasons why we can’t beat it?
- The comforting assertion that, “morally, increasing global equity outweighs a relative decline in wealth by some people in the rich world” is unacceptable.
- If we can’t have “free trade” without exploiting workers by setting them against one another, we should reconsider “free trade.” Perhaps we could build a global society that would in fact “raise all boats.”
- The probable impact of technology on work makes it imperative that we rethink work and wages (which have always meant – largely – wage slavery for most workers). A guaranteed basic income makes a lot of sense, given the truth about money, and the possible future of work, and ought to be a matter of national discourse.
- The role of government is another subject that should be widely debated at the community level. Such fallacies as the assumption that things happening together are necessarily causally related is not uncommon in an ideological economic argument.
- Measuring the success of an economy by the growth of its GDP can be easily recognized as inadequate. A tragic auto accident that kills 3 children and their grandfather may boost the GDP. What proof is that of economic excellence?
- Personal interests can also be tapped to elevate responses. We should be working to maximize the human potential for positive reactions – educating our young, for example, to embrace common values like an appreciation for the common good.
- Maybe we don’t have to depend on a plague or a revolution to advance our civilization. How about making peace and stability an earnest goal? In an article in Canada After Harper, David Suzuki stresses the need to “establish a basis of agreement… among all participants” seeking cooperative solutions to problems, so that “every stakeholder group would receive the benefits. The issue then would be how each group could carry out its activities” without being part of the problem. This idea is one worth developing.
- Interestingly, Ricardo, on whom “free traders” often rely to build their arguments for “free trade,” pointed out that the free market system could work only because currency (at his time) didn’t gallivant about the globe. At any rate, capital flight is surely not an insuperable problem.
- Policies bashing unions, and various provisions of trade deals, have deliberately undermined the strength of organized labour. The problem is political not economic. The accusation that wages were to blame for inflation deserves debate.
- This argument is another divideand-conquer strategy. The best interests of both groups can be met. To think otherwise is blind, either/or thinking. All these and many other issues should form the agenda of organized public forums at the community level, to prepare society for an informed, cooperative effort to save ourselves.
Élan
