Why addressing the income gap would be good for the economy

Income determination is not as simple as creating the conditions for hard work

In its Global Risks 2013 report, the World Economic Forum (WEF) identified income disparity as one of the world’s greatest risks.

Statistics Canada reports that the income gap between the top 1% of Canadians and everyone else continues to widen to alarming levels. The WEF warns that the widening gap can lead to negative consequences for all of us. We should be concerned about this problem both locally and abroad.

The new Statistics Canada data and WEF report come on the heels of the Occupy movement and the Arab Spring, both of which started with protests about economic disparity. The consequences of poverty and lack of opportunity have also been raised by Canadian First Nations communities in the Idle No More protests.

These protests all have one thing in common: they offer little on how to go forward. However, they do highlight the fact that something must be done about the negative consequences of growing income disparity. It’s time to start conversations about how to approach the problem from a different ethic.

Nobel laureate Joseph Stiglitz points out that “93% of results of economic growth in the U.S. since 2010 has gone to the top 1% of society. The median income of the worker in the country is lower by one-third when compared to levels prevailing in 1968.”

There is little compelling evidence to suggest these figures are substantially different in other developed nations, such as Canada.

Stiglitz writes in his book The Price of Inequality that we have built a society that views those with large incomes as more deserving in an “achievement” model of income determination. However, income determination is not as simple as creating the conditions for hard work. There are far more forces at play, and “… inequality is, to a large extent, the result of government policies that shape and direct the forces of technology and markets and broader societal forces.”

Stiglitz argues that inequality is avoidable and that relying on the “achievement” myth to fix everything is far too simplistic.

“An economic and political system that does not deliver for most citizens is one that is not sustainable in the long run. Eventually, faith in democracy and the market economy will erode, and the legitimacy of existing institutions and arrangements will be called into question.”

Greater income inequality breaks apart societies by polarizing its citizens into groups that increasingly distrust one another.

The answer to income disparity is not simply to suggest that people work harder and longer without assessing the range of policy opportunities available to us. As Alan Greenspan told the U.S. Congress in 2009, overreliance on a particular ideology clouds our judgment when evaluating economic policy effects. We must initiate discussions about the economy itself as a public interest rather than just an aggregation of private interests.

Stiglitz points out that emphasizing growth and economic health includes a concerted effort to ensure that those most disenfranchised among us also gain from societal involvement.

If we believe in a just society, then this ought to be reflected in how we govern ourselves. The economy should not only equalize opportunity but also provide a minimally equitable benefit. It should not simply maximize opportunism for a few.

Meaningful public discussions regarding “how the economy is a public interest” may help to change our notions of what is just, what is equitable, and how to get there. If we want to mitigate the risks the WEF, Stiglitz and others have identified, then perhaps it is time to think differently about the nature and role of the economy. •

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