It seems the great equalisers throughout history, in regards to wealth distribution, have been two world wars and the Great Depression according to Picketty’s latest work and as seen in his figure below. Basically since WWI the share of overall income going to the top 1% dropped from 18-22% down to about 10% after the Great Depression and WWII. With no real significant political or social shock since then the share of income going to the top 1% has risen to levels almost the same as they were prior to the Great Depression. The 2008 GFC unlike the Great Depression has not had as large an impact on income inequality. So what great equalisers may we see in the twenty-first century? Catastrophic storms, floods and drought due to global warming is one possibility, although unlikely as rich countries are likely to ‘weather’ this quite well, or the war on terror. Without these shocks, some intervention is needed to redistribute wealth to avoid a return to the class-bound societies of Western Europe which were dominated by a landed and monied elite that owned much of the land and the wealth.
Below are the facts, the challenges and some potential policy solutions to tackle this problem.
- Since 2009 corporate profits, dividend payouts and the stock market have all risen sharply but wages have barely budged. Therefore almost all of the income growth in the US economy between 2010 and 2012 – 95% of it – accrued to the richest 1%.
- The average American CEO in 1950 earned 20 times what a typical employee earned. Now the ratio is about 200 to 1 with some CEOs like Apple’s Tim Cook getting 6258 times the wage of an average Apple employee.
- Of the top 0.1% of income earners in the US, 60% work in financial services.
- In 1960 a couple both with university degrees earned 76% above the average, in 2005 they earned nearly 120% more.
- From 2005 to 2012 the growth rate of single parent families with dependents was 14.2% compared with 9.8% for couple parent families with dependents.
- In 2005 people earning less than $15,000 a year had an average satisfaction level of 72% whereas those earning more than $150,000 had a level of only 79%.
- decoupling money and financial issues from the economy – they are only one aspect of how societies function and flourish
- understanding how politics, psychology and philosophical thinking influence economics and use this to identify structural changes in our society to ‘even up the playing field.’
- having an informed debate about the merits of a wealth tax on individuals and corporations
- transforming our workplaces to be focussed around the power of people not just technology
- redefining the news – removing the ‘noise’ and focussing on the moral and social challenges that societies face
- changing the language around ‘welfare’ as it relates to caring for people – payments to people who choose to care for family and friends and not engage in ‘paid’ work are not welfare payments.
- Temporary wealth tax – support the current government’s proposed 2% tax on income earners of $180,000+ and consider the merits each financial year of adjusting this in line with the current income divide.
- Put a cap on the dollar value of CEO packages – a bit like salary caps for footballers.
- Examine the way superannuation funds hold substantial blocks of shares in companies, and the impact this has on shareholders having a voice on executive salary packaging
- Recognise further study as ‘capital investment in an asset’ – treat postgraduate study (not directly related to your current career) as an investment in capital depreciated over a number of years.
- Mandatory study in first year university – all first year students should study economics, philosophy and politics.
- Graduate placement and career coaching/career support schools – all university students should spend their final six months of study in the purpose built and run Graduate placement and career coaching school on campus. Up front capital funding comes from philanthropic investment as well a 0.5% levy on corporate Australian companies regularly earning more than $500m. This school is also accessible to former students and the wider community where they can access government subsidised services to help them when they are unemployed – this includes mental health services.
- Replace GDP measure with Genuine Progress Indicator – several states in the US have decided to stop using GDP as an economic measure and are now using the GPI. GPI is designed to take fuller account of the health of a nation’s economy by incorporating environmental and social factors which are not measured by GDP.
- Introducing an ‘education’ levy – education is a ticket to freedom regardless of race, gender and income status. If we believe in universal education as a right for all Australians just like we believe in it for health care (ie through Medicare) then we need to start the debate now on the merits of a Medicare-type scheme for education.
Tackling this problem is going to require action on a number of fronts as outlined above. There is no silver bullet. We need to:
- work across our education system to ensure everyone has access to a good education to get their fair share of the economic pie and has an opportunity in later life to update their skills as technology advances and economies transition
- appreciate that economics is just a set of values and therefore, must do more to examine its relevance in the broader political and philosophical context – ie move away from the ‘economic monoculture’ to a wider set of societal values
- think about CEO salary packages in the same way we think about salary caps for footballers (to avoid teams buying premierships) to stop people buying too much of the economic pie
This is possible if we take the time to stop and think about what we are doing and the impact it is having on our families, communities and society as a whole.