Work, Wealth and Inequality (Part 1)

David Cappella and I assess work and wealth in the developed world. I write Part 1 on how we have reached an unprecedented level of inequality of ownership in our society:

Inequality: A Roadblock to the Sharing of Work

Margaret Thatcher famously told the Church of Scotland, “we are told we must work and use our talents to create wealth. “If a man will not work he shall not eat” wrote St. Paul to the Thessalonians.”

Thatcher gave a creed for the supply-side economics of the 1980s. Under such economic regimes, new fortunes have sprung up in the developing world and developed-world business thrives with record earnings and profits.

Yet there is a puzzle: even as overall economic growth increases, per capita increases in household income have been minimal in the United States. Three-quarters of economic growth in past decades has gone to the top of the income distribution, and revenue from capital income (property, investments) has reached a level unseen since the turn of the 20th century.

Why does increased economic inequality matter? Individuals lose purchasing power, and mobility into the middle class becomes more difficult. Economic structures create or sustain inequalities, and we must understand them in order to propose effective solutions.

Economic growth is a function of increases in productivity and the creation of new technologies. Technological revolutions unlock new potential in labor, and new means of production are controlled by the nouveau riche or inherited. The Industrial Revolution birthed industrialists, for example. The long term effects of these revolutions however, are debated.

On one extreme is Karl Marx, who argued that wealth would accumulate infinitely to the economically powerful until a seismic social change brings down the old class structure (total inequality). On the other are interpreters such as Niall Ferguson, who see wealth distributed through work ethic and accumulation of “human” capital (potential equality).

The data reveal increasing, but reversible, inequality. Structural problems are preventing access to the work and wealth of our current economic climate:

  • Spreading Human Capital: Once a group of elites master a new economic paradigm, the rest of the economy must adapt and disseminate knowledge to train new labor for the high-paying jobs in the new sector. STEM education in the United States is critical to closing this gap, but lags behind our competitors.
  • Merit and Privilege: With a new economic order, social classes realign or harden around those who have new skills and those who do not. Those without access to skills are labeled as economic failures or lacking work ethic. Reinhold Niebuhr described the privileged appropriating the language of merit well 80 years ago.
  • Segregation and Segmentation: Those without access to skills witness a change in social, economic and political opportunity structure around them, as increasing wealth and inequality decreases the incentive of the wealthy to systematically act on their behalf.

Thankfully, we live in a democracy in which there are policy channels to ameliorate inequality: “Opportunity Zones” being one tool for business. Effective social welfare, such as increased minimum wage or minimum income can plug the gap until a more just economic order through innovation and education takes root.

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