Greed is good. So said Michael Douglas in Oliver Stone’s 1987 satirical film Wall Street. The sentiment has been echoed more recently by British politician Boris Johnson, who argued in 2013 that inequality can promote innovation and boost economic growth, rewarding hard work, entrepreneurialism and enterprise.

Yet can we have too much of a good thing? Even that reliable bastion of neoliberalism, the International Monetary Fund (IMF), argues that “excessive inequality can erode social cohesion, lead to political polarisation, and ultimately lower economic growth”.

Too much inequality can hurt innovation, as elites “pull up the ladder behind them“, reducing social mobility for people on lower incomes. So, what’s the solution? Raise taxes and increase social spending, levelling the playing field between the ultra-wealthy and everyone else? Or lower taxes and reduce barriers to social mobility, giving everyone the same opportunities to work, innovate, and succeed?

What do our readers think? We had a comment from Stelios, who mentions policies such as welfare, public housing, state education and healthcare as among the best ways to drive down inequality. These are all policies that rely (to a greater or lesser extent) on state intervention in the market. So, is government intervention the best way to reduce inequality?

To get a response, we spoke to Aparna Mathur, Resident Scholar of Economic Policy at the economically liberal American Enterprise Institute (AEI). What would she say?

I would argue that it’s a mix of state intervention and the market. When we survey people here in the US, what works best for them is not getting this feeling that ‘we have a government handout coming to us and that’s going to help us improve our standard of living.’ But what people really want are jobs and the opportunity to earn a decent wage, to send children to good schools and to earn their success.

I think any way that society and government can promote that goal, or help people achieve that goal, is key. I agree with him for that those who are struggling, for those who don’t have the opportunity to get a good job, for those who are lacking education and skills, the government needs to step in.

We can do that by ensuring that even poor children growing up in bad neighborhoods have the opportunity to access good schools and decent neighborhoods, through being able to move or giving them vouchers so they can attend those schools.  I think enabling people to find good jobs by providing them the right skills training, by incentivizing employers to hire people and provide them the right training so that they can be hired into the position that exists. I think all of that is key.

So, the government can absolutely play a role; public policies can play a role in doing all of that. But at the end of the day what people really value is the ability to earn their own income and to hone their skills and to be out there and earning an income for themselves and providing for their families.

We need the private sector to be creating those jobs, we need economic growth, and we need to improve economic opportunity. That can be done through government resources, government help, and public policy, but at the same time insuring that people feel self-sufficient, that they can feel like ‘if I do that training program that’s the stepping stone to my success, and I’m not stuck at the bottom even though I’m getting income or subsidised healthcare, it’s not enough for me to stay at the income that I am. I could be doing more.’

Improving access and insuring that people retain their dreams and their ambitions of moving up the income ladder – all of that is key. Both the public and the private sector can play a role in that.

To get another perspective, we put the same comment to Sam Pizzigati, associate fellow at the Institute for Policy Studies, veteran labour journalist, and co-editor of the Inequality.org newsletter. What would he say?

I have no doubt that serious government investment in basic social programs — everything from health to housing — can help narrow our growing economic divides. But power strikes me as more fundamental to egalitarian progress than programmes. If we let income and wealth concentrate in the pockets of a few, we let power concentrate as well. And the policies that emerge from that power will reflect the priorities of those with income and wealth, not the needs of average working families.

We’ve seen over recent decades grand experiments in social policy that sought to help people in poverty without challenging the wealth and power of people at the economic summit. We saw these efforts, most notably, in the UK of the late 1990s and Brazil a decade later. Both experiments ended badly. The wealthy increased their wealth. The social programs never lived up to their initial promise.

Real progress against inequality, egalitarians understood years ago, requires that we struggle to both “level up” people at the economic bottom and “level down” grand fortune at the top. I think we can best do that today by explicitly linking the economic situations of those at summit and cellar, as I argue in my new book, The Case for a Maximum Wage.

Try to imagine a society that denied government contracts to companies that pay their top executives over 25 or 50 times what their average workers make. Or visualize a nation that levies a 100 percent tax rate on income above 100 times what a minimum-wage worker makes.

If we had these sorts of economic rules in place, the richest and most powerful in our societies would only see their economic situation improve if the well-being of people at the bottom improved first. Our wealthiest would suddenly have a vested personal interest in improving the life chances of our poorest.

I’d like to live in that world.

Are there any examples of countries which have got the balance right? We had a comment sent in from Vicente, who thinks that Scandinavian countries provide the best example of countries that have simultaneously promoted high growth and low inequality. Is he right? And, if so, what’s their recipe for success?

How would Aparna Mathur from the American Enterprise Institute respond?

Yes, I do see the Scandinavian countries as an example for how everything works great, but I would caution again, because it’s a simpler, more equal system, simply because it’s a simpler society. There’s fewer people – we’re talking on average people are doing pretty okay – we’re not talking about the extremes in inequality like we see in the US, like we see in other developing countries, like in Africa or in places like India. So I think it’s not completely fair to say what’s happening in Scandinavia can just as easily be adopted in these countries, because we’re looking at a very different social set-up and different social structures.

At the same time, I do think policy can play a role. It can be done through redistribution. The US is experimenting with that; we’ve had some success. We could obviously be doing more. I think research can play a big role in that. What is it specifically that’s holding people back?

When I look at the US, it’s surprising to me that even today when we look at women’s economic opportunity, that that’s a big question that we’re facing. My other work relates to paid family leave, and the fact that in the US we still don’t guarantee a mother’s paid leave at the time of birth is something that worries me. When you compare European economies to the US on that front, yes, the US is a complete outlier.

So, I absolutely think we can learn from policies that are being adopted in Europe and especially the Scandinavian countries. At the same time, the challenges could be very different, just given the set-up: the population, the increase inequality that we’re dealing in the US and several developing countries as well.

And what would Sam Pizzigati from the Institute for Policy Studies say?

Norway, Denmark, Sweden, and Iceland all rate as prosperous nations. They also rank among the world’s most equal nations. What explains this economic and social success? Should we credit this success to some noble personality trait intrinsic to the Scandinavian character?

That wouldn’t make much sense. Only a few generations ago, the Scandinavian nations rated as neither prosperous nor equal. At the end of the 19th century, a deeply unequal Scandinavia hemorrhaged huge numbers of desperately poor migrants.

That reality began changing significantly during the Great Depression of the 1930s. In Scandinavia, explains the Quaker activist scholar George Lakey, the mass social movements that emerged during the Depression era didn’t just protest inequality. They put forth a vision of a much more equal new society.

The nonviolent direct action campaigns that Nordic activists would wage in these years, says Lakey, followed a powerful pattern. Activists chose specific targets, carefully defined their demands, and escalated strategically. Multiple campaigns both “built the movement” and “grew the activists” who would eventually build the more egalitarian institutions of their new societies.

Is government intervention the best way to cut inequality? And are the Scandinavian countries the best example for how states can help promote wealth equality within society? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!

IMAGE CREDITS: (c) BigStock – davinci; American Enterprise Institute; K. Pizzigati 


19 comments Post a commentcomment

What do YOU think?

  1. avatar
    Ivan

    You do know if there are only two people in a room there will be inequality in that room right ? Equality of opportunity is the only goal worth following & trying to legislate to end an inequality of outcome is just dangerous left wing virtual signalling that divides society.

  2. avatar
    Bódis

    Education, even lifestyle education, and skills training.

    For example, young gypsy mothers who are tough how to take better care of the their children, how to study and do homework together with their children have children who do better in school, obtain job skills and will have jobs.

  3. avatar
    Michelle

    cutting taxes and red tape its just good business. business brings jobs and encourages ppl to stop taking handouts which is a never ending pit that promotes laziness and ppl looking at Others to work for them. keeps them of the streets and busy, we all know what happens when ppl have too much time on their hands for gossiping, causing mischief, fantasising and going out of reality and living in the now. also encouraging voluntarism, not unpaid work, but a social concious where ppl help their brothers with a hand up, not keeping them on the street with their hands held out feeling sorry for themselves forever. a support system from have to have not.. maybe in training programs from person to person

    • avatar
      Adriian

      This is supply side economics 101 bulls**t.
      New business brings PROFITS which the rich pocket not new jobs.
      We KNOW this because this is what happened !

  4. avatar
    Cai Arcos Botias

    Well, in my humble opinion I would say that some degree of inequality is what drives progress in the most efficient way simply because of our natural greed. This can be reflected by the extremely rapid progress that technology has gone through in the time we accepted this idea and we put the research capabilities in the hands of the companies that, by their very same definition, work on the principle of inequality and hierarchy.
    That being said though, it is true that in order to ensure that this system of “differences based on merit” (the idea of a meritocracy) works properly, we must make sure that as much people as possible have access to the basics institutions and services that can be used to unlock their full potential (healthcare, education, armed forces…) which is obviously necessary to create the progress mentioned before.
    The problem comes in how to achieve this. Because if we tax extra-high on the rich (as Sam proposes) then you are actively discouraging progress in the social ladder. And as I have exposed at the beginning, it is exactly this progression what creates progress. On the other hand, the resources needed to create and maintain those services need to obviously come from somewhere.
    I would say that the solution here would be a taxation system that even though charges differents amounts based on the wealth of the person, does not try actively to “close the gap” by increasing the tax pay slowly instead of linearly.
    I wait for any new ideas to be proposed.

  5. avatar
    Stef

    Probably the worst that leads to much bigger problems..

  6. avatar
    Josh

    Obviously raising taxes and spending

  7. avatar
    Micheál

    There’s good evidence that much inequality is caused by private debt. Workers pay for debt via lower wages when they do not hold the debt. Solve private debt, could solve much of the problems.

  8. avatar
    Ruairi

    Famine and war. There’s no evidence for any of the rest of it.

  9. avatar
    Veisz

    Bad question: should we battle inequality or embrace meritocracy?

  10. avatar
    EU Reform- Proactive

    Sam Pizzigati’s “The Case for a Maximum Wage” would be a good beginning- if the elite, their think tanks, their lobby groups in governments- who in turn control politicians- would allow it to be implemented!

    Why not hold referendums? “They” would never do so, if not “democratically advised” by the majority. All for a good cause!

    Drain the pockets of the dishonest, the financial crooks, the Mafia & the super-greedy. Close ALL global tax havens. The UN need to declare them a crime against Basic Human Rights. Repatriate these (unsavory) funds from where they originated!

    The imposed penalty taxes on such funds (hot money) could help to “harmonize inequality” and bring some financial justice to the rest. Provided, Gov spend the windfall wisely.

  11. avatar
    Karl Polzer

    Policies Fostering Inclusion,
    Great discussion. Below are some policies that would moderate economic inequality (for more detail see: http://www.inequalityink.org – Center on Capital & Social Equity:

    Moderating Inequality
    • Protect the safety net for the poor.
    Federal programs such as food assistance, Medicaid, and the earned income tax credit need to be
    maintained and expanded in accordance with the people’s needs;
    • Ensure fair wages and working conditions.
    The minimum wage should be increased to a level that allows people to cover the cost of living and,
    most important, it should be indexed to inflation. All workers should have basic protections such as a minimum amount of sick leave;
    • Protect and bolster social insurance programs.
    Social Security and Medicare. The most prominent and popular forms of social insurance in
    the U.S., should be protected, and benefits should be adjusted to meet the needs of the lower- and middle-
    income people;
    • Foster economic opportunity and inclusion.
    Creating and funding institutions, such as a universal retirement savings system, that include all citizens in the capitalist system is one of the most effective ways to moderate economic inequality. (See http://inequalityink.org/resources/universal%20retirement%20savings%20system%205-27-18.pdf for one way to accomplish this .) Helping young people finance their education also is one of the most important ways to create greater opportunity and economic inclusion. People need jobs and affordable ousing.

  12. avatar
    Joshua Angelus

    The American Enterprise Institute is not a liberal policy organization. It is conservative and pro-corporate. Many of our answers are in the nations of Scandinavia and the example of the Mondragon model of worker owned cooperatives in the Basque region of Spain. Over 100,000 workers in these co-ops and they did not suffer like the rest of Europe and the USA during the Great Recession. https://www.theguardian.com/world/2013/mar/07/mondragon-spains-giant-cooperative

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