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!