One of the big topics of conversation at the World Economic Forum last week was the same one that the President of the United States will talk about in his State of the Union tomorrow:
Specifically, the fact that the richest 10% of Americans — and especially the richest 1% of Americans — are now capturing all of the income growth in the country, while the rest of America, some 300 million people, are treading water or losing ground.
How bad has inequality gotten?
The richest 10% of Americans now take home a staggering 50% of all the income earned in the country, the highest level ever. This wealth gap exceeds the extremes reached in the brief “Gilded Age” portrayed in the The Great Gatsby that led to the Great Crash and Great Depression.
The concern about inequality isn’t just about fairness. It’s about the health of the economy. The “90%” account for the vast majority of spending in the U.S. economy, so their stagnant incomes are hobbling the entire economy. The rich can keep on getting richer, but until some more money gets into the hands of the people who actually drive most consumer spending, the economy will continue to struggle.
Anyway, the inequality issue is now front and center, which is encouraging. Even rich investors and executives are now talking about it.
What is startling, though, is the way rich investors and executives are talking about it.
Based on the conversations in Davos last week, most rich investors and executives correctly identify some of the causes of rising inequality — rapid technological advances replacing jobs, globalization (cheaper labour overseas), decline in education creating a “skills gap,” etc.
What they don’t do is talk about one easy way they can begin to fix the problem:
Pay people more.
Yes, that’s right. Pay people more. Voluntarily share more of the value that successful companies create with the people who create it — the rank and file workers who dedicate their working lives to the company and its customers (and, in so doing, to increasing the wealth of the senior executives and investors who own the company).
One reason inequality is so bad right now, after all, is that the owners and senior managers of companies are hogging a greater percentage of the value the companies create for themselves than they ever have in history. Meanwhile, they are paying the lowest wages (as a per cent of the economy) than they ever have in history.
And yet, when they talk about inequality, rich executives and investors never mention this as a solution.
Instead, they talk about the need for others to fix the education system. Or the need for the government to erect barriers to protect American companies against foreign competition (protectionism). Or the need to change tax policy or otherwise force income redistribution.
When asked about the most simple and obvious solution to inequality, meanwhile — paying people more — most rich executives and investors assume you are joking (“What are you — a socialist?”). Or they argue, effectively, that there’s a law of economics that forces them to pay their employees as little as possible.
Of course, there isn’t a law of economics that forces companies to pay their employees as little as possible. The owners and senior managers of companies can pay their employees as much as they can afford to while still keeping their company financially healthy. All they have to do is be willing to share more of the company’s profit with the folks who generate it, instead of keeping it all for themselves.
The idea that there’s a law of economics that you have to pay people as little as possible is just an excuse designed to make senior executives and investors feel better about taking almost all of the company’s value for themselves. It’s not a law. It’s a choice — a selfish choice.
So, it’s encouraging that so many rich executives and investors are now talking about inequality. The next step will be helping them realise that they can do more than talk about it — that they can actually do something about it. All they have to do is stop being so selfish and share more of the value their companies create with the people who create it.
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