Era of Inequality since 1985 – Causes and solutions
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A recent excellent article by Scott Bixby at the World Economic Forum has brought out some startling facts about the world economy, led by the US. The data is illustrated in two graphs, repeated here for discussion.
The graphs show that an era that may be termed the era of
economic exploitation, an era in which the rich get richer while the poor get
nowhere or poorer began in 1980. It is an era of rising inequalities. The trend
appears to have begun with the richest 0.1 percent in 1980 and then spread on
to the 1 percent by 1985. For some reason that is not fully clear or merely coincidental this era of inequality has begun around the time of creation of the World Economic Forum and its meets in Davos. Perhaps the forum provides for a sharing of techniques or a mutual encouragement to pursue techniques that perpetuate inequalities since it is mainly the one percent of one percent that attends and plays an active role in these meets. Most certainly a homeless or exploited would not find any direct voice here.
This author has pointed out in a book on the subject (see
here) that when inequalities rise, it may be because of two possible
reasons. The first is that the rich are getting smarter and more hardworking
while the poor stupider and lazier or it can be because the economic system,
helped by existing laws and policies has become more exploitative of society and natural resources (monopolized by a few) as a whole.
It does not take much reflection to conclude that the cause can be the latter and not the former i.e. humans, rich or poor, on the whole have been just as lazy or hard working as they have always been, certainly over the past century.
According to a recent report by OXFAM
According to a recent report by OXFAM
The combined wealth of the richest 1 percent will overtake that of the other 99 percent of people next year unless the current trend of rising inequality is checked, Oxfam warned today ahead of the annual World Economic Forum meeting in Davos.
Causes
While Scott Bixby has pointed out that one of the causes for
this disproportionate wealth increase of the rich is rising compensations of
top earners e.g. banker bonuses another important cause appears to have been
missed, it is the huge profits some corporations are able to make in the modern
era. Several laws such as patent laws and the ever greening of patents favor big pharmaceutical industry so that they can make obscene profits for essential life saving medicines. While in some cases insurance pays these high costs, the money of insurance companies comes from people so that all may get poorer to support obscene profits and CEO compensations. A secondary cause that increases inequalities is savings that multiplies wealth
of the rich while the poor have none, since they struggle to get by on their
meager earnings, and if they fail, end up on Homeless Street.
While it is laudable to work for oneself and family and have aspirations to make a good living, and it is this aspiration that drives a capitalistic economy when it becomes excessive, it is greed. The difficulty with greed (as well as some other human emotions like lust) is that it is fueled by attainment and not quenched , that while there is a biological safety valve to lust, there seems to be none to greed unchecked by external restraint. It can acquire huge proportions that works to the detriment of society as a whole. Policy makers, economists and sociologists have to compare the periods before and after 1980 and specify what has changed and what needs to be done to get back to the former healthy period of economic growth, not the recent unhealthy one leading to an increase of inequalities.
The shocking conclusion that emerges from the data is that while inequalities have been rising for over three decades, policy makers have done no more than twiddle their thumbs, or if one may put it more bluntly mocked at those who are hungry and not fed, they have been called everything from street trash to vermin and giving them food in several cities has been made illegal and the permission to even sit down is denied.
While it is laudable to work for oneself and family and have aspirations to make a good living, and it is this aspiration that drives a capitalistic economy when it becomes excessive, it is greed. The difficulty with greed (as well as some other human emotions like lust) is that it is fueled by attainment and not quenched , that while there is a biological safety valve to lust, there seems to be none to greed unchecked by external restraint. It can acquire huge proportions that works to the detriment of society as a whole. Policy makers, economists and sociologists have to compare the periods before and after 1980 and specify what has changed and what needs to be done to get back to the former healthy period of economic growth, not the recent unhealthy one leading to an increase of inequalities.
The shocking conclusion that emerges from the data is that while inequalities have been rising for over three decades, policy makers have done no more than twiddle their thumbs, or if one may put it more bluntly mocked at those who are hungry and not fed, they have been called everything from street trash to vermin and giving them food in several cities has been made illegal and the permission to even sit down is denied.
If inequalities continue to rise as they are doing, it is
not unlikely that this may lead to an economic upheaval. Disruptions of the
type witnessed in communist revolutions of the past often lead humans to swing
from one extreme to the other with adverse consequences. Some possible
gentler solutions that will bring speedy rectification are listed next.
Solutions
- The easiest way to deal with excessive incomes of top earners is through a practice that has been adopted in the past effectively, high rates of taxation on high earners even up to 90 percent. Progressive taxation is an urgent need in any society in which inequalities are rising. Presently in many places the poor are contributing more towards tax than the rich e.g. see this report
- Another innovative alternative to restricting wage inequalities very simply within any organization called the rule of ten was proposed in an older post of a companion blog and has been taken up for consideration seriously by some European countries. It is also discussed in the book linked at the head of this article. Although raising minimum wages prevents extreme exploitation in some of the high profit industry such as some super market chains, the rule of ten is far more effective than increasing minimum wages because doing the latter, makes struggling businesses fail or prevents new ones from being launched, thus reducing employment.Exceptions for the latter could be built into the minimum wage act but that makes it complicated and more difficult to implement. The rule of ten is far simpler, adjusts automatically with time and situation for each organization according to their varying financial condition and simultaneously controls high wage rip-offs as well as low wage exploitation. It is most important to note that while there is a lot of talk about raising minimum wage, it is even more important to cap high compensations to reduce inequality. When high compensations are limited the money saved automatically moves into avenues that reduce inequality.
- While increasing taxation rates for individual top earners would reduce inequality due to one cause, the other cause – excessive corporate profits must be dealt with too in order to reduce inequalities. An innovative new taxation policy called the rule of ninety has been proposed earlier by this author in the book linked at the outset. This policy can also be found in an online document. It prevents a corporation from raking in huge profits even if it is monopoly and prevents a corporation from becoming too big to fail in a very simple manner unless it works in public interest.It is an improved form pf progressive taxation for corporations that penalizes them for raking in obscene profits.
It must be understood that in the final analysis, rising inequalities amount to extracting from the the poor and deprived, sweet infant children included. General Eisenhower while thinking of the arms industry said, “Every gun that is made, every rocket that is fired is in the final sense a theft from those who hunger and are not fed (see here).” Similar logic applies to other industries too e.g. the ever greened patent protected drug industry. Daniel Vasella, the former chief executive of the pharmaceutical company Novartis demanded a $78 million severance package. Swiss banking giant UBS, which received a government bailout because of the financial crisis, continued to pay executives huge bonuses even when they performed poorly. The Lord put no automatic and natural limits to human greed as He did to lust, leaving it to human judgement and control. The same wealth that goes to increase the wealth of the richest, if not extracted thus from the masses, would have gone into the pockets of the poor. Some struggle with their food bills and children go hungry while the rich deliberate which new mansion to purchase. Extracting food from the hungry is equivalent to sucking their life blood. When enough such is extracted from the poorest, they end up rummaging garbage bins for food, in soup kitchens and on homeless avenues. Even this does not satisfy some who go on to institute other measures such as imprisoning a ninety year old who tried to feed some of these unfortunate poor in Florida.
If measures similar to those suggested here are not adopted on an urgent basis a time shall come when hunger would be seen in the eyes of children of the richest countries in the world and human civilization would have brought itself to the edge of an abyss.
UPDATE: JULY 14, 2015
Just read an article in the Washington Post that has a much clearer graph of inequalities at
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| Income distribution |
http://www.amazon.com/Brief-Introduction-Economics-Greed-Exploitation/dp/1495448193/
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