Reducing Inequality Benefits Everyone
The 2016 World Economic Forum (WEF) in Davos, Switzerland declared inequality as the most significant trend of 2015, to be addressed by 2,500 of the world’s economic elite. Predictably, the skeptics have spoken, assuring us that this concern for the less fortunate will last no longer than the champagne and skiing at Davos.
But there is some logic to concern for inequality even among the wealthy. As the WEF report on trends states, “Addressing inequality is not only a responsibility but also an opportunity. Addressing inequality is good for business as it creates a new demographic of consumers, thus widening the market for profits and services and increasing profit opportunities.”
Simple as that: low or no income = no consumer purchasing. That portion of the population that receives some part of its income from ownership or management of manufacturers, retailers, or service providers, including the stockholders in those businesses, stands to gain when incomes of low-income households increase.
That is not the only plus for the economy from addressing inequality. Enabling more people to gain the skills to become productive members of society means realizing latent talent that may otherwise go untapped. Among the millions of people in the world unable to utilize their inherent talents, how can there not be great minds capable of extending the boundaries of human knowledge?
How can this talent be unleashed? Obviously everyone should have adequate shelter, food, water, healthcare, and personal security. Beyond that, access to education, employment, credit, and a fair and functioning legal system are necessities to ensure there is equal opportunity to become contributing members of society.
“If you have tens of millions of people not living up to their potential as economic beings, by definition your society is going to be less productive than it could be.” (Quoted from Inequality Matters: The Growing Economic Divide in America and its Poisonous Consequences, by Robert Kuttner.)
If solutions are this obvious, why have they not been implemented? In his 2012 book, The Price of Inequality, Joseph E. Stiglitz wrote, “Inequality is the result of political forces as much as economic ones…. Every law, every regulation, every institutional arrangement has distributive consequences.”
Wealth is becoming ever-more concentrated. Top-heavy distributions of wealth and income produce an inefficient economy. Stiglitz wrote, “Moving money from the bottom to the top lowers consumption because higher-income individuals consume a smaller proportion of their income than do lower-income individuals.” No matter how high households’ incomes soar, they can only use so many cell phones, coffee mugs, TVs, winter coats, and shampoo. The resulting reduction in demand means reduced employment.
Redistribution can be a pro-growth policy.